Authored by: Roxanna Naidoo, Admitted Attorney at Tax Consulting South Africa. 

While the country was under lockdown, it appears SARS and National Treasury have been hard at work, using this time to refine the law in SARS’ favour. These changes do not refer to the Covid-19 tax relief changes but are aimed at closing tax loopholes and to simply give SARS and the National Prosecuting Authority more teeth. Ask your accountant or tax advisor to help you understand the amendments and their impact on your tax planning and tax compliance strategy.

1. Raising of tax assessments by SARS simply using an estimate
SARS has had enough of taxpayers ducking and diving from their tax administration obligations. In terms of the new amendment, SARS has the power to raise an estimated assessment where the taxpayer does not respond to a request from SARS for relevant material, but this has been thought through carefully.

The law amendment also now ensures that taxpayers will be barred from lodging an objection if the taxpayer does not submit the material requested. Should SARS have you on their radar or have questions subsequent to a lifestyle audit, ignoring a request for relevant material means SARS can raise an estimated assessment and impose penalties and interest.

Getting untangled from this, even where you are innocent, will become far more difficult. Make sure you take your accountant’s calls or respond to their emails, as adopting the ostrich approach will get you into deep trouble.

2. Employer provided bursaries
Are you an employer who has tax structured bursaries, including for relatives of your employees? Or perhaps an employee who has benefitted hereon in the past? The law on this has been amended substantially and from 1 March 2021, using employer-provided bursaries as a mechanism to structure your remuneration from a tax perspective is no longer allowed.

These bursaries must be disclosed on your IRP certificate, and not doing so is a criminal offense. Thus, there is no place to hide hereon and this is truly something of the past. There are now very limited instances where this tax exemption can be utilised, as part of a tax optimal total reward strategy.

3. Withdrawal from retirement funds upon emigration
Have you emigrated or are you planning to emigrate from South Africa in the near future, with retirement funding in a pension preservation fund, provident preservation fund or retirement annuity fund? You are on borrowed time if this is the case and you need to urgently finalise and file your financial emigration application, before 1 March 2021.

If you miss this deadline, your retirement funds will be locked-in for at least the next 3 years in South Africa. We also expect more to come from the compulsory preservation of retirement funds, meaning the government may have the final say on how your retirement funds will be dealt with in future.

4. First good news item – unexpected tax relief for South Africans working abroad
Many expats were concerned that they would not make the 183-and-61 day tax exemption, as a result of the lockdown. SARS has kindly proposed to reduce, for a limited period, the 183 days requirement to 117 days. This rule change creates interesting tax planning opportunities and requires a deeper look for anyone who was outside South Africa for more than 60 days continuously in 2019 or 2020.

5. Living Annuities and termination of trusts
The era of setting up personal trusts left right and centre has come to an end with the introduction of section 7C. There are still instances where old trusts make sense and limited instances where one’s objective is asset protection.

But if you think that creating a new trust will benefit you, perhaps you should get a second opinion from your accountant. You may sound important over dinner referring to your trust or even prevent your children from fighting over who gets the beach house, although inevitably they often still do.

But do not think for a second you will pay less tax, as the opposite is true. Where you have a trust with a living annuity, you need to be aware of the new law changes when considering the death of an annuitant.

6. Circumvention of the anti-avoidance rules for trusts
SARS has now amended the legislation in order to curb the abuse of the introduction of low interest or interest-free loans, advances or credits for trusts.

Just to rub salt in the wounds of those who still persist in thinking trust structures are tax-efficient, SARS has now shown that you need to stop listening to trust advisors who keep trying to find the next loophole. As SARS sees it, they will close it, leaving you with an overly complex trust structure that needs untangling.  

7. Reimbursing employees for business travel
SARS has kindly relaxed their strict regulations when excluding business travel expenses. This is, however, subject to the employer’s policy provisions. Make sure your company travel policy is updated to utilise this tax relief.

This is very much part of the equal pay for equal work value methodology for responsible employers where employees were left with little recourse regarding these tax burdens due to an oversight or the employer’s failure to execute the instruction for reimbursement.

8. Roll over of amounts claimable under the employment tax incentive
Excesses of Employment Tax Incentive claims for non-compliant tax employers will now not be rolled over at the end of the PAYE reconciliation period. This is to protect taxpayers once they do become compliant.

9. Tax treatment of secured non IFRS 9 doubtful debt
If you own a business that has been negatively affected by Covid-19, you need to talk with your accountant regarding this change. SARS proposes to make provision for the amount of debt to be reduced, differentiating between taxpayers that apply IFRS9 and taxpayers that do not.

10. Potential tax avoidance caused by dividends deductions
Taxpayers were able to structure their investments in order to issue financial instruments to the investors that yield dividends, while it receives interest or other income on its financial assets, thus avoiding tax implications. The new amendments now mean that taxpayers will no longer have the advantage of this loophole.

11. Refund need not be authorised where the matter is under criminal investigation
The proposed amendments further include that where you are subject to a criminal investigation in terms of the Tax Administration Act, any refund owed to you by SARS will be withheld pending the outcome of such investigation. We can only hope this will not be abused by SARS officials, as we stand reminded by the fact that the Tax Ombud has found SARS guilty of delay tactics in paying refunds.

12. The most critical tax law change! Inclusion of the words  “Wilfully or negligently” in tax prosecution
Getting an admitted tax attorney involved on your taxes ensures legal privilege. SARS’ seemingly harmless inclusion of the words “willfully and negligently” when it comes to lesser tax offences increases liability for non-compliant taxpayers, with prosecution resulting in imprisonment or a hefty fine.

By not simply updating your details, forgetting to do something, or making an unintended error can now land you in real trouble. Perhaps now is the time to take your tax administration and compliance extremely seriously, as SARS has just acquired its biggest ammunition yet to discourage non-compliance.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

“There’s only one remuneration model employers should be considering during COVID-19,” says Tanya Tosen, Tax and Remuneration Specialist at Tax Consulting South Africa.

What a company is prepared to pay its workers has always been a juggling act between three main considerations. These are: attracting, retaining and motivating talented employees; being fair; and keeping total remuneration costs from spiralling.

According to Tosen, there is, in fact, a structure that offers a critical balance between all these needs.

The contenders
There are two main remuneration models that employers use throughout South Africa with a third being a hybrid of the second model.

The first is Basic Plus which, as the name suggests, starts with the basic salary and adds benefit contributions to determine the total cost of the employee.

The second is Cost to Company. This begins with the total cost the employer is willing to pay and reduces that amount by benefit contributions to arrive at the employee’s net income.

The third is Cost to Company with Flexible Benefits. This model is similar to Cost to Company in that the total cost is fixed. However, it allows employees to adjust their contributions to individual benefits, with any remainder flowing back into their basic salary.

Pros and cons
Although Basic Plus is still used, it has a major flaw in that an employee’s total remuneration cost is not capped and therefore unpredictably variable.

Consequently, this makes it difficult to pin down what the company’s overall staff expenditure is at any point in time. For example, if benefit rates unexpectedly increase, the total cost of all employees increases too, with the employer bearing the brunt. Similarly, projecting future staffing costs is uncertain at best.

On the other side of the coin is Cost to Company. Because the total cost of every employee is capped, it becomes easy to report on remuneration costs and project staffing budgets.

However, in this model, benefits are generally rigid and an unexpected increase in rates negatively impacts the worker’s take home pay. This calls into question its motivational efficacy and fairness to staff.

The Cost to Company with Flexible Benefits model offers the best of both worlds and, in a COVID-19 stricken economy, is just what the doctor ordered.

The employer still retains the certainty of a fixed total cost to company, and can just as easily report on and project its company wide staffing costs.

At the same time, employees can manage their own contributions. This means they are not paying for benefits they don’t need in their current phase of life and can take advantage of those they do. Any remainder becomes part of their take home pay.

“This is especially important to those who are facing salary cuts right now and wish to free up cash to meet their financial obligations,” says Tosen.

Its balance between motivation, fairness and control clearly makes Cost to Company with Flexible Benefits the winning model during and after the pandemic.

Switching
Tosen says that, in the COVID-19 era, more companies are moving to a Cost to Company with Flexible Benefits remuneration model.

She strongly advises employers to consider switching and to seek the assistance of a reputable remuneration consultant to ensure a smooth transition.

“Those who adopt it will enjoy the same benefits as the legacy Cost to Company structure while offering the flexibility and assurance employees need at this time to remain productive,” she concludes.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277,  rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jonty Leon, Attorney & Legal Manager for Expatriate Tax Compliance at Tax Consulting SA

On 13 October 2020, National Treasury and SARS published their responses on the Draft Taxation Laws Amendment Bill (“TLAB”), which included potential relief for South African expatriates who were unable to leave South Africa owing to the Covid-19 lockdown.

This relief provided for reduced days in terms of the requirements of the foreign employment exemption, being section 10(1)(o)(ii) of the Income Tax Act, commonly known as the “expat exemption”.

As this was merely a response document, which needs approval by the Minister and Parliament, the relief has not yet been confirmed.

​It is commonly known that SA is in dire need of tax revenue, and this proposal thus came as a welcome surprise, with many anxious to see whether this would pass into law and provide much needed relief for expats.

One Step Closer
On 28 October 2020, an updated TLAB was released following the response document by Treasury and SARS, which included the proposed relief for expats.

As the proposals were contained in the TLAB, it takes a step in the right direction for the relief to be approved in Parliament and promulgated into law, which ordinarily would materialize in December, if prior years are anything to go by.

At this point, it would be out of the ordinary for the proposal to not be passed and thus this is positive news for South African expats who have been locked down in SA and unable to meet the standard days out of SA to claim the exemption.

One word of caution would be to not count one’s chickens before they have hatched – although moving in the right direction on this proposal, a flailing economy could give rise to an unexpected surprise.

The Relief 
The foreign employment exemption standard requirements are simply:
-          Income must emanate from foreign employment (independent contractors do not qualify);
-          The taxpayer must spend more than 183 days outside South Africa during a twelve-month period; and
-          More than 60 of those days must be continuous.
If these requirements are all met, R1.25mil of foreign earned income can be exempted from tax in South Africa – the portion above this, simply put, would remain taxable in SA in terms of the standard personal income tax rates.

The proposed relief reduces the total number of days required to be outside of SA by 66. Thus, the only change to the exemption requirements is that the taxpayer would need to be outside of SA for more than 117 days rather than 183 days.

Be Cautious – Approach SARS with Clean Hands
Many South African expats will breathe a sigh of relief, if this proposal is signed into law.

The issue arises though that many are of the opinion that if they meet the exemption requirements, they are automatically exempt from tax in SA.

This is incorrect – one must file a tax return to SARS, declaring their foreign income and claiming the exemption for that income from tax of up to R1.25mil.

Without doing this, the foreign income is theoretically not exempted from tax in SA, unless you have already formalised your non-tax residency using the Financial Emigration process or by applying Double Tax Treaty relief.

Furthermore, dealing with thousands of expatriate tax returns yearly, we note that in most cases taxpayers have been historically non-compliant, as they have not declared their foreign income.

This historic non-compliance must be fixed, especially where a taxpayer only now decides to declare income correctly, and preferably with a tax professional at your side to mitigate any tax exposures.

The crux of the matter is that SARS is under massive pressure to extract as much tax  revenue as possible from a dwindling tax base.

Non-compliant taxpayers make it easy for SARS not only to raise an assessment requiring tax to be paid, but also to levy penalties and interest on previous non-declaration.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa
​

Authored by: Jean du Toit, Jean du Toit, Attorney and Head of Tax Technical at Tax Consulting South Africa 

When engaging in disputes with the taxman, there are many rules you need to be aware of, but the decision in CSARS v The Executor of the Estate of Late Ndlovu (A395/2016) arguably tells the most important.

This decision by a full bench of the Pretoria High Court reveals how high the stakes are when you submit an objection against an assessment issued by SARS – because any items you omit at this point will be considered bygones.

The decision
The dispute between SARS and the taxpayer in this case revolved around the taxation of shares granted to the taxpayer by the Nedbank Group. Importantly, in addition to the tax levied, SARS imposed interest in terms of section 89quat(2)of the Income Tax Act.

In disputing the assessment in question, the taxpayer did not object or appeal against the imposition of the interest and this was only raised during an Alternative Dispute Resolution meeting that followed his notice of appeal.

The matter progressed to the Tax Court where, among others, it had to be decided whether the taxpayer may raise a new ground of dispute that was not included in his objection i.e. the imposition of the interest. The tax Court held there was no prejudice to SARS and the new ground may be introduced.

SARS took the matter on appeal to the High Court, where the full bench had to decide if the Tax Court’s decision ought to be upheld. On the question of raising new grounds not included in the objection, the court referred to the following principle established by the Supreme Court of Appeal in CSARS v Brummeria Renaissance (Pty) Ltd and Other 2007 (6) SA 601 (SCA):
“…But it is also in the public interest that disputes should come to an end… it would be unfair to an honest taxpayer if the Commissioner were to be allowed to continue to change the basis upon which the taxpayer were assessed until the Commissioner got it right…”

But what is good for the Commissioner is good for the taxpayer – the court overturned the Tax Court’s decision and held that taxpayers cannot change the basis of their dispute if this was not raised in their objection.

Take away
We are often approached by taxpayers only once their dispute with SARS has gone awry; often when it has progressed beyond the objection stage.

It soon becomes evident that the taxpayer or their representative failed to address certain pertinent aspects in the objection, which makes it very difficult to salvage what may have appeared to be a very simple matter.

Vague and ill-informed objections can result in very serious ramifications for the taxpayer, even where they may have been assessed incorrectly.

Practically, you should see your objection as your only shot to dispute an assessment and even in the most uncomplicated of disputes, taxpayers are advised to call on a professional who will make your shot count.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
​
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa
​

Authored by: Darren Britz, Admitted Attorney and Head of Legal
 
In a surprising admission by National Treasury in its Medium Term Budget Policy Statement, it has been acknowledged that recent tax increases have failed to generate the revenue numbers initially projected, and all evidence illustrates that South Africa’s higher than global average tax rates have in fact hindered economic growth.
 
This admission stands in stark contrast to media reports quoting government advisors’ ongoing calls for the imposition of wealth taxes and a temporary solidarity tax to meet the increasing revenue shortfall which government desperately needs to fill.
 
A spotlight on SARS enforcement and tax collection
The Minister of Finance alluded to the fact that we need our economy to grow before we can increase taxes and with only a marginal year-on-year increase in tax on the cards, National Treasury have instead passed the buck to the Commissioner, who faces an unprecedented challenge in achieving its ambitious tax collection targets.
 
While the pressure is on, and the Commissioner has previously acknowledged it is not yet at 100% operational effectiveness, taxpayers should we wary in becoming indifferent about their tax obligations. Businesses should especially note SARS’ increased focus on VAT and Pay-As-You-Earn collections. In this regard, many of SARS’ most effective debt enforcement officials have been reallocated to these tax types, a necessary measure to address the more recent rise in tax non-compliance by corporates.
 
Insofar as those taxpayers who deliberately understate or fail to declare their income tax, SARS continues to make use of third-party data to identify and raise tax assessments to recover these tax amounts. On tax evasion cases, SARS will punish such defiant taxpayers by imposing penalties to the tune of 200% of the tax not declared, as well as interest which runs until the tax debt is paid in full. Not to mention a potential jail sentence of up to five years.
 
SARS has always had the means and now has the motivation
The collection process by SARS is well-oiled and moves at a blistering pace. Taxpayers may receive only a single clue, this being the formal letter of demand, usually delivered to the taxpayer by eFiling or email, which notifies the taxpayer of their obligation to satisfy the tax debt within 10 days or face collection steps.
 
Following issuance of the letter of demand, and provided this was done in a legally and procedurally correct manner, SARS are empowered to operate behind the scenes and without notice to taxpayers, wherein they typically proceed straight to the Registrar of the nearest High Court who processes a judgment against the taxpayer for failure to pay the tax debt. A more effective alternative is to make a third-party appointment where SARS will instruct your bank to sweep your bank account in satisfaction of the tax debt.
Many unassuming business owners have lived through the trauma of having accumulated just enough money to pay staff salaries, only to receive a notice from the Bank that SARS have fully withdrawn the funds.
 
In addition to third party appointments, taxpayers may find their assets being attached and sold under a warrant of execution to cover the amount of tax owed.
 
While the constitutionality of these powers has been long debated, they exist and have been confirmed by our courts.
 
Criminal prosecution prioritised for 2021
The next move by SARS to increase tax collection, a move backed by both National Treasury and the National Prosecution Authority, is a renewed focus on the criminal prosecution of non-compliant taxpayers.
 
In assisting this drive for prosecution, National Treasury is seeking to pass an amendment to the existing tax legislation to remove the element of “willfulness” from certain tax offences. The National Prosecuting Authority is on record that the purpose of this amendment is to make the prosecution of taxpayers easier, including those who become non-compliant through sheer ignorance. The amendment will have taxpayers finding themselves having inadvertently committed a tax offence, with a severe consequence of either fine or imprisonment, with a criminal record to boot.
 
Ultimately, with National Treasury’s hands tied, the collection of revenue is at the forefront of government’s priority list and the Commissioner can find comfort in the support offered here. Taxpayers already aware of their tax defaults are encouraged to have the full extent of their tax non-compliance assessed and to thereafter approach SARS voluntarily to correct this, with a seasoned tax attorney by their side. The alternative is playing a risky game of chance with odds favouring the Commissioner.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook: Tax Consulting South Africa

Authored by: Jonty Leon, Legal Manager for Expatriate Tax Compliance at Tax Consulting South Africa 
​
South Africans who have emigrated or plan to permanently leave South Africa have until 28 February 2021, just over four months from now, to effect financial emigration.

National Treasury has laid down the new law and made it clear - the consequence otherwise is your retirement money will be locked in for three years, you are not allowed to touch it, and best apply it to your personal circumstances.

On Tuesday 13 October 2020 in Parliament, National Treasury (“Treasury”) and SARS presented to the Standing Committee on Finance on a number of proposed amendments to legislation, which amongst others, would directly affect South Africans who have already moved abroad, or are planning on moving abroad.

The feedback to stakeholders, specifically around the withdrawal of retirement funds upon financial emigration, was certainly one which was foreseen after it was proposed in the draft Taxation Laws Amendment Bill (“TLAB”) in July 2020.   

Retirement Fund Lock-in Confirmed
As proposed in the draft TLAB, Treasury would be changing rules around financial emigration and the ability to withdraw one’s retirement funds, upon the conclusion thereof, replacing it with a new 3 year lock-in.

Treasury has confirmed, despite the arguments from stakeholders, including written and oral submissions from Tax Consulting SA, that the 3 year lock-in will be implemented from 1 March 2021.

Treasury stated, “The 3-year rule is a mechanism to ensure that there is a sufficient lapse of time for all emigration processes to have been completed with certainty.”

Consequently, from the effective date of the proposed amendments, one will need to be able to prove under both South African residency tests that they are non-resident for a period of 3 consecutive years, post 1 March 2021, before they will be allowed to withdraw these funds from South Africa.

“Modernisation” or Something More Sinister 
Ever since the announcement of a changed financial emigration process in the February 2020 Budget Speech, the comments from Treasury have been that the system is being “modernised”.

A term which has yet to be fleshed out by Treasury, with only simple explanations that provide no sense of understanding, such as, “One of the main objectives of the reform is to modernise the capital flow oversight system in a manner that balances the benefits and risks…”.

With the various submissions made by stakeholders on the issues foreseen with the proposed changes, Treasury provided little feedback on the important issues raised, often providing no explanation but for a one sentence response.

Government’s unwillingness to budge on the lock-in, incites fears of the looming worries of taxpayer’s retirement funds falling into the hands of government to fund social infrastructure in SA, changes to Regulation 28 and perhaps even an easy target for higher taxes on pensions or a wealth tax.

This concern was brought up by National Treasury previously, where it was denied that the so-called “modernisation” and lock-in had any link to this possibility.

However, with the unwavering determination to lock-in retirement funds from 1 March 2021, this becomes less believable.

There is clearly a massive downside to anyone having their retirement funding captured in a system; so the question remains unanswered what corresponding benefit National Treasury plans to achieve by keeping retirement under state control.

Treasury Provides A Small Window
For those South Africans who heeded the call to formalise their affairs by financially emigrating, the opportunity to withdraw retirement funds remains, and there is still time to do so.

For those who decided against this, Treasury has announced that those who still intend to financially emigrate may do so, however they require that, “complete applications [must be] received by the SARB before 1 March 2021…”. If complete applications are received by this deadline, they “will be finalised through the existing process.”

Treasury noted specifically that, “The amended provision will apply to all cases that meet the requirements on or after 1 March 2021.”

The Time is Now
Today’s announcement appears to be the final warning – South Africans leaving SA have little over 4 months to financially emigrate under the current dispensation, and thereafter to withdraw their retirement funds, before it is locked in for 3 years minimum.

We are heading into unchartered territory, with a complete transformation of the financial emigration process - those that have been left behind will undoubtedly have tougher terrain to navigate come 1 March 2021. 

ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za 

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
​
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jean du Toit, Head of Tax Technical at Tax Consulting South Africa 

South African expatriates who were unable to leave South Africa on account of the lockdown will be relieved to learn that the requirements of the foreign employment exemption (Section10(1)(o)(ii)) will be relaxed.

On 13 October 2020, National Treasury and SARS published their draft Response Document on the latest tax Bills, wherein the unexpected proposal was made to reduce the number of days expatriates have to be outside South Africa to qualify for the exemption.

Proposed relief
Ordinarily, to qualify for the exemption of foreign employment earnings up until R1.25 million, taxpayers have to spend more than 183 days in aggregate outside South Africa during a twelve-month period, of which more than 60 days must be continuous.

However, due to the travel bans imposed as a result of the COVID-19 pandemic, these individuals could not travel to their countries of employment.

Practically, this would likely mean they would not meet the 183-day threshold, resulting in a massive unanticipated South African tax liability.

It is now proposed that the 66 days that commence on 27 March 2020 and which end on 31 May 2020, when the country operated under COVID-19 alert levels 5 and 4, should be subtracted from the 183-day threshold.

In other words, if a taxpayer spent more than 117 days outside South Africa they may qualify for the exemption.

It is important to note that the continuous period of more than 60 days remains unchanged; the concession only extends to the aggregate amount of days spent outside South Africa.

Out of the blue
For once, it seems government has heard the plight of the South African expatriate.

The proposal is rather unexpected because this was never raised as an item under the draft tax bills published on 31 July 2020, nor was it addressed in any of the Disaster Management Relief Bills, despite calls on government to do so.

It is unclear what made the powers that be grant the relief; perhaps they were swayed by the fact that other countries have made concessions where lockdown restrictions resulted in distorted tax implications for their taxpayers.

Or, perhaps, this is the extension of an olive branch to expatriates, whose plights have largely fallen on deaf ears thus far.

In any event, this is good news for South African expatriates, many of whom would greatly benefit from the proposal.

Be proactive
The expatriate exemption allows you to “double dip”, meaning that where you meet the more than 183-day period (now 117 days) and the more than 60-day continuous period, you can leverage it over multiple tax years.

Explained differently, the exemption applies in any 12-month period beginning or ending in a tax year concerned, so the same period outside can be used both looking backwards and forwards.

This opens a myriad of tax planning opportunities for the well-informed and proactively planned expatriate! 

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa

Authored by: Jonty Leon, Legal Manager of Expatriate Tax Compliance at Tax Consulting SA 

In 2017, the battle against government’s proposal to amend well established legislation, which provided South African residents living and working abroad an exemption from taxation on their foreign employment income reached a conclusion.

Tax Consulting SA and Barry Pretorius of the South African Expatriate Petition Group spearheaded the fight against the proposed amendment, which at the time would have completely removed the exemption altogether.

Taking expatriates’ plight all the way to the steps of Parliament, the outcome was that government would amend the legislation to allow for an exemption of R1 million – now R1.25mil, from 1 March 2020.

However, this was not enough as government now intends to make it more difficult for South Africans leaving SA to access their retirement funding.  

The Battle Continues
In February 2020, the Budget Speech made mention of phasing out the exchange control measures in the financial emigration process and replacing them with a more stringent verification process, among other tax related processes from 1 March 2021.

The established process of financial emigration, which successfully exits South Africans from the tax net, when done correctly and with truthful submissions, was perhaps working too well.

The outflow of South African tax residents using this process was only increasing, and thus eroding the SA tax base. Government’s solution – change a working process and replace it with something more stringent and complex.

At this point, we were yet to see exactly what this new process would entail, but what materialised was rather unexpected.

Shot from Left Field
At the end of July 2020, the Draft Taxation Laws Amendment Bill was released. In this was a surprise proposal, that of a three-year lock-in of retirement funding when leaving SA.

Traditionally, when one has financially emigrated, this gave the taxpayer the immediate option to withdraw their retirement savings such as a retirement annuity.

The proposal to change the legislation means that one would now first have to prove non-resident tax status for three consecutive years, before this would be allowed – a sure fire way to lock-in South African’s from taking their funds elsewhere.

Of course, such a proposal cannot be accepted at face value, with the uncertainty of government attempting to regulate one’s funds even more.

Don’t Talk the Talk, if You Don’t Walk the Walk
Since publication of the draft tax Bills in July, we are a couple of steps further in the legislative process.

National Treasury has received written public comments, which were followed by public workshops.

On 7 October, the fight again reached Parliament, where Tax Consulting SA, in the absence of other tax firms, made oral submissions to the Standing Committee on Finance.  

The oral submissions by Tax Consulting SA inlcuded, in summary:

• The three-year lock-in period is arbitrary and at variance with government’s intention to modernise the exchange control system;
• Without clarity around the practical application of the new test, there are unanswered questions on how taxpayers will be expected to prove cessation of residency and the potential burden this may place on taxpayers and the administrator;
• With the SARB taking up to a year to finalise the financial emigration process, we need clarity on transitional arrangements from the old system to the new; and
• The removal of a well-established process.

Will government listen this time round?
Although Tax Consulting SA and the Expat Petition Group’s efforts resulted in a significant concession for expatriates, government did not take our warnings around the amendment to the foreign employment exemption seriously, which resulted in a surge of South Africans cutting their ties with the country.

National Treasury is set to provide feedback to stakeholders during the course of the week starting 12 October 2020, where they will issue a formal response document to the submissions made.

At this point, we should know the lay of the land and if government will heed the lessons from the past.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux , 0609956277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
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For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa
​

 Authored by: Jean du Toit, Head of Tax Technical at Tax Consulting SA 

The time for South Africans who consider emigrating to learn their fate around their pensions is drawing closer.
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We have come a long way since publication of the draft tax Bills on 31 July this year, and on 7 October 2020, the Standing Committee on Finance (“the Committee”) heard oral submissions on the proposed tax amendments.

As one of the few tax firms who made oral submissions to Parliament, we can confirm the most debated amendment remains the one around government’s intention to impose a three-year lock-in period on retirement funds when a person emigrates.

Background
In the February Budget Speech, government announced it will modernise the exchange control system and as a by-product thereof, the current process of emigration through the South African Reserve Bank (“SARB”) will be phased out. The announcement was profound from a tax perspective because this emigration process (commonly referred to as “financial emigration”) is the trigger for emigrating South Africans to withdraw their retirement funds.

True to their word, when the draft tax Bills were published, it was revealed that the withdrawal of retirement funds upon emigration will be subject to a new test. It is now proposed that a person will only be permitted to withdraw their retirement fund if they can prove they have not been tax resident in South Africa for at least three years. This immersed prospective emigrants in uncertainty.

Key issues
The proposed amendment was met with immediate opposition.  Before anything else, the recent murmurs of “prescribed assets” raised questions on the motive behind the lock-in period. But National Treasury has given its assurance that this is not the driver behind the amendment.

National Treasury and the Committee have mostly kept their cards close to their chest, but we have learned that the reason behind the three-year lock in is to prevent cases where individuals withdraw their retirement fund under the pretences of emigration, only to return to South Africa shortly after.

The validity of this argument is questionable, but the real problems lay with the new proposed test itself. Determining residency is not a tick box exercise and considering the burden of proof rests with the taxpayer, the question is what will be accepted as proof of cessation of residency? On the other hand, with the SARB now taking up to a year to conclude the financial emigration process, will taxpayers who initiated the process prior to the effective date of 1 March 2021 be permitted to withdraw their retirement fund under the old dispensation?

When will we know?
Thus far stakeholders have raised their concerns in written submissions to National Treasury, which was followed by a public workshop.

Now these issues have been ventilated in Parliament but, to date, we are still not sure if our concerns will be taken to heart. Fortunately, National Treasury will publish their official response document on 13 October 2020, at which point we should know where the amendment is headed – watch this space.

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za 

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. 

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/ 
LinkedIn: Tax Consulting South Africa 
Facebook:Tax Consulting South Africa
​

Employment remuneration earned by South Africans working abroad, prior to March 2020, were fully exempted from South African taxation provided the tax payer spent more than 183 calendar days, of which 60 days are consecutive, outside of the republic over any 12 month period.

However, recent changes to the Income Tax Act no.58 of 1962 (“ITA”) under Section 10(1)(o)(ii) have capped the amount of remuneration able to be claimed as tax-exempt at R1.25 million.

However, certain categories of seafarers can avoid the impact from these regulation changes provided they meet certain criteria under alternative exemptions in the ITA—and thus potentially save themselves a great deal of tax, says Nicolas Botha, Expatriate Tax Compliance Specialist at Tax Consulting.

“The traditional “seafarer exemptions” under Section 10(1)(o)(i) of the ITA are not affected by these tax regulation changes as long as the seafarer meets that particular sections requirements. Section 10(1)(o)(i) grants certain seafarers exemption from normal tax provided they are away from their home countries for more than 183 days, during the year of assessment,” he explains.

 “However, those seafarers are quite narrowly defined, so it’s important to understand the law and whether it applies to you.”

Understanding the Seafarer categories
The first category of seafarers who are exempt from the R1.25 million cap are South African officers and crew who are employed on a vessel that transports people or goods internationally for reward. These individuals must be employees and not contractors, and the taxpayer must be outside of South African territorial waters for a total of 183 calendar days.

The second category applies to officers and crew on board vessels involved in prospecting, exploring or mining for any minerals from the seabed outside of South Africa for the stipulated 183 days. In this case, two important points need to be made.

The first is that only the earnings of those connected with the navigation of the vessel are exempted from this cap—for example, those employed as geologists or engineers would not qualify.

A second important point relates to how being “outside the Republic” is defined. In the case of the first exemption, the seafarer simply has to be outside South African territorial waters.

When it comes to the second, though, the definition is expanded to include those areas beyond the territorial waters which are designated by law as areas “where South Africa may exercise sovereign rights in respect of the exploration or exploitation of natural resources” (the exclusive economic zone), to quote SARS’ Interpretation Note no.34 on the exemptions.

Seek professional advice  
“Increasing numbers of South Africans are signing up for work on cruise liners and superyachts because of the difficulties of finding work on land, and in order to build up a bit of capital with which to start a business when they return onshore,” Mr Botha says.

“It’s very important that they get some professional advice to enable them to correctly declare earnings and meet their SA obligations, as to not face any repercussions upon return, and verify which exemptions they are eligible for in order to maximise their earnings.”

ENDS

MEDIA CONTACT: Rosa-Mari Le Roux , 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa