Posts Tagged ‘Business advice’

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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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.

Check out our latest flyer. approved-numbrfactory-flyer-january-2015-page-001 (1)

 

An annual tax that is payable to SARS based on taxable income (net income) that is received by or accrues to individuals, companies, and other taxpayers, after deducting qualifying expenses and allowances.

According to independent research commissioned by SARS and the National Treasury in 2007, South African tax practitioners charge their small business clients an average of R7 030 a year to ensure that tax returns for income tax, provisional tax, VAT and employees’ tax are prepared, completed and submitted as required, Tax compliance costs therefore tend to be regressive, especially for businesses with a turnover under R1 million a year.

The reality is that many small businesses are outside the income tax net either because they generate small profits or because of the big compliance burden. Many were also historically marginalised. Government, therefore, announced a small business amnesty in 2006 to encourage informal and other small businesses with a turnover of up to R10 million a year to enter the tax system and regularise their tax affairs.

Payroll taxes such as employees’ tax (SITE and PAYE) and UIF contributions are excluded as they are taxes generally borne by employees and collected by employers on behalf of the State. In terms of existing law, however, businesses whose employees are not liable for employees’ tax will not be required to register for employees’ tax and businesses with a payroll of up to R500 000 a year will not be liable for the SDL

An important feature of the turnover tax system is that the tax liability imposed is broadly aligned with the tax liability under the current income tax system, but on a simplified base with reduced compliance requirements. However, the tax burden on micro businesses at the higher-end of the turnover range (R750 000 to R1 million) is increased to encourage them, as they grow, to maintain sufficient accounting records to migrate to the normal income tax system. Special consideration was given so as not to artificially or inadvertently encourage micro businesses to remain trapped in the turnover tax system, but to grow and migrate into the standard tax system. As a packaged approach, the compulsory VAT registration threshold will be increased for all vendors to coincide with the turnover tax cap of R1 million. Businesses will not be permitted to register for turnover tax if they are registered for VAT

Specific anti-avoidance rule for qualifying turnover

An anti-avoidance rule to guard against income-splitting by a micro business has been incorporated into the legislation. This will cater for circumstances where the micro business is broken up between connected persons (for example, a family) to ensure that each business component remains within the R1 million cap. In such instances the turnover of the connected persons’ business activities will be added together for purposes of applying the cap.

A business is disqualified from turnover tax if that business, or any shareholder in that business, holds shares or has any interests in another company or close corporation. The specific relief to be afforded in terms of the turnover tax system is aimed at the very small start-up type of business. Multiple shareholdings indicate more complex legal structures belonging to more sophisticated taxpayers and hence have been excluded for purposes of this system. This disqualification is also an anti-avoidance measure to guard against income-splitting where a business is conducted by more than one entity with the same shareholder in order to ensure that each business entity remains below the R1 million cap.

Certain investments are, however, permitted because they are more of a public or social nature and present fewer opportunities for tax arbitrage. These are interests –

  • listed South African companies;
  • Collective investment schemes;
  • Bodies corporate and share block companies;
  • Venture capital companies;
  • Less than 5% in social or consumer co-operatives;
  • in any company that did not trade during any year of assessment, and which did not own assets with a total market value that exceeds R5 000 during any year of assessment; and
  • in any company that has taken steps to liquidate, wind up or deregister.

There are two circumstances when a registered micro business is deregistered from the turnover tax by SARS, namely: 

• Voluntary deregistration, that is, where a registered micro business elects to deregister. Unless it closes down, it may only elect to deregister as a micro business after being registered for turnover tax for at least three years.  

• Compulsory deregistration, that is, where a registered micro business no longer qualifies. The qualifying turnover of this micro business from carrying on business activities exceeds the R1 million cap and it cannot demonstrate that this will be a small and temporary event. The registered micro business must notify SARS within 21 days from the date on which it no longer qualifies as a micro business.

In the event of a compulsory deregistration of the micro business, that micro business will be moved back into the standard income tax system from the first day of the month following the month during which the business no longer qualifies to be a registered micro business. It will therefore be assessed for two periods in the year of assessment – one under the turnover tax system and the other under the normal income tax system. The business will also have to register for VAT where it exceeds, or is likely to exceed, the R1 million threshold at which registration for VAT is compulsory. A micro business that is deregistered from turnover tax, be it voluntary or compulsory deregistration, may not re-enter the turnover tax system for three years. This period matches the minimum period the micro business must remain in the turnover tax system

On our next post, we will be looking at the Small business corporation Tax,

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http://www.fin24.com/Entrepreneurs/Question-And-Answers/Whereto-for-expansion-funding-20140803