Transcript Document

Tax Update
Critical Changes and Case Law
Jerry Botha CFP®
Tax Environment
1999/2000 = 579 Pages
Since then = 1,868 Pages
2011: Tax Law Amendments 135 pages
2011 Response Documents from SARS 110 pages
and Explanatory Document on Amendment Act 185
pages
Tax Administration Bill (National Assembly) 204 pages
Tax Environment
Complexity of tax law
Quantum of legal provisions
Strength of anti avoidance and penalty provisions
Court decisions
Pressures on collection
Raubenheimer v Raubenheimer
(1 June 2012)
Interpretation of a will made by the appellant’s husband prior
to his death (accepted under 2(3) of the Wills Act). The will
had not been properly witnessed and contained a clause that
although the estate was bequeathed to the appellant she was
to have a usufruct over the matrimonial home in Pretoria until
her death or remarriage. It also referred to a list of specific
bequests which was not attached thereto.
After death, two children born from a previous marriage
contended that this will was invalid as, it failed to comply with
the relevant statutory provisions as to its signature and,
secondly, as it was void for vagueness.
Per LEACH JA
“It is a never-ending source of amazement that so many people rely
on untrained advisors when preparing their wills, one of the most
important documents they are ever likely to sign. In Ex Parte Kock
NO,1 a high court decried the number of instances in which wills had
to be rejected as invalid due to a lack of compliance with prescribed
formalities and the regularity with which the courts were being
approached to construe badly drafted wills, before urging intending
testators ‘in their own interests as well as in the interests of those
whom they intend to benefit when they die. To consult only persons
who are suitably trained in the drafting and execution of wills and
other deeds containing testamentary dispositions’. Despite this, the
courts continue all too often to be called on to deal with disputed wills
which are the product of shoddy drafting or incompetent advice. This
is another such case”
Medical Aid Change
Where the Credit Comes into Play
Medical Aid Change
Monthly Credit
Medical Aid Change
End of Year Claim
A – Medical Scheme Expenses
B & C – Local and foreign medical expenses
(out of pocket)
D – Physical impairment / Disability expenses
Medical Aid Change
End of Year Claim
Above 65 – A, B, C and D
Physical impairment / Disability
- B, C, D
- Actual contributions – 4 x credit
(R24,000 – (R230 x 12 x 4) = R12,960
Medical Aid Change
End of Year Claim
Rest (normal taxpayers)
- Actual contributions – 4 x credit
(R24,000 – (R230 x 12 x 4) = R12,960; AND
- (B + C) over 7.5% of taxable income
(excluding retirement fund withdrawal
/
benefit)
Fit and Proper
Legislated Reporting
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Section 105A – Reporting of Unprofessional Conduct
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Any professional association, body or board, such as FPI
and FSB.
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Affairs of taxpayer, including personal affairs
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Done or omitted
Commissioner -
to
do
anything
in
opinion
of
Fit and Proper
Legislated Reporting
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Avoid, postpone any duty or obligation under the Income
Tax Act
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Includes negligence
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Or contravened any rule or code of conduct of any
professional body
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SARS may report you to said body …
Reportable Arrangements
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Section 76A of the Act
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Arrangement – transaction, scheme, operation
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Tax Benefit
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Various exclusions
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60 days to report to SARS (website)
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Reportable Arrangement Number
Tax Offences
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Section 104 of the Act
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Any person with intent to evade or to assist any other person to evade
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Includes any false answers, including verbally, false books or records
or any fraud, art or contrivance
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Imprisonment up to 5 years
200% Tax Penalty
Default in rendering a tax return
Omit any amount
Incorrect statement in return that reduces tax
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200% penalty must be imposed.
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Commissioner may then remit the penalty as thinks fit, except where
intention to evade (when extenuating circumstances come into play).
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Rare that courts override the 200% penalty where SARS wins case.
Section 11(w) & Deferred Compensation
and Employer Insurance
• Significant changes were introduced 01 March 2012.
• Covered by Beatrie Gouws from National Treasury during Tax
Workshop sessions, as well as Marius Botha case studies.
• Follow-up sessions with National Treasury.
• Further refinements will follow -
Section 11(w) & Deferred Compensation
and Employer Insurance
• Deductibility of premiums on Contingent Liability Policies
• Administrative issues around unapproved PHI policies (can there be
approved PHI policies?)
• Employer accident cover parameters confirmed.
• Taxation of proceed from 11(w)(i) policies
Section 11(w) & Deferred Compensation
and Employer Insurance
• Exemption from tax of policy benefits where premiums are not tax
deductible on –
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Old employer-owned policies with cash values
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Employer owned policies with risk benefits only (not for key person purposes,
such as contingent liability policies)
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Certain endownment policies, such as where employer takes for savings
purposes.
• Deferred compensation policies to be ceded to pension or provident
fund.
Section 11(w) & Deferred Compensation
and Employer Insurance
• Problem cases for members
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We will raise them with National Treasury
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But we need exact facts (not client information) and full details to raise
NOTE: ITEMS FOR SUBMISSION CAN JUST BE
EMAILED
TO
[email protected]
or
[email protected]
Dividends Tax
Dividends Tax
• Personal income tax 40% above R617,000, thus saving minimal.
• Foreign clients should have branches (28% only) and not
subsidiaries.
• Small business corporations becoming very attractive –
0% on the first R 63,556
7% on R 63,556 to R 350,000
28% in excess of R 350,000
Severance Benefit
55 years
Sickness, accident, injury or incapacity through infirmity of mind or
body
Retrenchment
= no more R30,000 or average tax rates
= lump sum benefit table
Withdrawal Rules
Withdrawal
Lump Sum Benefits October 2007 – “retire”
Lump Sum Withdrawal Benefits March 2009 – “take cash”
Severance Benefits March 2011 – “not retrenchment”
Operates cumulatively (of course)
Retirement
Lump Sum on Retirement
Retrenchment amounts
Cumulated and recomputed on retirement table
Less
Tax Payable on early withdrawals / severance on same table
The Hitchhicker’s Guide to the
Galaxy
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"The answer to the ultimate question of life, the universe and everything
is 42."
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For decision on withdrawal = max R49,950 (2011) and R59,400 (2012)
• Reconcile –
2011(R300,000 – R22,500) x 18% = R49,950
2012 (do re-computation on any amount of R945,000) and delta = R59,400
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Is the tax impact enough to influence a decision?
Provisional Tax Rules
Taxpayers must do estimates now for 1st and 2nd
No more SARS basic amounts.
This necessarily requires information from financial advisors before
provisional deadlines.
Above R1m = 80% accuracy
Below R1m = 90% accuracy
Tax Filing Obligation
Where you had more than one source of income, even where you worked on a
week somewhere else or had any interest or other income.
Where you did not work the full 12 months – this is where you will also qualify for
a tax refund.
Where your employment income equals or exceeds R120,000 for the year.
Where you are older than 65 years. New exemptions – below tax threshold (65
and 75).
Where you had a retirement annuity, medical aid expenses, made donations,
received a travel allowance etc. - all these will allow you to qualify for a tax refund
Tax Filing Obligation
• Recommend cases of uncertainty uses SARS tax wizard.
• http://www.sars.gov.za/Wizard2012/Wizard.htm
• Make sure you have a copy hereof for future tax reference.
Non-Compliance Penalty
Section 211 of Administration Act
Penalty Regime
• Not only tax returns but any administrative non-compliance (request
to update banking details), applied per month
• Taxpayer only notified when imposed, amended / adjusted or
cancelled.
• Initial notice also serves as final notice before debt collection.
• SMS only send monthly.
Understatement penalty percentage
table – section 223 of TAB
Employees’ Tax Planning
• Company vehicles and travel allowance 20% rule (only 20% of
taxable value collected as PAYE) •
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Whole amount taxable on IRP5
Claim with logbook on personal tax assessment
• More than 80% business with vehicle –
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Company vehicles makes most financial sense.
• Business equipment and related services exempt from Fringe
Benefit tax where more than 50% used for business
Employees’ Tax Planning
• Business equipment and related services exempt from Fringe
Benefit tax where more than 50% used for business –
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Cellular Phones
Home Phones
3G cards
Home ADSL lines
Laptops
Hardware (printers, backup devices etc.)
Software
Etc
Residency Transfer
• Disposal of residency from company to a trust into hands of
individual extended to 31 December 2012.
• Free from transfer duty, capital gains tax, secondary tax on
companies and dividends tax.
• Detailed SARS guide (Issue 2) hereon.
• Take note CGT cost increased 13.32% (individuals and special
trusts), 18.65% (companies) and 26.64% (trusts)
Tax Administration Act
Passed National Assembly
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Creates “serious tax offence” category – imprisonment for period exceeding two years.
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Compulsory identity cards for officials
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SARS is internally only bound to –
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“Practice generally prevailing” – official publication regarding application or interpretation of the Act.
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Binding Ruling (section 75)
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Creates Tax Ombudsman – appointed Minister, but staff seconded from SARS.
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5 year retention period remains, but where audit, until audit is concluded.
Tax Administration
Selection for Inspection, verification or audit
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Senior SARS official must authorise field audit or criminal investigation and person must
produce the authorisation
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Obligation to keep taxpayer informed – 21 days
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Serious tax offense appears committed – must be referred for criminal investigation
Tax Administration
Inspection
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May arrive at premise without prior notice to determine (a) identity of occupant (b)
registered for tax (c) whether person is keeping and retaining records.
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Relevant material may be obtained from a 3rd party and this may be obtained under oath.
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May request any person to attend interview to clarify issues of concern or produce material
under control.
Tax Administration
Inquiries
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Notice to appear and produce documents to inquiry.
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You may not refuse to give incriminating evidence.
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Incriminating evidence not admissible in criminal proceedings.
Tax Administration
Search and Seizure
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Warrant must be issued
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May search without warrant in various cases
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Incriminating evidence not admissible in criminal proceedings.
SARS v Van Kets
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Australia Revenue requested SARS for information.
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SARS invoked section 74 to obtain information from taxpayer.
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Taxpayer refused.
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SARS application granted.
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Take note:
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Exchange of information contained in all DTA’s.
Make sure that local and offshore tax positions synchronise
SARS v Van Kets
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Australia Revenue requested SARS for information.
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SARS invoked section 74 to obtain information from taxpayer.
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Taxpayer refused.
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SARS application granted.
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Take note:
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Exchange of information contained in all DTA’s.
Make sure that local and offshore tax positions synchronise
ITC 1835 vs. ITC 1793
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Deceased and husband executed a joint will, with first dying spouse bequeathed household
possessions to survivor and residue to inter vivos trust, with life long usufruct for survivor and the to son
for one year.
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On death of testatrix the trust owned her some R500k.
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Winding up of the estate, executor neither demanded nor received payment of debt from trust and
merely reflected in L&D. The debt as a claim was awarded to the trust as sole heir of the residue.
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SARS raised assessment same basis as ITC 1793 – shares sold to family trust on loan account and
bequeathed the debt to the trust. CGT under 12(5) of the Eight Schedule (debt discharged for no
consideration).
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Court found 12(5) did not apply – intention of the creditor is key in disposing of debt. How estate
administered not important
JDW vs. SARS No 11537
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Tax assessments 1996 to 2002.
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3 rental properties registered in children’s names
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Rental income not disclosed in his name.
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Liable to 20% donations’ tax.
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Rental income deemed to be that of the parent – Section 7(3) and application confirmed in
Commissioner for SARS v Woulidge.
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200% SARS penalty confirmed.
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Case referred by Judge to Director of Public Prosecution for criminal charges
CSARS vs. Tradehold
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Deemed disposal of assets when become non-resident
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Claimed the Double Tax Agreement did not allow the Eight Schedule provision
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Amazingly, SCA agreed with taxpayer.
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Decision is wrong (perhaps more correctly, badly argued by SARS)
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SARS agrees wrong and will change the law
ITC 11038 (King Decision)
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Not disclosed sale of shares in tax returns and claimed CGT in nature (disposed before CGT)
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Around R1.5b in play and 2/3rd were penalties (200%)
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Compulsory reading for anyone who wishes some insight into what our courts think of offshore trusts
and aggressive evasion.
Future Proposals
Be on the lookout for –
• New retirement tax regime
• Tax Preferred savings and Investment accounts