South Africa’s skills shortages in critical sectors remain an obstacle to growth. Renewed efforts to find solutions and to place skills development at the centre of the country’s development agenda are welcomed.  However, there are critical gaps which require immediate attention.
 
Search for critical skills
Marisa Jacobs, Head of Immigration and Mobility at Xpatweb, says South Africa should follow the international example: “Import the skills until you have the skills”.
 
The 2017 Critical Skills Survey, done by her firm, shows that 77% of the participants struggled to recruit “critically skilled” individuals locally, but 76% of the participants indicated that they could find the skills internationally. However, 90% found the process of recruiting internationally to be prohibiting.
 
Jacobs says this is largely a “perceived problem”. Although the process may be onerous in terms of the documentary burden and the time to process applications for work visas, it is not preventing firms from importing critical skills. 
 
In short supply  
The survey found that employers and multinational companies found it most difficult to recruit engineers (22%). However, information, communication and technology (15%), financial specialists (10%) and specialised technical skills (9%) also prove to be tough areas to find people with the right skill sets.
 
The Department of Home Affairs published a list of at least 12 sectors where the country is in need of critical skills. This include agriculture, architecture, economics, information communication and technology, engineering and health professionals. This list has remained unchanged since 2014.
 
Migration policy
Government’s 2017 White Paper on International Migration sites the lack of strategy in the current international migration policy as contributing to the skills shortage. The result is South Africa’s inability to respond to the shortage issue.
 
The paper further states that the policy is not linked to the skills development and investment priorities of the country and prevents the country from effectively competing for requisite skills in a proactive and flexible manner.
 
Jacobs notes that in times of economic growth there may be specific skills that are immediately needed. There must be flexibility in the immigration system to allow for a quicker turn-around time in acquiring these skills internationally.
 
“Once the projects are off the ground the transferring of skills become critical for sustained growth in the country,” says Jacobs.  However, the importance of importing skills until the country have the skills cannot be emphasised enough.
 
The white paper also states that the migration policy “lacks cooperative strategies for attracting and retaining international migrants with skills and capital, and a historic blindness to the retention of international students studying towards occupations that are needed by the economy”.
 
Keeping the skills
Jacobs further notes that companies in need of ICT specialists have found the skills they need in India, whilst companies in mining have been successful in attracting talent from Australia.
 
Statistics from the white paper indicate that from June 2014 to January 2016 the country issued permanent residency permits to 2,175 skilled foreigners. This represented 7% of the total permanent residency permits granted in the period.
 
This is a concern since the aim of the policy is to promote economic growth through the granting of business, critical skills, and study visas, government states in its white paper.
Jacobs says the importation and retention of critical skills does not take away job opportunities from South Africans, since these skills are not available in the country.
 
However, they help to get the economy going which will, in the absence of specialised knowledge, stagnate.
 
ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za
 
For more information on Xpatweb please visit http://www.xpatweb.com/

 Author: Jonty Leon, Attorney and Financial Emigration Legal Manager
 
South African expatriates need not only understand the new expatriate tax law, but also act on it or face dire tax consequences.
 
The amendment to the South African Income Tax Act No. 58 of 1962 has been fully enacted and forms part of the Taxation Laws Amendment Bill of 2017. Despite this, many South African expatriates are under the incorrect impression that the law has not been legally amended and will thus not affect them.
 
The new law states that, “There shall be exempt from normal tax— any form of remuneration— to the extent to which that remuneration does not exceed one million Rand in respect of a year of assessment and is received by or accrues to any employee during any year of assessment by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument or allowance, including any amount referred to in paragraph (i) of the definition of gross income in section 1 or an amount referred to in section 8, 8B or 8C, in respect of services rendered outside the Republic by that employee for or on behalf of any employer, if that employee was outside the Republic.”
 
The new law, however, will only come into effect on March 1st 2020, to afford South African Expatriates the opportunity to lobby Parliament and to allow them and their employers to get their ducks in a row.
 
Is R1m enough?
The amendment will require that South African tax residents abroad will be required to pay South African tax of up to 45% of their foreign employment income, where it exceeds the R1m threshold.
 
Whilst this may seem enough, the problem is that employment income also includes allowances and fringe benefits paid to expatriates, which cannot economically be considered as “earnings”. The reality is that house, security, flights, etc. are mostly part of expatriate packages to allow the expatriate to work in the foreign location. These eat up the R1m threshold quickly, especially considering the harsh and expensive environments into which expatriates must often operate.
 
The options
There are effectively three schools of thought for expatriates, excluding those who are adopting an “ostrich, head in sand” approach:

• There is a segment of expatriates who are starting to wrap-up their expatriate work, planning on returning to South Africa. We get an increasing number of enquiries regarding the change to legal status and strategies to be adopted to ensure that they do not compromise their previous tax- exempt status.

 

• The financial emigration route, which is the South African Revenue Service (SARS) and South African Reserve Bank (SARB) formal process to have noted that you are no longer “ordinarily resident” in South Africa, remains the only formal route in law to permanently have a status change noted. This is also the formality which has been noted in the National Treasury Parliamentary response document, which ensures that the new R1m tax rule does not apply to a South African abroad.

 

• There is a cautious grouping of expatriates who have a “wait and see” approach, supported by the Barry Pretorius Expatriate Petition Group that continues to engage with National Treasury on expatriate compliance to get additional relaxation of the rules. This group also follows the double tax agreement route, getting tax residency certificates, which are a way of also achieving a non-residency status.

 
Act now – protect yourself
The most compliant way to fully ensure that foreign income earned as a South African expatriate is protected from South African tax is to formalise one’s emigration through SARS and the South African Reserve Bank. 
 
This process is commonly known as Financial Emigration, and once undertaken by an expatriate, it cleanly cuts ties with South Africa from a tax perspective regarding foreign income. 
 
One of the important items noted in last year’s Parliamentary process, was the caveat against last minute changes. It was noted that someone who has been an expatriate for a long period and that emigrates just before the March 1st 2020 effective date, must expect that their actions will be viewed with the necessary suspicion.
 
The prudent and fiscally conservative position remains to always have your tax affairs with SARS fully up to date and legally compliant – this includes having the correct tax status noted on the SARS system. Tax strategy includes that the SARS auditor must see a history and consistency in compliance, thus meaning the taxpayer is determined as a low or no-risk taxpayer.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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

Author: Jean du Toit, Attorney at Tax Consulting SA
 
With the November tax deadline looming, it is almost needless to warn taxpayers of the torrid tax season awaiting them. It is by no means a State secret that there is an increasing exigence for SARS to collect taxes and the grim picture painted by the mid-term budget is an omen of the coming assault.
 
As things stand, a symptom of the current tax environment is an unprecedented surge in audits, which, on the account of our clients have become more arduous, as SARS seeks to make up the shortfall by using the powers afforded to it under the Tax Administration Act more aggressively.
 
At the risk of leaving taxpayers utterly despondent, the storm clouds gathering in the form a Commission of Inquiry must also be pointed out. Whilst we can only speculate as to what the true motive behind the inquiry is, we can safely assume that this will intensify the already crushing pressure on SARS to collect taxes.
 
This latest development in the SARS chronicles is the canary in the coal mine for taxpayers, to brace for the assertive manner in which SARS will extract every morsel of tax money it possibly can in the coming months.
 
One can appreciate that South African taxpayers might feel that they have been dealt a rotten hand, especially since there are allegations of particular citizens of our country not paying their fair share. Although taxpayers cannot legally escape the proverbial mine in this instance, it cannot be expected of them to simply brave the storm and have SARS take the lead.
 
The approach
Taxpayers would do well to understand that the best way to negotiate the dreaded process of an audit, and to prevent the possible devastation of any assessments issued subsequently, is to avail themselves to the rights afforded to them by the law.
 
SARS has wide, but not unshackled powers and the moment SARS issues an assessment against a taxpayer, it is bound by the Rules promulgated under the Tax Administration Act. Du Toit urges that Taxpayers must be alive to the fact that the process following an assessment is strictly regulated by these Rules, which affords them multiple mechanisms to ensure that the dispute process is conducted fairly.
 
The Rules serve as the equalising factor in confrontations with SARS and can be an invaluable tool, if used appropriately. However, if not heeded properly, these Rules are a double-edged sword that can be a taxpayer’s downfall.
 
Know the Law
One’s acquaintance with tax law and the dispute resolution process, or lack thereof, has a direct bearing on the course of proceedings and the ultimate outcome of a tax dispute. Ignorance of the law and the Rules can result in calamity for the taxpayer, regardless of the fact that he/she had a valid claim.
 
Du Toit advises taxpayers to not endeavor going down the tax dispute resolution road alone, but rather call in the help of an attorney who is knowledgeable on tax law and who knows how to traverse the obstacles of tax disputes.
 
“Tax dispute resolution is just that, a legal process like any other. In saying that, it must be remembered that the substance of these disputes is tax law, which is well known for its fluidity and intricacies,” he says, while adding that tax dispute resolution is the territory of astute tax attorneys who task themselves with understanding the nuances of tax law and know which strategy to pursue to capatilise on the remedies afforded by the Rules to ensure favourable outcomes.
 
Taxpayers who therefor decide to face the coming onslaught from SARS without the requisite proficiency in tax law and tax dispute resolution do so at their own peril, Du Toit warns.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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

Author: Natasha Wilkinson, Attorney at Tax Consulting South Africa
 
The modern tax advisor must maintain the balance between ensuring that clients are in full compliance with tax laws, yet remain optimally tax planned. Taxpayers only want to give government the correct taxes due, when it is due. There is a natural tension with SARS whereby it is obligated by law to collect maximum taxes, as quickly as possible.
 
This tension plays itself out daily where SARS wants to apply tax-charging sections as widely as possible, but tax-relief sections are mostly interpreted narrowly. Conversely, many taxpayers adopt exactly the opposite approach, by trying to optimise their after-tax position.
 
In a recent landmark case, the Tax Court upheld that a very special, and mostly under-utilised tax deduction allowed by section 24C of the Income Tax Act, No. 58 of 1962, may be applied to franchisee costs. What makes section 24C so unique is that you can deduct future expenses now, albeit that they are not yet incurred. This provides an incredible tax advantage to taxpayers who are operating a business, as it creates a correct matching between expenses and income.
 
The ruling in B v Commissioner for the South African Revenue Services (IT14240) [2017] ZATC 3, delivered on 3 November 2017, not only clarifies the correct interpretation of section 24C but also informs franchise operators on how they may declare income as financing for refurbishments. This is good news for all franchise holders in South Africa as it will no doubt assist them in planning their taxes better and stimulate their growth.

Implications for franchisees
The court stressed that there are no hard-and-fast rules that apply across all industries and to all cases when deciding if the provisions of section 24C have been met. However, as far as franchisees are concerned, it is clear that where a franchise agreement sets out an obligation to incur future expenditure, such expenditure may very well fall within the beneficial parameters of section 24C of the Act.
 
Franchisees are, however, encouraged to always engage the services of a qualified tax attorney to assess the validity of such deductions, especially as this is a matter of legal application and is solely dependent on the provisions of the franchise contract.

Arguments
SARS contested that the deduction should not be allowed for 2 main reasons:
 
Firstly, the income deducted was not derived directly from the franchise contract as prescribed by law but rather from the sale of food to customers, being numerous separate and unrelated “contracts” so to speak.
 
Secondly, the franchise contract stated that all aspects of the refurbishment project to be carried out by the franchisee were “subject to” the prior approval of the franchisor. Since the franchisor could withhold such approval, the franchisee’s obligation to incur the expenditure was moot.
 
In response, the franchisee argued that the franchise contract is in fact the source of their income because, without fulfilling its terms and obligations, they would be unable to operate the business. The contract did not make their obligation to upgrade their franchisees optional.

The ruling
After hearing both parties’ arguments, the Tax Court held that, as per ITC 1667, there need not be one physical contract document to give rise to section 24C’s benefit. Furthermore, while different parties were involved (the franchisor and the restaurant’s customers), the franchisee’s agreements with each were “inextricably linked” and “not legally independent and separate”.
 
The income deducted was therefore earned under the same contract as the taxpayer’s future expenditure, fulfilling the requirements of section 24C. The court also held that the upgrading of the franchisee’s restaurants were not optional.
 
Accordingly, the court ruled in favour of the franchisee and ordered that the additional assessments raised by SARS for the 2011 to 2014 tax years, being unwarranted, must be set aside.

Background
Section 24C permits the deduction of certain expenses in the current tax year assessment, where those expenses are not yet incurred, on the basis that these expenses will contractually be incurred in future years. Although limited in application, this tax allowance protects businesses from being taxed on earmarked funds that bloat their annual earnings. If SARS allows the deduction, the specified amount is carried over into the new year as income rather than retained earnings. A further section 24C deduction may then be claimed until there is a matching of income and expenses.
 
Franchisees run a business, such as a restaurant or tyre fitment service, using the proprietary business model dictated under contract by the franchise owner (franchisor). To continue operating, the franchisee must deliver the standard of service prescribed by the franchisor. This includes the contractual obligation to refurbish or upgrade their business assets at reasonable intervals (often at the behest of the franchisor), the cost of which is paid from their income.
 
In the above case, the franchisee (B), a restaurant owner, had claimed a provisional deduction under section 24C for such refurbishment costs against their 2011 to 2014 company tax assessments on the basis that they were so permitted by section 24C.
 
In South Africa, all tax practitioners must be registered with the South African Institute of Tax Practitioners (SAIT), or another recognised controlling body, as well as with SARS.

ENDS

MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@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

​Author: Mariana Stander, Director, Tax Consulting
 
In the current economic climate, the possibility of retrenchment is becoming more of a reality for many South Africans.  Employers need to understand the tax implications applicable to retrenchment packages to ensure that they leave the retrenched employees in the best possible financial position.
 
Understanding the tax implications of retrenchment payments
 
To qualify for the special tax rates applicable to severance benefits due to retrenchment, an employer must have paid a lump sum to an employee as a result of their employment having been terminated or lost for the reasons listed below:

1. Employment ended due to the employer having ceased trading; or
2. Employment ended due to a reduction in staff numbers.

 
Employees over the age of 55 or who have lost their jobs due to the incapability to perform their work (such as sickness or disability) will also qualify for the severance benefits.
 
The second point of importance is that the first R500 000 of a severance package is not subject to tax, as a once in a lifetime benefit (meaning once this has been utilised, any subsequent lump sums will be taxable).  Any amounts above the R500 000 will be taxed at special tax rates applicable to severance benefits.
 
Thirdly, it is very important to know that any pro-rata bonusses and leave pay paid at the time of retrenchment will not be considered to be part of the severance benefit and will be subject to normal tax rates.
 
Utilising the special tax rates
To qualify for the special lump sum tax table, the employer needs to submit a tax directive to SARS.  SARS will calculate the applicable tax rate based on the tax directive and the employer will pay out the nett amount to the employee.  The employee needs to declare the severance pay on his/her income tax return.
 
An important point for retrenched employees to remember is that a severance benefit cannot be conserved in the employer’s retirement fund or in a preservation fund. If the employee wants to invest their retrenchment package, they can invest the after-tax amount in a retirement annuity fund.
 
Should the employee decide to transfer their retrenchment package to a retirement or preservation fund, it will cease to qualify as a severance benefit.  Should they wish to access these funds before the age of 55, they will forfeit the tax-free benefit and will be taxed at the normal tax rates.
 
To ensure that retrenched employees get the best possible tax benefits on their retrenchment packages, employers are strongly advised to not only consult with Human Resource and Industrial Relations specialists when determining retrenchment packages, but to also consult with a tax specialist.
 
ENDS
 
MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za  

Author: Tanya Tosen, tax and benefit specialist, Remuneration Consultants

What can be done to remunerate employees better? The simple answer is plenty. Yet many employers do not get the most out of employee package structuring. This is one of those areas where there are “too many experts”, and correctly so, as this spans the professional functionality of remuneration specialists, tax advisors, auditors, financial planners and trustees.

Therefore, depending on which professional you ask, you will get different responses, for example, tax advisors will comment on that there is no tax risk, whilst they have no experience in remuneration methodology and financial planning.

Conversely, trustees will always promote better retirement planning and more risk benefits, which are indeed important, but should this be more important than putting a child through the best possible education. The correct answers only come when you deal with holistic experts that can demonstrate to you an approach of “total reward statements”.

​Tough times means no more holy cows
With economic times being what they are, employers cannot afford large increases. It also becomes difficult to give good increases if you are retrenching staff. The question then is, what can be done to pay employees better.
If you have ever offered an employee a job and needing to “gross-up” the package because the take-home pay is not enough, the reason is most likely not your costing of the job, but rather not having the correct package structure flexibility.

The Supreme Court of Appeal says you can Salary Sacrifice
On November 30th 2015, it was confirmed that the Supreme Court of Appeal has delivered a final judgement on remuneration structuring. The simple message is that it is absolutely legal to structure remuneration and allow a salary sacrifice. A word of caution before you proceed.

The principle has been confirmed. The Supreme Court of Appeal (SCA) made it very clear that a package structuring agreement and correct documentation, which will include policies and often a Package Structuring Tool, is compulsory. With no ambiguity, the SCA said it will simply not believe oral evidence and the actual legitimacy depends on correctly executed documents.

What is the Golden Rule
An employee should be allowed to structure their remuneration to meet personal financial requirements. Where this is not done, the employer is “paying” for benefits or allowances which employees do not want. This means hard earned employee remuneration is paid towards benefits which the employee does not value. It may make your employee benefit broker happy, but it does not mean anything for your employee. Rather give your employee the choice to utilize flexible benefits to maximize their package.

Flexible Items
The most commonly allowed items to a flexible-package are retirement funding, group life, disability, income protection, funeral cover, employee vehicle insurance, travel allowance, company vehicles, medical aid, gap cover, thirteenth cheque etc.

Why do all companies not do this?
Employers are generally not well informed of what legally can be done. In addition, the functions within the company who should promote this flexibility are usually concerned about additional administration. The administration is actually not that much more, where you are currently administering the employee benefit provider and payroll systems.
​
What is New?
The budget 2017/18 had plenty of bad news for employers, but there has been serious relief given for employee child bursaries’.
 
Photo caption: Tanya Tosen