TAX CLEARANCE

CERTIFICATES

So what is new?

The Tax Administration Act 28 of 2011 (“the TAA”) which took effect on 1 October 2012 contained provisions regulating the issue of tax clearance certificates by the South African Revenue Service (‘SARS’). Section 256 of the TAA was substituted in its entirety as a result of section 64 of the Tax Administration Laws Amendment Act 44 of 2014 (“TALAA”).

The new provisions governing the issue of tax clearance certificates took effect on date of promulgation of the TALAA, namely, 20 January 2015. The ‘Memorandum on the Objects of the Tax Administration Laws Amendment Bill of 2014′ indicated that a new tax clearance system has been introduced by SARS to enhance the functionality by SARS in issuing tax clearance certificates for purposes of applying for government tenders for both taxpayers and those entities that are awarding tenders. Under section 256 of the TAA, taxpayers are entitled to request confirmation of tax compliance status regarding tenders, good standing, and utilization of the foreign investment allowance or those persons wishing to emigrate.

A taxpayer seeking a tax clearance certificate is required to apply in the prescribed form and manner to SARS and SARS is then required to issue confirmation of that taxpayer’s compliance status within 21 business days from the date the application is submitted, or such longer period as may reasonably be required if a senior SARS official is satisfied that the issue of the tax clearance certificate may prejudice the efficient and effective collection of taxes. SARS may only provide confirmation of the taxpayer’s tax compliance status as compliant where that taxpayer is registered for tax and does not have any outstanding tax debt due to SARS, excluding an amount which is in dispute and which has been suspended under section 164, or where the taxpayer has concluded an installment payment agreement with SARS under section 167 of the TAA or the taxpayer has compromised the tax debt with SARS under section 204.

Furthermore, SARS may not issue confirmation that the taxpayer is compliant where the taxpayer has any return outstanding to SARS, unless the taxpayer has made an arrangement with SARS regarding the submission of that return. Previously, section 256 required that there were no outstanding requests for information and that has been removed as a requirement for confirmation of the taxpayer’s tax compliance status, but that amendment will be reviewed during the 2015 legislative cycle.

Once SARS is satisfied that the taxpayer is compliant, it must issue confirmation of the taxpayer’s compliance status in the prescribed format, and include the original date of issue of the tax compliance status confirmation, as well as the taxpayer’s tax reference number and other identifying details. Generally, SARS is not entitled to disclose information regarding a taxpayer to any other person, in light of the confidentiality provisions contained in Chapter 6 of the TAA. However, section 256 provides that SARS may confirm the taxpayer’s tax compliance status upon request by an organ of state or any other person to whom the taxpayer has presented the tax compliance status confirmation.

Where SARS discovers that it has issued the confirmation of the taxpayer’s compliance status in error, or that the confirmation was obtained on the basis of fraud, misrepresentation or non-disclosure of material facts, SARS may alter the taxpayer’s tax compliance status from compliant to non-compliant, so long as it has given the taxpayer an opportunity to respond to the allegations of at least 14 days prior to the withdrawal of the confirmation of the taxpayer’s compliant status. The

taxpayer will be regarded as non-compliant from the period commencing on the date that the taxpayer no longer complies with the requirements specified in section 156(3) of the TAA, and ending on the date that the taxpayer regularises their non- compliance.

SARS has indicated that it is intended that where a taxpayer’s request for confirmation of tax compliance status is successful, it will issue the taxpayer with a personal identification number (‘PIN’) for their specific request. When the PIN is utilised by any other person, that person will be able to ascertain the compliance status of the taxpayer on a real time basis on the date on which that PIN is utilised. It is intended that the tax compliance status process will allow taxpayers to print a tax clearance certificate in the previous format from the new system during the phasing in period of the new real time tax clearance status system, by utilising the PIN provided by SARS. Unfortunately, cases have been encountered where taxpayers have applied for tax clearance certificates, only to be declined on the basis that they have an outstanding tax debt, which relates to an amount in dispute for which the taxpayer has applied for postponement under section 164 and to which SARS has not responded. This flows from the fact that applications for suspension of payment are not tracked on the SARS system and too often SARS delays making a decision on whether the taxpayer’s request for suspension is granted or not, and hopefully this deficiency will be rectified in the future.

Nico Viljoen - The Tax Shop

BEE code change shocks industry

BY CAROL PATON, 07 MAY 2015, 06:02

Business Day

THE Department of Trade and Industry sprung a surprise on business, issuing an unexpected "clarification notice" on Tuesday that broad-based empowerment and employee share ownership schemes will no longer count as much as individual share ownership on the black economic empowerment (BEE) scorecard.

The notice astounded lawyers and verification agencies and will substantially alter the ratings of companies that have placed a portion of their ownership in the hands of employees or community organisations.

The notice also set out to clarify a range of issues relating to the new codes of good practice, which were due to come into effect on May 1, and explain their staggered implementation.

Of the 25 points on the new scorecard that can be earned for black ownership, broad-based and employee share ownership schemes can contribute only a maximum of three points. They cannot count towards the voting rights of black people or the economic interest they hold in the company, which are the other elements on the scorecard.

Under the previous score-card, broad-based and employee ownership schemes were used in the general calculation of black ownership, provided they were manifested in voting rights and reflected genuine economic interests, such as dividend payments and the ability to trade shares. The change was not canvassed with stakeholders or verification agencies.

Keith Levenstein, CEO of empowerment verification agency Econoserve said it would affect hundreds if not thousands of broad-based schemes.

"It is going to instantly drop these companies on the scorecard by as much as 20 points and imply they do not meet the element of ownership," he said.

Empowerdex described the news as a "big shocker" and Mazar’s managing partner Tony Balshaw called it "devastating".

"A significant number of nonlisted multinationals and large-and medium-sized enterprises have done empowerment deals based on employee or broad ownership schemes. The effect on them could be to drop at least three ratings levels of the eight," said Mr Balshaw.

Chief director of the Department of Trade and Industry Takalani Tambani said the idea behind the change was to ensure that ownership by black individuals was given greater priority by the business community.

"The message is government views the ownership as important to transform the economy. For us to effectively do that, we want to see black people participating meaningfully in the core of the economy.

Passive shareholding will not be able to transform this economy. Passive shareholders are not the real drivers of the business," he said.

Mr Tambani also downplayed the effect the new measure would have on the scorecards of businesses, saying it was not a major change from the way broad-based ownership was measured in the past.

But Mr Balshaw said it had never been the interpretation of law firms advising on multibillion-rand empowerment deals that broad-based ownership was not real ownership.

Mr Levenstein said many companies had used broad-based schemes and trusts as empowerment fronts as the schemes did not allow members to trade their shares or result in financial benefits. If black people were unable to realise economic benefits then such schemes should not qualify for ownership points, he said.

But in creating a blanket exclusion the department had "thrown the baby out with the bathwater", he said.

LOOK OUT DIVIDENDS

Planning on Paying Dividends Soon?

Do you want to pay dividends or from your company or make distributions

from your close corporation in the near future?

Both The Companies Act, 2008 and The Close Corporations Act, 1984 stipulates

that the entity must satisfy the liquidity and solvency tests immediately after

making the proposed distribution. Directors and members can be held liable for any

payments made contrary to the above requirements of being liquid and

solvent before and after the dividend payment.

Solvency is the term used to see if an entity’s assets fairly valued

exceed its liabilities fairly valued. The fair value of an asset or liability is

not necessarily the same value as recorded on the balance sheet at year

end. The values stipulated on the balance sheet are based on the

accounting policies adopted and used by the entity. Therefore all assets,

contingent assets, liabilities and contingent liabilities need to be valued

using fair market value to ascertain if the assets exceed its liabilities.

Post balance sheet events also need to be considered when performing

the solvency test.

Liquidity is the term used when an entity is able to pay its debts as they

become due. To perform this test one needs to do a cash flow forecast.

If your forecast shows your entity can meet its liabilities within the next 12

months then your entity is considered to be liquid.

Liquidity and solvency are also key items to consider when determining if

a company’s annual financial statements must be prepared on the going

concern basis or not.

In addition to the above requirements, it should be remembered that all

dividends paid (including distributions by members of close corporations

are subject to Dividends Tax.

Information courtesy of The Tax Shop

CAPITAL GAINS TAX

What You Need to Know.

Capital Gains Tax (CGT) was implemented in South Africa on 1 October

2001. It is a tax charged on the disposal of assets and is calculated as

the proceeds received on the disposal of assets less the base cost

(original cost plus improvements) of the asset. Not all assets are

necessarily subject to CGT.

 Some of the important exclusions are the following:

·         Primary residence (applicable to natural persons and special trusts

only). If the proceeds on the sale of a person’s primary residence is

less than R2m any capital gain is disregarded, but any capital loss

may be carried forward. If the proceeds exceed R2m the first R2m of

the capital gain or loss calculated is disregarded

·         Most personal belongings such as a motor vehicle (including a motor

vehicle for which you receive a car allowance), a caravan, artwork,

stamp collection, furniture and household appliances and other

assets used mainly (that is, more than 50%) for a non-trade

purposes.

·         Boats not exceeding ten metres in length and aircraft having an

empty mass of 450 kilograms or less which are personal-use assets.

·         Lump sum payments from pension, pension preservation, provident,

provident preservation and retirement annuity funds (approved

retirement funds)

·         Proceeds from an endowment policy or life insurance policy (but not if

it is a second-hand or a foreign policy).

·         Compensation for personal injury or illness.

·         Prizes/winnings from gambling, games or competitions which are

authorised by, and conducted under, the laws of South Africa, for

example, the National Lottery.

If the asset was purchased after 1 October 2001 then it is straight

forward to calculate the base cost of the asset - it is the original cost

plus the cost of improvements made subsequent to purchasing the

asset on condition these costs have been capitalised and not expensed

and claimed for income tax purposes and these improvements still

exist at the date of disposal. If the asset was purchased prior to 1

October 2001 then the base cost can be determined in one of three

different methods - the choice of which method to use to determine the

base cost at 1 October 2001 is up to the taxpayer while all qualifying

costs after this date should be added to this cost to get the total base

cost at the date of disposal.

Upon calculation of the net gain or loss for all the assets an annual exclusion

 is given by SARS to individuals which can be deducted from the net gain

(this exclusion is only available to individuals and not to companies).

The net capital gain or loss (after deducting the annual exclusion)

 will then be included in the normal income tax calculation at the inclusion

 rate i.e. 66.6% for companies and 33.3% for individuals.

It should be noted that it is a requirement by law that companies and close

corporations maintain a fixed asset register. Furthermore, a lot of information

 needed in calculating CGT  is obtained from the fixed asset register.

We therefore urge all companies to maintain an up-to-date fixed asset register.

Please contact us to find out more about CGT and also how to maintain a fixed

asset register in order to remain compliant with the law!

Information curtesy of The Tax Shop

NO PAYROLL?

Understanding the real risks

It has become increasingly evident in recent years that businesses

which desire to remain compliant with legislation, need to implement

competent payroll solutions. The requirements of SARS, Department of

Labour and various other institutions means that no business can

afford to maintain payroll data in a spreadsheet any longer. Even the

most minimum of labour laws are difficult to adhere to without a decent

payroll package.

An investment in payroll should not merely be seen as a platform for

producing payslips for employees, but, as a powerful tool to enable

management and/or owners to identify problems in their workforce.

While the value of such tools grows exponentially as the numbers of

employees increase, it should be borne in mind that all employers are

advised to maintain a proper payroll system, irrespective of the size of

their workforce. Even a business with only 1 employee should do so.

A payroll system should not only cater for payroll data, but, it should

also be an effective human resource (HR) tool, keeping track of leave

as determined by law.

The following legislative requirements have to be met by all employers

in South Africa:

o Tax submissions required by SARS such as the monthly EMP201s

and bi-annual EMP501s. In addition, SARS may require

reconciliations of actual payroll data to that which has been

disclosed in the annual financial statements and ultimately on the

tax return of the employer e.g. IT14SD.

o Labour submissions required by the Department of Labour such as

monthly UI19s (UIF), annual W.AS.8 (Workmens Compensation)

and EE (Employment Equity) reports.

Many years ago The Tax Shop invested in a world class application (aptly

named PayrollPRO) which has been in operation since 2000 and can

confidently be categorised as the leading online payroll solution in SA.

Here are some of the features offered by PayrollPRO:

1. No need to install complicated or expensive software as PayrollPRO

is a true ‘in the cloud’ solution.

2. Access your payroll 24/7 from any location in the world.

3. No more need for backups or physical storage of documents.

4. The simplicity of PayrollPRO means that dedicated training of payroll

staff is not required.

5. Once employee details have been loaded, processing of payslips is

performed with a few simple clicks.

6. Powerful reporting functionality allows for payroll data to be

summarised quickly and easily.

7. Payslips can be generated for weekly, fortnightly and monthly

employees. There is no limit to the number of employees or

companies which may be added.

8. Receive notifications by SMS or email.

9. Employee self-service is available whereby employees can log into

PayrollPRO themselves to access payslips, apply for leave online,

etc.

10. PayrollPRO is a power HR system, enabling employers to keep

record of leave for employees in accordance with government

requirements.

11. Multi-currency functionality for companies which have operations in

other countries.

12. Online storage of employee contracts and other important

documentation such as garnishee orders.

13. Incident management to record disciplinary issues.

14. Cloud analytics for powerful analysis of payroll data.

15. Performance evaluation to facilitate the setting of salary packages.

16. Time sheet facility for employees to capture their hours directly and

then to be approved by management.

17. Mass update functionality whereby all employee data can be

updated at the click of a single button.

18. Three editions to cater for employer-specific needs.

29. Plus…much, much more.

Whether you employ one person or ten thousand, our advice would be

to ensure that all your employees are loaded onto PayrollPRO. The

pricing of PayrollPRO is a fraction of the cost which you would expect

to pay - there are neither annual licence costs nor any software costs.

You only pay for each payslip which is processed