The term “resident” is a complex concept given that various regulatory regimes; South African Revenue Service (SARS), Department of Home Affairs DoHA and South African Reserve Bank (SARB) use similar terminology yet define it differently! The concept of “residence” is therefore of utmost importance where individuals have or intend to leave South Africa on a temporary or permanent basis.
Misinformation abounds and consultants, both local and foreign, are popping up to ‘assist’ taxpayers in many cases at exhorbitant fees.
Financial emigration is a new phrase introduced into the South African tax context in the past 2 years, with implications from March 2020. These will affect clients who have substantial local and offshore assets and earn income from both sources whilst moving between tax jurisdictions.
The key issue being residents in a country are generally taxed (subject to DTA agreements) on ALL their WORLD WIDE earnings in that country. It is suggested that many South Africans officially resident here have not been declaring their non South African earnings on the pretext that they were not earned or sourced in South Africa! Furthermore emigration triggers a CGT event on all assets, excluding immovable property and non-personal assets, at the time of emigration. Many South Africa’s aboard continue to hold assets here and have possibly avoided the CGT tax thereon.
Considering many emigrants did so unofficially on the pretext of a temporary absence overseas, the authorises are seeking to regularise the situation and force disclosure, requiring the emigrant to make a decision to remain a South African residence or change residency to another jurisdiction.
s7C effective March 2017 a new section 7C has been added which makes provision for interest free or low-interest loans hat are made directly or indirectly by a natural person or a company at the instance of the natural person connected to such company to a trust. A number of conditions apply, as well as certain exclusions.
In essence, the difference between the amount
incurred by the trust as interest and the amount that would have been incurred
by that trust at the official rate of interest as defined in section 1(1) of
the Income Tax Act, No 58 of 1962 (as amended) (“the Act”) will be treated as having
been donated by the natural person to the trust and will therefore be subject
to donation tax in terms of section 54 of the Act. The natural person may use
the annual donations tax exemption of R100 000 (or the remaining portion if
applicable) against this deemed donation.
Interest-free or low interest loans to a trust by a connected natural
person or a company connected to that natural person give rise to a deemed donation. The donation is the
difference between the interest rate charged and the official interest rate
applied to the loan amount.
This deemed donation applies to new and existing loans however excludes:
• Loans to certain vesting trusts
• Loans to certain special trusts
• Loans to approved public benefit organisations
• Loans funding the primary residence of that person or their spouse
• Loans to small business funding entities
• Loans where transfer pricing rules apply
• Loans provided in terms of a Sharia compliant financing arrangement
• Loans subject to Dividends Tax
• Unpaid beneficiary distributions provided certain conditions are met.
The interest foregone is treated as an ongoing annual donation by the natural person as at the end of the tax year. Donations Tax will be payable on 31 March each year, and the annual Donations Tax exemption of R100 000 may be claimed.
Where a loan is reduced or waived no deduction, loss, allowance or capital loss may be claimed in respect of that disposal. Further anti-avoidance rules are being considered and the ambit of this is expected to now included company on company loans where a trust is found in the structure.
Note: The Budget implies a company on company loan could also fall within the ambit of s7C if a trust is found in the structure, previously this related only to trust based loans! We are monitoring the situation.
SME 3rd party disclosure
New regulations require defined businesses to submit bi-annual IT3s returns containing the names, identity numbers, addresses and any interest, rental or investment income received or managed on behalf of the taxpayer! Welcome to the police state!, were SARS are clearly above any law or constitutional right!
SARS confidentiality gone to far
S30 of Tax Amendment Bill proposed changes to the definition of confidential, to include info relating to the examination or audit of taxpayers affairs, disclosure of which could jeopardise the effectiveness of the audit! The result being SARS would not have to provide taxpayers with any reasons for their audit determination! A police state in the making?
BEWARE OF 'SARS' SCAMS
Alleging inflated liabilities or that refunds are due and then fisching for banking information
When you click on the word "Here" you are directed to a fake website resembling that of SARS, which is labelled "Tax Refund Portal". You are then asked to click on the name of your bank and enter details of your banking account. UNDER NO CIRCUMSTANCES DO THIS!
The South African Revenue Service is aware of this phishing attack, and further details are available on their legitimate website. You can also do a Google search by entering something like "SARS Tax Refund Scam 2009" and checking the box marked "Search South African Websites". SARS has indicated that they would never notify taxpayers per e-mail of any refunds due to them, nor would they ever request any personal details by e-mail.
Reasons why small businesses fail:
· 12% - Poor bookkeeping and records
· 34% - Poor management of financial activities
Most important things for small business to do for sustainability:
· 93% - good cash flow
· 93% - good administrative/financial systems
The above two factors were the highest ranked amongst all factors. Some of the other factors included were good staff, loyal customers and new customers.
(Source: SME Survey 2009)