As from the 1st March 2016, the tax treatment of pension, retirement annuity and provident funds will be changed so that contributions made by the employer will be a fringe benefit.

Basically, it means that there will be an increase in the amount payable for UIF and SDL payable from employees and employers.

These contributions will be allowed as deductions in the employee’s hands and will be limited to 27% of the greater of the remuneration of taxable income (excluding lump sums received) but capped at an annual limit of R350,000.00, Excess contributions will be carried forward into the following year of assessment.

Only the employee may claim contributions (both in respect of the employer and the employee contributions)

 

Going forward , pension and retirement annuity funds will all be subject to the one third lump sum and two-thirds annuity rules, unless the lump sum is below R150,000.00.The annuitisation threshold for pension and RA fund members increases R247,500 on 1 March 2016 (previously R75,000).

Members may benefit from the new definition of the base against which the deduction is measured. This base is now the higher of “gross remuneration or taxable income”. The base was previously defined as “approved remuneration” for pension funds and “pensionable income” for provident funds (as defined by the employer).

The reference to “taxable income” effectively enables pension and provident fund members who receive outside income (income from rental income, alternate employment or investments) to claim a pension fund deduction against such income. Previously such “outside” income could only be used to claim deductions on RA contributions. Members who wish to top up their retirement fund savings will no longer need to take out a separate RA.

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SARS no longer allows claims for income protection for the 2016 year of assessment which used to be claimed under source code 4018. If you manually capture this amount on your ITR12, you will not be able to submit your income tax return. In cases where source code 4018 is pre-populated on your ITR12 for the year of assessment 2016, your income tax return will be received by SARS but this amount will not be allowed on assessment.

Changes to the ITR14 fields

The following changes to fields that need to be completed should be noted:

  • Disclose donations separately in respect of section 18A on the ITR14. For a company that is not a collective investment scheme, the allowable donations will be limited to 10% of taxable income and the remaining balance will be carried forward to the next year of assessment. For collective investment schemes, the allowable section 18A donations will be limited to 0,005 of the average value of the aggregate of all participatory interests held by investors in the portfolio. Donations that are disclosed in the Income Statement will automatically be deducted in the tax computation.
  • The details of investments in venture capital companies are required.
  • Provision has been made for debt reduction in respect of paragraph 12A (4) of the Eighth Schedule.
  • Transfer pricing related transactions have been expanded to request the details of the number of tax jurisdictions, countries and value per country.
  • Additional questions have been added to the ITR14 to assist SARS with the assessment.
  • Where a company claims PAYE credits, the IRP5 numbers related to the company will be pre-populated on the ITR14.
  • The tax computation has been extended to include additional fields aligned to changes in legislation

Not all that glitters is Gold,

Themba

People who pay income tax are generally individuals who earn an income e.g. from a salary, commission, fees, etc.
If you earn under R350 000 for a full year from one employer (that’s your total salary income before tax) and have no other sources of additional income (for example, interest or rental income) and no deductions that you want to claim (for example medical expenses, travel or retirement annuities), then you don’t need to submit a return
Do any of the following apply to you for the tax year 1 March 2014 to 28 February 2015?

  • Did you conduct any trade* in South Africa?
  • Did you have an allowance such as a travel, subsistence or Office Bearer Allowance?  Check your IRP5/IT3(a) if unsure.
  • Do you hold any funds or assets outside South Africa that have a value of more than R200 000?
  • Did you have a local Capital Gain/Loss exceeding R30 000?
  • Did you get any income or Capital Gain in a foreign currency?
  • Do you hold any rights in a Controlled Foreign Company?
  • Did you get an Income Tax Return or were you asked to submit an Income Tax Return for the tax year?
  • Was your annual income* more than R70 700?

If you answered yes to any of the questions above, them you may need to submit a tax return.

Numbrfactory…

We accept that you are a South African tax resident temporarily working Overseas. You will then still have to declare and possibly pay tax in the RSA on all your income.

The remuneration earned outside South Africa may qualify for an exemption from normal tax.

This would apply if you have been outside South Africa for a period or periods exceeding 183 full days in aggregate during any 12 month period and for a continuous period exceed 60 full days and the services (in respect of which the remuneration was derived) were rendered during that period.

‘Piet Nel, SA Institute of Tax Professionals

Any expense actually incurred in the production of the income is tax deductible provided that it is not of a capital nature in terms of section 11(a) of the Income Tax Act. The negative test on the other hand, section 23(m) of the Act however prohibits expenditure in terms of section 11(a) of the Act in the event that the taxpayer’s remuneration is not primarily (more than 50%) derived from commission. The commission must be directly attributable from that person’s sales or turnover attributable to that person. In other words, say for example a sales manager is paid a profit share on sales made by his sales persons, then that profit share will not qualify as commission for purposes of section 23(m)

Taxpayers with disabilities or who have disabled family members are probably not making full use of the tax deductions to which they are entitled.

A lack of knowledge by taxpayers and their tax practitioners is the reason taxpayers affected by disabilities are not claiming the tax deductions to which they are entitled.

WHAT EXPENSES CAN YOU CLAIM?

There are three broad categories of disability-related expenses you can claim against your taxable income.

The three categories are:

* Medical scheme contributions;

* Un-recouped medical expenses; and

* Expenses you necessarily incur as a result of a disability. These expenses are the most complex and often result in the highest deductions.

The Income Tax Act defines a disability as a “moderate to severe limitation” of the ability to function or perform daily activities as a result of a physical, sensory, communicative, intellectual or mental impairment. This is interpreted to mean a significant restriction in your ability to function or perform one or more basic daily activities after maximum medical correction.

Your disability or that of a family member (including children) must either have lasted for more than a year or be expected to last for more than a year, and you must have been diagnosed by a registered medical practitioner (anyone registered with the Health Professions Council, including speech therapists, occupational therapists and psychologists).

The change in the definition means that taxpayers can claim for a much wider spectrum of disabilities than those of which you may typically think.

It is estimated that one in every 110 children has autism, many people suffer from attention deficit hyperactivity disorder, and the treatment of severe depression and learning difficulties could be tax-deductible,

The South African Revenue Service (SARS) has published a list of qualifying disability-related expenses, which, it says, is not exhaustive.

SARS simply provides some examples of expenditure that can be claimed, and many more substantial expenses have been claimed successfully.

The list includes aids and devices, such as hearing aids and insurance of hearing aids; orthopaedic or surgical equipment; wheelchairs and crutches; travel and related expenses; the cost of hiring a caregiver; remedial school fees; products required for incontinence; and the cost of modifications to assets.

While you cannot claim for an asset itself – for example, a motor vehicle – you can claim for the cost of modifying a vehicle to permit a person with a disability to gain access to it or to drive it.

Substantial capital expenses, such as those incurred in altering a home for a person in a wheelchair, nevertheless remain fully tax-deductible.Numbr4 Numbr3 Numbr Numbr 2

Numbrfactory – 0861 66 0007

What is a VDP?

The VDP is a statutory process where taxpayers, including corporate entities, trusts and individuals, can approach SARS on a voluntary basis with a view to regularise their tax affairs with the prospect of remittance of certain penalties.

Which types of taxes are covered by the VDP?

The VDP is applicable to all taxes administered by SARS (excluding customs and excise).

What are the requirements for the submission of a valid VDP application?

The disclosure must be voluntary.

It must:

  • Involve a default that has not previously been disclosed by the applicant or a representative of the applicant.
  • Be full and complete in all material aspects.
  • Involve the potential imposition of an understatement penalty in respect of the default.
  • Not result in a refund due by SARS.
  • Be made in the prescribed form and manner.

What is the period under review?

The period of review under the VDP is not stipulated in the TAA, although the disclosure must be full and complete in all material respects if it is to be a valid disclosure. Strictly speaking, SARS should go back for as many years as the tax default has occurred.  However in practice SARS will generally not go back further than five years in calculating the tax outstanding in terms of the tax VDP.

What is a default?

A default is the submission of inaccurate or incomplete information to SARS, or the failure to submit information or the adoption of a tax position, where such submission, non-submission, or adoption resulted in:

  • The taxpayer not being assessed for the correct amount of tax.
  • The correct amount of tax not being paid by the taxpayer.
  • An incorrect refund being made by SARS.

A South African tax resident who fails to disclose income tax, interest income, dividends or capital gains tax generated from off-shore assets is an example of a default that may have been committed.

Who is excluded from applying for a VDP?

However, SARS may allow such a person to participate in the VDP when it is of the opinion that the default would not ordinarily have been detected by SARS during the audit/investigation.

A “verification” or “inspection” procedure that was not preceded by the commencement of an audit or by a notice of an impending audit is not regarded as an “audit” for this purpose, and a person will still be able to apply for a VDP in this instance.

Benefits of a VDP

As a result of the disclosure, the Commissioner may not pursue criminal prosecution for any statutory offence under a tax act arising from the “default” or a related common law offence committed by the successful applicant.

The successful applicant will obtain:

  • Relief in respect of understatement penalties to the extent referred to in the understatement penalty percentage table, which provides for a reduction in the percentage of penalties to be levied.
  • 100% relief in respect of an administrative non-compliance penalty that was or may be imposed in terms of the TAA, or a penalty imposed under a tax act, but excluding penalties for the late submission of a return, and penalties for the late payment of tax.

The Supreme Court of Appeal rules that a vendor who fails to pay over VAT to SARS does not commit common law theft

Nothing makes SARS see red as much as a VAT vendor who charges VAT on his goods or services, collects the VAT from his customers, and then fails to pay it over to SARS.

SARS regards this as nothing less than theft. The VAT collected by the vendor did not belong to him, so the argument goes – it belonged to SARS. If the vendor then puts the VAT into his own pocket, he is stealing the money.

SARS’s interpretation of the law was put to the test

The first time that SARS’s view that failure to pay over VAT constitutes common law theft has been tested in the courts in a reported judgment (there was apparently an earlier unreported judgment in AJC Olivier v Die Staat) is during the recent decision of the Supreme Court of Appeal in Director of Public Prosecutions, Western Cape v Parker [2014] ZASCA 223, in which judgment was handed down on 12 December 2014.

In this case, at the instigation of SARS, a VAT vendor (the vendor, accused number one, was a close corporation and the second accused was its individual representative), which had collected VAT but failed to remit it to SARS, was prosecuted in the Bellville regional court and found guilty of, inter alia, common law theft. The individual was sentenced to five years’ imprisonment on that charge.

However, the jubilation in the ranks of SARS following that conviction – with its massive deterrent effect – has now been given a damper, for the conviction on the charge of common law theft has been quashed, first by the Cape High Court, and then by the Supreme Court of Appeal.

Did the failure to remit the VAT to SARS constitute common law theft?

Although the individual in question had appealed only against the jail sentence and had not appealed against his conviction on the theft charge, the Western Cape High Court of its own accord raised the issue as to whether the admitted conduct did in fact amount to common law theft.

Giving judgment in the appeal, the Western Cape High Court answered that question in the negative. Effectively, therefore, the conviction and sentence on the charge of common law theft were expunged.

The prosecution lodged an appeal to the Supreme Court of Appeal, which gave judgment on 12 December 2014, dismissing the appeal and affirming that what had transpired did not amount to common law theft.

Why is a failure to remit VAT to SARS not common law theft?

The superficial attractiveness of SARS’s argument that:

VAT collected by a vendor belongs to SARS, and
failure to remit VAT to SARS constitutes theft,
soon dims when placed under the spotlight.

The Supreme Court of Appeal identified several weaknesses in the argument.

Of major significance is that a VAT vendor is not a trustee vis-à-vis SARS. (If the vendor were, in law, a trustee for SARS, it would have been theft to misappropriate money held in trust.) To the contrary, the court held (at para [9] of the judgment) that the relationship between the VAT vendor and SARS is simply that of debtor and creditor. Thus, if the vendor fails to pay over the VAT, he can be sued by SARS for an unpaid debt.

It is, however, true, as the court pointed out, that, in addition to being sued civilly by SARS for the VAT that was collected but not paid over, the vendor could be criminally charged in terms of section 58 of the Value-Added Tax Act 89 of 1991 for failing to comply with the obligations imposed by the Act – but this is a statutory offence, not common law theft.

Thus, as the court pointed out, when it is sometimes said that a VAT vendor is an involuntary tax collector for SARS, this must not be taken literally – the vendor is not a tax collector for SARS in the formal sense of the word, nor is the vendor an agent of SARS in the strict sense of the word.

The court concluded (at paras [14]–[15]) that –

the concept of a trust relationship between the vendor and SARS which forms the bedrock of the State’s argument is clearly unsustainable . . . . The relationship it creates between SARS and the registered vendor is sui generis – one with its own peculiar nature. The Act does not confer on the vendor the status of a trustee or an agent of SARS.

The implications of the judgment

It is not in dispute that a vendor who fails to remit VAT to SARS commits a statutory criminal offence under s28(1)b) read with s 58 of the Value-Added Tax Act, which is punishable by a sentence of up to two years’ imprisonment.

That potential sentence is thus considerably lighter than for common law theft, and the stigma is less, as the misdemeanour can be downplayed as a technical fiscal offence.

This article first appeared on pwc.co.za.

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Image  —  Posted: January 7, 2015 in For the Entrepreneurs, Taxes, Vat
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