The Professional - Volume 7, Issue 7 by IACSA

The Professional Volume 7, Issue 7

Special points of interest:  Submit CPD declarations

2016 Annual General Meeting The IAC held a very successful AGM on 21 October 2016 at the Protea Hotel, Seapoint. We thank all the members who attended and wish to congratulate the new Board of directors.

 IAC Office closure

 Staff lunch: 9 December 2016 at 12:00

 Year-end: 23 December 2016 at 12:00  IAC Office opens

 9 January 2017

Inside this issue:

Small business tax 2 Insolvent estates 5 Deceased estates 6 CGT Residency SARS News

7 8 11

Enterprise VAT registration New members

12 13 14

CPD Letter from CEO 2017 Fees

16 17 18

Board of Directors Message from Chairman

IAC staff

Director profile: Shaun Cupido

December 2016

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The Professional

Small business tax

“Small Business Tax versus Micro Business Turnover Tax” written by Ehsaan Nagia

Small business isn’t for the faint of heart. It’s for the brave, the patient & persistent. It’s for the overcomer.

As a tax practitioner I was amazed to discover that many people (including some tax practitioners) are not aware that there is a difference between the taxation of a Small Business Corporation (SBC) and Turnover Tax for Micro Businesses. I assume the term “business” in both the names makes people think that it is one and the same thing. Nothing can be more further from the truth. They are two completely different types of taxes with different qualifying criteria. I will briefly lay out the criteria for each of the two types in the hope of providing clarity between the two. SBC tax Section 12E (4)(a) of the Income Tax Act defines a small business corporation as follows:

 Any close corporation, co-

operative or private company (as defined in section 1 of the Companies Act 71 of 2008)

 All

the shareholders of which are at all times during the year of assessment natural persons

 The gross income of which

 Any portfolio in a collective

investment scheme (unit trust) (as contemplated in paragraph (e) of the definition of company in s 1); or

 Any company contemplated in s 1 10(1)(e)(i)(aa), (bb) or (cc) (sectional title body corporates, share block companies, and associations formed to manage the collective interest of members);

 Less than 5% in a social or

consumer co-operative or a co-operative burial society or any other similar cooperative if all of its income is solely derived from its members.

 Less than 5% in a primary

savings co-operative bank or primary savings and loan cooperative bank;

 Any venture capital company as defined in section 12J

 Any friendly society (as defined in the Friendly Societies Act);

 Any company, close corpo-

ration, or co-operative if the company, CC, or co-op:

 Has not during any year of assessment carried on any trade; and

20% x (revenue receipts & accruals + capital gains). Investment income is defined section 12E (4)(c) as:

 Dividends, foreign dividends,

royalties, rental from immovable property, annuities, similar income

 Interest per s24J (certain

amounts are excluded, like interest from a primary saving co-operative bank, and s24K amounts)

 Proceeds derived from in-

vestments or trading in financial instruments, marketable securities or immovable property.

Please note that “personal service” is defined in section 12E (4)(d) and one needs to familiarize oneself with the definition however the main criteria of a personal service is as follows:

 if it is rendered personally to

clients by a person who holds an interest (shares or members interest) in the company or close corporation:

 Any service in the field of

 Any company or close cor-

These “permitted shareholdings” are holdings in:

poration if the company or close corporation has taken the steps contemplated in section 41 (4) to liquidate, wind up or deregister (and the steps have not been withdrawn or invalidated).

accounting, actuarial science , architecture, auctioneering, auditing, broadcasting, consulting, draftmanship, education, engineering, financial service broking, health, information technology, journalism, law management, real estate broking, research, sport, surveying, translation, valuation, veterinary science.

 A listed company (as con-

 Investment income and in-

There is a rule relating to “unconnected employees”. This is that the “personal service” restriction does not apply if the SBC employs three or more persons who are:

for the year of assessment does not exceed R20 million

 None of the shareholders or

members of the SBC at any time during the year of assessment holds any shares or has any interest in the equity of any other company other than certain ‘permitted’ shareholdings.

templated in paragraph (a) of the definition of listed company in section 1);

 Has not ever owned assets of more than R5 000 in value.

come from a “personal service” do not make up for more than:

Volume 7, Issue 7

Page 3

Small business tax  Full time  Engaged ‘full time’ in the

business of the SBC of providing the services

 Not shareholders or members of the SBC.

 Not connected to any of the shareholders or members of the SBC

Also note that:

Benefit

 “Personal service” providers cannot be SBCs

 Incorporated

companies

cannot be SBCs

 Dividends paid by a SBC are subject to dividend withholding tax at 15%

SBCs qualify for the 100% section 12E allowance in respect of manufacturing plant and machinery; and a normal wear and tear allowance or a 50:30:20 (accelerated depreciation write-off over 3 years in respect of other assets.

(Note all the above 4 points must apply) The rate of tax for Small Business Corporations for the tax year ending 29 February 2016 is as follows: Taxable Income

Rate of Tax

0 to R73 650

0 % of taxable income

R73651 to R365,000

7% of amount which exceeds R73,650

R365,001 to R550,000

R20,395 plus 21% of amount which exceeds R365,000

R550,001

R59,245 plus 28% of amount which exceeds R550,000

Strive not to be a success but

To demonstrate by way of an example; the tax saving of a SBC compared to a company that does not qualify as a SBC is as follows: Assume the Company has a taxable income (profit) of R750, 000. Tax payable by the SBC is: R59, 245 plus 28% of R200,000 (R750,000 – R550,000) = R59, 245 + R56,000 = R115, 245 Tax payable by a normal Company is: R750,000 @ 28% = R210, 000 Tax saving for SBC = R94, 755

Micro Business Turnover Tax Turnover tax came into operation with effect from 01 March 2009 and is set out in the sixth Schedule of the Income tax act No 58 of 1962. Sections 48 to 48C of the Income tax act expand further on this. Natural persons, companies, close corporations and cooperatives who meet the requirements of being a “Micro Business” are eligible to apply for turnover tax. One of the main requirements is that the qualifying turnover for the year of assessment does not exceed

R1 million. Trust cannot qualify as a micro business. The main objective for the introduction of turnover tax was to introduce a simplified tax system for micro businesses. This system greatly reduces the tax compliance burden and related cost for a business. The method of taxing a micro business is to tax it on its taxable turnover opposed to its taxable income (profit). However paragraph 6 of the sixth schedule states that the follow-

ing amounts are included in taxable turnover of a registered micro business:

 50% of all receipts from the

sale of immovable property used mainly for business purposes and any other asset used mainly for business purposes (other than any financial instrument)

 For companies and Close

Corporations; 100% of investment income as defined (excluding dividends and foreign dividends).

rather to be of value. Albert Einstein

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The Professional

Exclusions from Turnover Tax The following amounts are excluded from the taxable turnover of a registered micro business and these amounts are not taxed at the reduced rates for micro businesses:

 For Natural persons – Investment income as defined (dividends, royalties, rental, annuities, interest, proceeds from the financial instruments). The income amounts are included in the individual’s normal gross income and the taxable gains are included in his or her taxable income.

 Companies and close corpo-

It’s not what you know or who you know, but who knows you. Susan Roane

rations which are registered as micro businesses, all investment income (excluding dividends) must be included

in the entity’s taxable turnover.

 Amounts exempt from tax in terms of section12P are also excluded from qualifying turnover.

 Any amount received by the

registered micro business where that amount accrued to it prior to its registration as a micro business, and that amount was subject to tax in terms of the normal provisions of the Income Tax Act.

 Any amounts received from

any person by way of a refund in respect of goods or services supplied by that person to that registered micro businesses.

Non-qualifying persons Paragraph 3 of the Sixth Schedule sets out the circumstances under which a person does not qualify as a micro business. It is advisable that you read this paragraph as there are a number of issues to be looked at which is too lengthy to mention in this article. However as in the case with small business corporations (SBC) if a natural person renders professional services at any time during the year of assessment, he cannot be registered as a micro business if more than 20% of his total receipts during the year of assessments consist of income from rendering a professional service (refer to personal service above in the SBC).

Calculating Micro Business tax A micro business is not subject to the provisional tax requirements in the 4th Schedule. Paragraph 11 of the 6th Schedule sets out that the micro business must pay tax twice a year (interim payments), i.e. First payment (within the first 6 months by 31 August) it must estimate its taxable turnover for the year and pay tax on half of its taxable turnover. Second payment (by the end of the year 28 February) it must estimate its taxable turnover again, calculate the tax, and pay this tax. The rates of tax to be levied on taxable turnover for the year of assessment ending 29 February 2016 is:

Turnover

Tax Liability

0 to R335,000

R335,001 to R500,000

1% of each R1 above R335,000

R500,001 to R750,000

R1650 + 2% of the amount above R500,000

R750,001 and above

R6650 + 3% of the amount above R750,000

For example; if a person has a taxable turnover of R900,000 for the year his tax liability would be as follows: Turnover tax on the first R750,000 = R6,650 3% of R150,000 (R900,000 – R750,000) = R4,500 Total tax due = R11,150 Assume the person had a turnover of R900,000 and made a profit of R250,000 then his tax liability would have been as follows: R32, 742 plus 26% of the amount exceeding R181,900 (R68,100 x 0.26) R17,706 = R32, 742 + R17, 706 = R50,448

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Micro Businesses—Other taxes Dividends Tax A shareholder in a registered micro business which is a company or close corporation which is exempt from the dividend tax to the extent that the aggregate amount of dividends paid by that registered micro business to its shareholders during the year of assessment in which that dividend is paid, does not exceed R200,000.

Value-added Tax A micro business is not obliged to register for Vat as its turnover does not exceed R1 million. However a micro business may register voluntarily.

Insolvent estates—Income Tax A person is regarded as being insolvent when his liabilities exceeds his assets. The insolvent person or a creditor may apply for the person’s sequestration. The effect of sequestration is that the person is divested of his assets which vests in the Master of the High Court until a trustee is appointed. The assets of a taxpayer, whose estate has been sequestrated, vest in the trustee or administrator who is appointed by the Master to take control of the administration and sequestration of the estate for the benefit of the creditors. From an Income Tax perspective, the effect of insolvency is to terminate the tax status of the taxpayer and to replace it with a new entity (the insolvent estate) from the date of sequestration. Furthermore, the natural person receives a new taxpayer identity from the date of sequestration. Three separate taxpayers will, therefore, be liable for tax, namely:

 The insolvent person for the

period before insolvency (that is, up to the date preceding the date of sequestration);

 The insolvent estate (a new

entity for tax purposes from the date of sequestration); and

 The insolvent person for the

period on and after the date of sequestration. The insolvent person will be assessed as a natural person for the period before insolvency, as well as for the period subsequent to insolvency, should any income accrue to that person in his or her personal capacity. Given that the two periods of assessment are each less than 12 months, the rebates permitted for each period will only be allowed on a proportional basis. Deeming: Same person It is important to note that section 25C of the Income Tax Act deems the estate of the person before sequestration to be the same person as that person’s insolvent estate for purposes of –

 the amount of any allowance,

deduction or set-off to which the insolvent estate may be entitled;

 any amount which is recovered or recouped by or otherwise required to be included in the income of the insolvent estate; and

 any taxable capital gain or

assessed capital loss of the insolvent estate.

This means that :

 An assessed loss incurred by

the insolvent person can be set off against the insolvent estate’s income.

 Expenditure and allowances

claimed by the insolvent person before the date of sequestration can be recouped in the insolvent estate, for example, depreciation allowances and bad debts previously written off as bad.

 Debts included in the in-

Don’t judge

come of the insolvent person before the date of sequestration can be claimed as bad debts by the insolvent estate.

each day by the

 The write-off of assets and

reap but by the

allowances can continue to be claimed in the insolvent estate.

 Closing stock taken into account in the insolvent person’s last taxable income calculation may be taken into account as opening stock in the insolvent estate’s first taxable income calculation.

 Any amount that would oth-

erwise be required to be included in the income of the insolvent person may be included in the income of the insolvent estate, for example, the amount allowed as an allowance for doubtful debts or the allowance for future expenditure under section 24C. The reduction or cancellation of debt provisions in section 19 must be kept in mind if the insolvent estate reduces a debt by more than the amount of consideration given for that reduction.

harvest you seeds that you plant. Robert Louis Stevenson

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The Professional

Insolvent estates—Capital gains tax On sequestration a person’s assets pass to that person’s insolvent estate. This change of ownership would normally trigger a disposal under paragraph 11 of the Eighth Schedule. However, the ‘one and the same person’ principle brings the two entities together and since a person cannot dispose of something to himself, there is no disposal of the individual’s assets on the date of sequestration. Capital gains and losses are therefore determined in the hands of the insolvent estate when the assets are dis-

posed of to third parties. In summary, the “one and the same person” deeming leads to

 A disposal does not take

place when the insolvent person’s assets pass from the insolvent person to the insolvent estate on sequestration.

 Capital gains and capital loss-

estate but will take into account events that occurred in the insolvent’s hands, for example, previous depreciation allowances.

 An assessed capital loss in-

curred by the insolvent person before the date of sequestration may be set-off against capital gains arising in the insolvent estate.

es arising because of disposals by the insolvent estate to third parties will be included in the hands of the insolvent

Deceased estates – Capital gains tax

Be so good they can’t ignore you. Steve Martin

A deceased person is, under para 40(1) of the 8th Schedule to the Income Tax Act, deemed to dispose of his assets for an amount received or accrued equal to its market value at date of death, except in the following instances:

 Assets transferred to the surviving spouse [See para 67(2)(a)];  A long-term insurance policy of the deceased which, if the proceeds had been paid to the deceased, the capital gain/loss would have been disregarded under para 55; and

 An interest in a South African pension, pension preservation, provident, provident preservation or retirement annuity fund or the foreign equivalent of such a fund, if the capital gain or loss from the disposal of that interest would have been disregarded under para 54.

Assets transferred to the surviving spouse qualify for roll-over relief under para 67. This relief is similar to that granted to a deceased spouse for estate duty purposes under s 4(q) of the Estate Duty Act 45 of 1955. The surviving spouse inherits the base cost and all aspects of the history of the asset (date of acquisition and usage) from the deceased spouse and will have to account for any capital gains or losses when the asset is ultimately disposed of. The provision is not an exclusion from CGT but merely a deferral measure that has the effect of shifting the incidence of the tax from the deceased to the surviving spouse. The surviving spouse will pay CGT only upon disposal of the asset. The roll-over relief applies automatically and neither the deceased person nor the surviving spouse can elect out of the relief.

Capital gain/loss deferment The capital gain/loss may, in some instances be deferred to a future year of assessment, i.e. rolled over. In addition to the spouse deferment mentioned above, it also include the following:

 Involuntary disposal of an asset by operation of law, theft or destruction which is made at the election of the taxpayer;

 replacement of depreciable assets used for the purposes of trade (also requires an election); and  certain corporate actions involving share transactions (asset-for-share transactions, amalgamation transactions and unbundling transactions).

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Capital gain/loss exclusions Capital gains and losses on the disposal of specified assets are excluded from CGT. Some of the important exclusions include the following:

 Personal-use assets, which

include personal belongings such as a motor vehicle , a caravan, artwork, stamp collection, furniture and household appliances and other assets used mainly (that is, more than 50%) for a non-trade purpose

preservation and retirement annuity funds (approved retirement funds)

 Proceeds from an endow-

ment policy or life insurance policy (but not if it is a second-hand policy or a foreign policy)

 Compensation for personal injury or illness

 Prizes or winnings from gam-

bling, games or competitions which are authorised by, and conducted under, the laws of South Africa, for example, the National Lottery

 Boats not exceeding ten

metres in length and aircraft having an empty mass of 450 kilograms or less which are personal-use assets

 Donation or bequest of an asset to an approved public benefit organisation

 Lump sum payments from

pension, pension preservation, provident, provident

 Disposal of an interest of at

least 10% in a foreign company

 An award for land restitution under the Restitution of Land Rights Act 22 of 1994

 A tax-free investment under section 12T (effective from 1 March 2015) Specified amount Some exclusions are limited to a specified amount, such as – • the small business asset exclusion (limited to R1,8 million during a person’s lifetime); and • the primary residence exclusion (limited to R2 million per primary residence – see below).

sum of small

CGT—Non-disposals For purpose of Capital Gains Tax, the term “disposal” is defined in paragraph 1 of the Eighth Schedule to the Income Tax Act and refers to paragraph 11 of the Schedule. It is however important to note that there are also other instances which are not listed in the Schedule which will not be regarded as a disposal due to common law or statutory provisions outside the Eighth Schedule which include the following:

and to agree to the appointment of a new trustee is likely to fall within the ambit of para (d) of the definition of ‘gross income’ or alternatively be a payment for the disposal of an asset.

It follows that conversions of this nature would not trigger CGT in the entities concerned. A conversion under s 40A or 40B is tax neutral in the hands of the shareholder under para 11(2)(l)(iii).

Conversion of close corporation or co-operative to company

Shares acquired for no consideration

If a close corporation converts to a company, the two entities are treated as one and the same company for the purposes of the Act.

Changes in appointment of executors, curators and administrations

If a co-operative is incorporated as a company under s 62 of the Co-operatives Act 14 of 2005 the co-operative and the company are deemed to be one and the same company for the purposes of the Act.205 The same treatment applies to an incorporation of a cooperative that occurred under s 161A or 161C of the now repealed Co-operatives Act 91 of 1981.

A shareholder acquired a personal right against a company for the delivery of shares at a future date when the board of directors approved the issuance of capitalization shares under s47 of the Companies Act. Once the shares are issued, the personal right against the company is extinguished in exchange for the shares. The general barter exchange principles are however modified by s40C which deems the shareholder to have acquired the capitalization shares for an expenditure of nil if the shares were issued for nil consideration.

Assets held by trustees, executors and administrators are not held for their own benefit. Changes in appointments therefore do not result in the disposal of the underlying assets which are held on behalf of vested or contingent beneficiaries, heirs, legatees, etc. A payment of an amount to a trustee to resign from his or her office

Success is the efforts repeated day in and day out. Robert Collins

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The Professional

CGT—Non-disposals (Continued) Repudiation of inheritance As a result of the court’s decision in Wessels NO v De Jager & another NNO 2000 (4) SA 924 (SCA). it is accepted that the repudiation of an inheritance will not give rise to the disposal of an “asset” for CGT purposes.

sideration such as the right to claim delivery of an inherited asset when the liquidation and distribution account becomes final.

the rights remain unchanged, the listing will merely improve the marketability of the share which should not result in a disposal.

Such a right would be disposed of by extinction when the asset is distributed to the heir or legatee.

Stock exchanges

Assets acquired by heirs/legatees

Listing of a company

An heir or legatee who has adiated (accepted his inheritance) acquires certain personal rights against the executor of a deceased estate for no con-

A disposal occurs if there is a variation in the rights attaching to the shares or if the shares have undergone a conversion into another type of share. If

The transfer of shares listed on one securities exchange to another should not give rise to a disposal because the bundle of rights making up the shares remains unchanged. This principle would be relevant to a shareholder who transfers shares listed on the JSE to, for example, the NYSE.

Income Tax—Residency The best way to predict the future is to invent it. Alan Koy

The income tax system in South Africa changed from a source-based system of taxation to a residence basis of taxation with effect from years of assessment commencing on or after 1 January 2001. The result was that South African residents are, subject to certain exceptions and rebates, taxed on their world-wide income whereas non-residents are

taxed on income from a South African source. It is therefore crucial to determine whether a person is a resident of South Africa for tax purposes. The definition of “resident” in section 1(1) of the Income Tax Act, with respect to a natural person, refers to a person that is–

 ordinary resident in South Africa; or

 Physically present in South Africa for a specified period. SARS has issued Interpretation Note 3 to deal with “ordinarily resident test and Interpretation Note 4 to deal with the physical presence test.

Ordinarily resident The Income Tax Act does not define “ordinarily resident”, but various courts have already ruled on the interpretation thereof. Some of the most well -known judgements include Cohen v CIR (13 SATC 362) and CIR v Kuttel (54 SATC 298). According to the courts, the concept means the country to which a person would naturally and as a matter of course return from his wonderings, that is, the person’s real home. In the Canadian case, Thompson v Minister of National Revenue 2 DTC 812 (SCC), it was held

that a person is ordinarily resident in the place “where in the settled routine of his life he regularly, normally or customarily lives” or “at which he in mind and in fact settles into or maintains or centralises his ordinary mode of living with its accessories in social relations, interest and conveniences”. The question whether a person is ordinarily resident in a country is one of fact and each case must be decided on its own facts having regard to principles already established by case law, meanings expressed in the text

books, etc. A physical presence at all times is not a requisite to be ordinarily resident in the Republic. The following two requirements need to be present:

 an intention to become ordi-

narily resident in a country; and

 steps indicative of this intention having been or being carried out.

The effect of the above is that a natural person may be resident

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Ordinarily resident (Continued) in South Africa even if that person was not physically present in South Africa during the relevant year of assessment. For example where the taxpayer works in a foreign country while his wife and children lives in South Africa and he visits on a regular basis, he will still be subject to Income Tax on his worldwide income, subject to certain rebates. The purpose, nature and intention of the taxpayer’s absence must be established to determine whether the taxpayer is still ordinarily resident. The following factors will be relevant in considering the above two requirements:

 most fixed and settled place of residence

 habitual abode, i.e. present habits and mode of life

 place of business and personal interest

 status of individual in country, i.e. immigrant, work permit periods and conditions, etc.

 location of personal belongings

 nationality

activities

 application for permanent residence

 period abroad; purpose and nature of visits

 frequency of and reasons of visits. Emigration A natural person, who emigrates from the Republic to another country, will cease to be a resident as from the date that he or she emigrates.

 family and social relations (schools, church, etc.)

 political, cultural or other

When we are no longer able

Residency—Physical presence test The physical presence test, also known as the “day test” or “time rule”, is based on the number of days that a natural person is physically present in the Republic. The purpose or nature of the visit is irrelevant. It must be determined annually whether all the requirements of the physical presence test have been met. Paragraph (a)(ii) of the definition of a “resident” in section 1 (1) of the Income Tax Act refers to a natural person who is not at any time during the relevant year of assessment ordinarily resident in the Republic. The ‘ordinarily residence’ test supersedes the physical presence test. The physical presence test is thus not applicable during any year of assessment that a person is ordinarily resident in the Republic. # Days Items (aa) and (bb) of paragraph (a)(ii) of the definition of

a “resident” in section 1(1) contain the requirements that a natural person must comply with before that person can be regarded as a resident for income tax purposes. The requirements refer to the number of days that a natural person must actually be present in South Africa, during a year of assessment and also during the five years of assessment preceding the year of assessment under consideration, i.e. the person must be physically present in the Republic for a period or periods exceeding –

 91 days in aggregate during the year of assessment under consideration;

 91 days in aggregate during each of the five years of assessment preceding the year of assessment under consideration; and

 915 days in aggregate during the five preceding years of

assessment. A natural person who complies with all the requirements referred to above is a resident of the Republic, for tax purposes, for the year under consideration. “Day” includes a part of a day and begins at 00:00, ending at 24:00. . For this reason, both the day of arrival and departure, as indicated in the person’s passport, are included in the count of the number of days. For purposes of calculating the aggregate number of days in the physical presence test, any day during which a person is in transit through the Republic between two places outside the Republic, and where that person does not formally enter the Republic through a “port of entry”, as contemplated in section 9(1) of the Immigration Act, 2002 (the Immigration Act), is excluded.

to change a situation, we are challenged to change ourselves. Victor E Frankl

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The Professional

Tax residency— beginning and end A natural person who is not an ordinarily resident of South Africa becomes a tax resident by virtue of the physical presence test in the year after a period of five consecutive years of assessment during which the person is physically present in the Republic for a qualifying period or periods. The person will therefore be a resident with effect from the first day of the relevant year (that is, the sixth year) during which all the requirements of the physical presence test have been met. The person will then be subject to tax in South Africa on worldwide income received or accrued from the first day of that year of assess-

He who has a why to live can bear almost any how. Fredrick Nietzsche

ment. The term “income” is defined in section 1(1) and means “gross income” less amounts that are exempt from normal tax. In the case of any person who is a resident, “gross income” includes amounts received or accrued from sources both within and outside the Republic, in accordance with paragraph (i) of the definition in section 1(1). Ceasing to be resident A natural person, who is resident by virtue of the physical presence test, ceases to be a resident when that person is physically outside the Republic for a continuous period of at

least 330 full days. Residence will cease from the day after the person left the Republic. A natural person, who is ordinarily resident, spending time outside the Republic and who intends on returning to the Republic after his or her wanderings, is regarded as a resident, regardless of the period of time spent outside the Republic. Tax advisers must therefore be very careful when advising clients who work in countries where there is no (or very low rate of) Income Tax, such as Dubai, Mauritius and other tax havens, especially if the client ‘s home and family is in South Africa.

Dual residence and tax treaties A person’s status as a resident of a particular country depends on the domestic laws of that country. Internationally, a country’s domestic laws may provide that a person is a “resident” if that person is liable to tax in that country by reason of domicile, citizenship, residence, or other factors. Thus, because the domestic laws of various states use differing criteria for determining residence, a person may be a “resident” of two or more states.

The double taxation that could arise as a result of this is often resolved by means of a double taxation agreement or tax treaty. Tax treaties recognise that a person will only be a “resident” under the treaty, if that person is resident under the domestic law of a contracting state to that treaty. In such cases, that person’s residence status under the tax treaty is determined by virtue of various tie-breaker rules which determine in which

country the individual is exclusively resident of. A person who is exclusively deemed to be a resident of a country other than the Republic under a tax treaty (as a result of the tax treaty tiebreaker rules or otherwise), is not a resident for purposes of the Act, regardless of any other rules in the definition of a “resident” in section 1(1).

Physical presence test—Death and insolvency In the event of death or sequestration, the first requirement of the physical presence test (namely, physical presence exceeding 91 days in total for the current year of assessment) is applied in the normal way, notwithstanding that the year of assessment is for a period covering less than a full calendar year. The first requirement

is therefore not scaled down to account for the fact that the “year of assessment” is less than a full year. Insolvency An insolvent person will be assessed as a natural person for the period before insolvency, as well as for the period subsequent to insolvency, should any

income accrue to that person in his or her personal capacity. The physical presence test must be applied to each of these two periods of assessment. The first period will be regarded as an immediately preceding year of assessment in relation to the second period. [Also refer tion Note 25]

Interpreta-

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What’s new at SARS? Binding rulings

 BPR 254—Consequences of cross-border and domestic asset-for-share transactions (30/11/16)  BPR 255— Debt reduction by way of set off (30/11/16) Court cases

 ITC 13772—Deductibility of future expenditure under section 24C (22/11/16) Guides

 Guide to the exemption from normal tax of income from films (18/11/16)  Guide to the urban development zone tax incentive—Issue 5 (18/11/16) Interpretation Notes

 IN93—Taxation of foreign dividends (24/11/2016)

Raise your voice—Sports Guide SARS extended the due date for public comments on the Draft Guide on the Taxation of Professional Sports Clubs and Players to 30 December 2016. The Guide is meant to provide clarity in relation to some of the issues and situations experienced by sports clubs and sportspersons in South Africa.

inevitable but

Comments must be sent to policycomments@sars.gov.za

personal growth

Foreign dividends Interpretation Note 93 provides guidance on the interpretation and application of various provisions of the Act relating to foreign dividends. Specific inclusion A foreign dividend received by or accrued to a person is included in that person’s gross income under paragraph (k) of the definition of “gross income” in section 1(1). Exemption Section 10B provides for exemptions of foreign dividends received by or accrued to a person. The exemptions under section 10B(2) are applied separately to each foreign dividend received or accrued while the partial exemption under section 10B(3) applies to the ag-

Change is

is a choice. gregate amount of foreign dividends not exempt under section 10B(2). The partial exemption is determined by applying the applicable ratio to a specific type of person. The exemptions will not apply to the extent that section 10B(4), (5) or (6) applies. Rebate Foreign dividends received by or accrued to a person constitute income from a foreign source under section 9(4)(a). Foreign tax paid on foreign dividends potentially qualifies for a tax rebate under section 6quat(1). Foreign currency Under section 25D a foreign dividend received by or accrued to a person is translated

from a foreign currency to rand at the spot rate, or at the average exchange rate if a natural person or non-trading trust so elects. Special rules apply to foreign permanent establishments, CFCs, headquarter companies, domestic treasury management companies and international shipping companies. Foreign tax payable on a foreign dividend is translated to rand on the last day of a year of assessment at the average exchange rate for that year of assessment under section 6 quat(4). Prohibited deductions Section 23(q) prohibits the deduction of expenditure incurred in the production of foreign dividends.

Bob Proctor

Page 12

The Professional

Enterprise A person can only register for VAT if that person carries on an “enterprise” as defined in section 1(1) of the VAT Act and exceed the applicable registration threshold stipulated in section 23. “Enterprise” refers to any activity carried on continuously or regularly in (or partly in) South Africa in the course of which goods or services are supplied to another person for consideration. Note that various activities are specifically excluded from “enterprise”.

In or partly in South Africa

whether the supplier is carrying on any activity in South Africa in respect of that supply. In practice, it becomes quite complex, especially in the case of subcontracting and it is therefore advisable to rather apply for a VAT ruling if you are unsure.

This means that there must be a link to South Africa. If the whole contract is negotiated outside South Africa and ownership of goods pass before the goods are cleared for home consumption, it is debatable

In order to conduct an enterprise, supplies must be made to other persons. The supply must be made for consideration, but need not yield a profit.

Continuously/regularly The activity therefore needs to be carried on continuously or regularly. Continuously refers to ongoing activity whereas regular means at systematic or consistent intervals.

Supply to another person

Commercial accommodation Don’t go through life, grow through life. Eric Butterworth

Commercial accommodation refers to instances where a person supplies lodging or board and lodging, together with domestic goods and services in any hotel, guest house etc. excluding rental of a dwelling. The definition of “enterprise” specifically excludes the supply of this type of commercial accommodation if the total value of taxable supplies in respect of that activity does not exceed

R120 000 per 12 months. This means that a guest house making taxable supplies of R100 000 during the 12 month period is not carrying on an enterprise and can therefore not register for VAT. Homes and hospice It also includes lodging or board and lodging in a home for the aged, children, physically/ mentally handicapped persons and hospice.

Domestic goods/services are defined to include electricity, furniture, meals and laundry. Value of supply If the supplier of commercial accommodation supplies the domestic goods and services at an all-inclusive charge for an unbroken period of 28 days, the consideration is deemed to be 60% of the all-inclusive charge.

Alternative documentary proof Binding general ruling 36 was published on 24 October 2016 to prescribe the circumstances under which the Commissioner will allow a vendor to use alternative documentary proof to substantiate the vendor’s entitlement to a deduction under section 16(3) of the VAT Act. When? A vendor may only apply for approval under section 16(2)(g) if the vendor -

 has sufficient proof that he

made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16 (2)(a) to (f);

 was unable to obtain and maintain the documentation prescribed under section 16 (2)(a) to (f) due to circumstances beyond his control; and

 no other provision of the

VAT Act allows for a deduction based on the particular document in the vendor’s possession. Circumstances beyond control

 The supplier fails to issue a

tax invoice, debit note or credit note or is deregistered

 The supplier was contacted but failed to respond to the vendor’s request(s) for tax invoices etc.

Volume 7, Issue 7

Page 13

VAT Registration A person may choose to register for VAT even though the compulsory VAT registration threshold of R1 million is not met. Generally the person must at least make taxable supplies of R50 000 in the preceding 12 months or if it is reasonably expected to meet this threshold. The Minister of Finance promulgated regulation 447 in Government Gazette 38836 to specify the criteria to be met in order to comply with the requirement “reasonably expect”. According to the regulation, SARS will be satisfied that a person carrying on an enterprise can reasonably expect to make taxable supplies in excess of R50 000 in the 12 months following the date of registration is one or more of the following circumstances exists: Taxable supplies > 2 months If the person made taxable supplies for more than 2 months and can provide proof that the average value of taxable supplies made by that person in the preceding months (limited to 11 months) exceeded R4 200 per month.

Taxable supplies for 1 month

Expenditure

If the person only made taxable supplies for one month, the person must proof that the total value of taxable supplies made during that month exceeded R4 200.

If the person can submit the following documentary proof of

Written contracts If the person is, in terms of a contractual obligation in writing, required to make taxable supplies exceeding R50 000 in the 12 months following the date of registration. Finance agreements If the person can submit proof, in the form of a financing agreement with a bank, credit provider etc., where the lender agreed to fund the expenditure incurred (or to be incurred) in the commencement or furtherance of the enterprise and the total repayments will exceed R50 000 in the 12 months following the date of the registration application.

 Expenditure incurred (or to

be incurred) in connection with the commencement or furtherance of the enterprise as set out in any written agreement entered into by that person;

 Capital goods acquired in

connection with the commencement of the enterprise AND

 Payment or extended payment agreement entered into in respect of expenditure and/or capital goods evidencing that payment –

 has exceeded R50 000 at the date of application or

 will exceed R50 000 in any

consecutive 12 month period commencing before the application date and ending after this date, or

 will exceed R50 000 in the

12 months following the application date.

Voluntary registration—Industries A person may also register for VAT voluntarily without meeting the R50 000 threshold if the person continuously and regularly carry on an activity set out in a regulation. These activities are, due to its nature, likely to only make taxable supplies after a period of time. The Minister gazetted regulation 446 in Government Gazette 38836 which lists the main activity categories as:

 Agriculture, farming, forest-

ry, fisheries

 Mining  Ship and aircraft building  Manufacture or assembly  Property development  Infrastructure development  Beneficiation Each of these activities contains sub-activities which should be considered.

A person conducting these activities who wants to register for VAT must, where required under any legislation, have applied for (or be in possession of) the relevant permit, licence or similar document issued by the relevant regulatory authority which authorizes the person to conduct that activity.

All the so-called “secrets of success” will not work unless you do. Unknown

Page 14

The Professional

Welcome to our new members Independent Accounting Professional ( Reviewer) / Certified Tax Practitioner Practice Number

Surname

Name

AO655171

Shaik

Mohammed Hoosen

AO652955

Gumbi

Bonginkosi Paul

Financial Accountant in Practice (Accounting Officer) / Certified Tax Practioner Practice Number

Surname

Name

AO653287

Bester

Eugene

AO303844

Magale

Kabishi

AO655427

Kouame

Hermann Tresor

AO654796

Mahlathi

Sebalo Raymond

ATC Number

Surname

Approved Training Centre Name Triplebar Business Direction (Pty) Ltd

ATC008

Technical Accountant / Certified Tax Practitioner Practice Number

Surname

Name

IAC655423

Watkins

Trevor Kaizer

IAC655415

Gouws

Lorette

IAC655431

Behenna

Lise

Technical Accountants Membership No

Surname

Name

IAC655424

Maserumule

Mankane Kaizer

IAC655437

Williams

Valencia Students

Membership No

Surname

Name

IAC655425

Thompson

Eugene Anthony

IAC655422

Nyirenda

Ann Chame

IAC655420

Zvinoera

Tinashe Victor Geoffrey

IAC655432

Engelbrecht

Taryn

IAC655436

Letsoalo

Diapo Kamogela Ananias

IAC655428

Mpofu

Vuimusi Nashville

IAC655429

Munyoro

Bridget Tarisayi

IAC 655430

Mlotshwa

Nompucuko

IAC655442

Majola

Ndabuko Ntobeko

Volume 7, Issue 7

Page 15

Death Announcement Mrs Diane Weatherby 1959 â&#x20AC;&#x201C; 2016

We learned with regret of the death of one of our valued members, Mrs Diane Weatherby. She passed on in November 2016. We at the IAC would like to express our sincere condolences to the Weatherby family. Please keep Dianeâ&#x20AC;&#x2122;s family in your thoughts and prayers.

Page 16

The Professional

Continuous Professional Development **CPD DEADLINE FOR 2016 – 31 DECEMBER 2016**

The Institute, being affiliated with SAQA and registered with CIPC and SARS, requires all its members to comply with our Continued Professional Development (CPD) requirements. CPD refers to on-going postqualification development aimed at refreshing, updating and developing knowledge and skills of professionals. Our members are required to be competent to carry out their duties and responsibilities and therefore have a duty to maintain a high level of professional knowledge and skills required to carry out their work in accordance with all relevant laws, regulations, technical and professional standards applicable to that work. All accounting registered members must complete 40 hours of CPD per calendar year (1 January - 31 December) of which a minimum of 50% must be structured and the balance can be unstructured. (Technical Accountants only need to do 50% of the above requirements). Tax practitioners must log a minimum of 15 tax related CPD hours per calendar year, of which 60% must be structured and 40% unstructured. Structured CPD hours can be obtained by attending courses, seminars and lectures and by performing research and or writing technical articles. Attending the monthly IAC discussion groups also counts towards structured CPD hours. Unstructured CPD hours can be obtained by reading technical and business literature, including the IAC’s newsletter. A breakdown of CPD hours for the various categories of membership:  Independent Accounting Professional / Financial Accountant in Practice/ Financial Accountant in Commerce 40 CPD hours / annum (20 structured + 20 unstructured dispersed evenly into the various categories on the website) and if any of these members carry Tax Practitioner status they will need to complete 9 structured + 6 unstructured tax hours.  Technical Accountant (only) 20 CPD hours / annum (10 structured + 10 unstructured hours dispersed evenly into the various categories on the website)  Certified Tax Practitioner and Associate Tax Practitioner 15 CPD hours / annum (9 structured tax hours + 6 unstructured hours) The Board further recommended that CPD hours need to be broken down into the following categories:  Accounting (i.e. IFRS)  Taxation  Company Law  Auditing & Review Engagements  Other (which is appropriate to the type of work undertaken by the member). Members must log their CPD hours on the Institute’s website. Please note that the following penalties will be levied if a member fails to meet the CPD requirements: First time offenders R 2 000 and catching up on outstanding CPD hours Second time offenders R 5 000 and catching up on outstanding CPD hours Third time offenders ` R 10 000 and catching up on outstanding CPD hours and More than 3 offences IAC membership is cancelled.

Volume 7, Issue 7

Page 17

Year-end message IAC CEO Dear Members I canâ&#x20AC;&#x2122;t believe how fast the year (or should I say the years) has passed by. Within a couple of weeks it will be Xmas and then the end of a very eventful year. On 28 April 2017 the IAC celebrates its 90th year of existence as a professional membership body. On checking our records I noticed that we have 141 members who are over 61 with the following members recording over 39 years of membership with the IAC: Mr. John Chemnais Mr. Ricardo Germishuys Adv. Braganza Pretorius Mr. Vernon Laranja

54 years 46 years 40 years 39 years

Sirs, the IAC salute you!!!! On behalf of the IAC I wish to convey a special word of thanks to all our senior members for your continuous support and dedication to the Institute. It is your dedication and support that has made this Institute what it is today. As we await 2017 and the challenges it brings I wish to take this opportunity to thank all members (young and old) for their loyal support of the IAC over the past years. I wish you and your families well over the festive season and trust that you will all have a blessed year in 2017. With your support, cooperation and understanding we embrace the challenges that will confront us and we will seek to find solutions and opportunities in them, rather than difficulties and despair. As always I once again remind you of our annual subscription fees, which becomes due and payable on 01 January 2017. The Board is well aware of the economic challenges faced by many of our members but was forced to once again increase the 2017 subscription fees to meet the continuous increase in operational expenditure. Should you have any difficulties in meeting the payment deadline, please do not hesitate to contact me to make your payment arrangements. Your quotation for the 2017 subscription fees will be emailed to you shortly. Should you wish to pay your subscriptions by credit card, then the authorization form can be downloaded from our website at www.iacsa.co.za (members section). If at all possible please pay via EFT. Kindly do not forget to update your CPD hours on the Instituteâ&#x20AC;&#x2122;s website database by no later than 31 December 2016 to avoid any penalties or suspension of your membership. On behalf of the Board of Directors, management and staff of the Institute, I wish to take this opportunity to thank you for your continued loyal support of the Institute and wish you and your families a Blessed Christmas and New Year. Thanking you. Yours Sincerely

Mr. E. Nagia Chief Executive Officer

Page 18

The Professional

MEMBERSHIP FEES FOR 2017 (Incl. VAT and *Professional Indemnity Insurance of R3M) FINANCIAL ACCOUNTANT IN PRACTICE *

5,416.70

ACCOUNTANT IN COMMERCE

1,995.00

TECHNICAL ACCOUNTANT

1,254.00

ACCOUNTING OFFICER - CC

1,368.00

CERTIFIED TAX PRACTITIONER *

3,153.80

ASSOCIATE TAX PRACTITIONER *

2,618.00

STUDENT ON LEARNERSHIP

1,065.90

Board of Directors—2017 We wish to congratulate the following newly elected directors for 2017: 

Mr. A. Bezuidenhout (President)



Honorable P. Chiota (President) (IAC Zim)



Mr. E. Nagia

CEO (S.A)



Mr. M. Biermann (Vice President) Mr. D. Johnstone (Immediate Past President)



Mr. J. Dube

CEO (Zim)



Mr. S. Tassiem



Mr. T. Mzwakali



Mr. S Cupido



Mr. D Swanepoel



Mrs. J. Lubbe (Absent)

Volume 7, Issue 7

Page 19

Year-end message President of the IAC Board Dear Members I want to take this opportunity to thank Ehsaan and the staff for their dedication, professionalism and the valued input and support which they have provided to the board of directors and all of the Instituteâ&#x20AC;&#x2122;s members during the past year. I would like to remind all members to update your CPD hours on the website by the 31st December 2016. This will be imperative for you to renew your membership in the forthcoming year. The IAC has no alternative but to enforce the regulations, which have been laid down by controlling bodies, in order to ensure our existence and your ability to continue practicing. In closing, I would like to thank you for your membership, your support, and the input given to your Institute, which contributes towards making it the success that it is today. I would also like to wish each and every member and their families a blessed, peaceful, festive season. I hope that 2017 brings us all peace, prosperity and the achievement which we strive for. I would like to leave you with the following:

One of the real joys this holiday season is the opportunity to say thank you and wish you the very best for the new year. ~ Unknown Yours sincerely, Andrew Bezuidenhout

A dynamic world-class professional accounting institute INSTITUTE OF ACCOUNTING AND COMMERCE

The Institute of Accounting and Commerce (IAC) is a professional accounting institute. Established in 1927, it is registered in South Africa as a non profit company (NPC). It is fully self-funded and conducts its business from its Head Office in Cape Town. MISSION STATEMENT

Primary Business Address 252 Rosmead Avenue Wynberg 7780

It is the aim of the Institute of Accounting and Commerce to promote actively the effective utilisation and development of qualified manpower through the achievement of the highest standards of professional competence and ethical conduct amongst its members. IAC Staff Bronwyn Benjamin (Compliance officer), Abeedah Busch (Personal Assistant), Soraya Busch (Membership officer), Valencia Williams (Finance officer).

QUERIES General: Abeeda Busch info@iacsa.co.za Membership Soraya Busch members@iacsa.co.za Bronwyn Benjamin compliance@iacsa.co.za

Prakash Singh (General Manager), Ehsaan Nagia (CEO SA), Duncan Stark (IT/Finance).

Finance Duncan Stark finance@iacsa.co.za Valencia Williams finance2@iac.co.za GM & Technical Prakash Singh gm@iacsa.co.za

Call us on: (021) 761 6211

CEO & Technical Ehsaan Nagia: ceo@iacsa.co.za Office Hours: Monday - Thursday 08:30 - 16:30 Friday 08:30 - 16:00

www.iacsa.co.za

Director Profile – Shawn Cupido A highly competent finance professional offering 17 years, local and UK, progressive experience in areas of Consultancy, FMCG and Retail sectors. I possess excellent problem solving skills encompassing all areas of finance. I am a team player and have good people motivational skills. I thrive on complex problem solving and implementing workable structures ensuring quality outputs. In addition, I ensure that I try my best to bring a more “human” side to accounting and taxation to my clientele.

In my personal life, I love spending time the outdoors and participate in a few outdoor sports. Family and Friends play an important role in my life and time spent is always memorable. Lastly, I serve as ViceChairman of the Western Province Committee and my recent appointment to the IAC Board depicts my strong belief and respect for the IAC as an institution. I would like to wish all fellow IAC members a blessed festive season and safe travels.