Ampersand Vol14

Ampersand Volume 14 | August 2009

WHAT’S IN

> TAX RELIEF Domestic residences score

> HIGHS AND LOWS Your will in difficult times

> HIRE THE RIGHT PEOPLE Avoid the HR headache

> PRUDENT TAX STRATEGIES Save your business

A new look. A new approach. Cameron & Prentice has had an exciting

Another parallel that

the small outfit we used to be - our core

brand makeover. Antonie van der Hoek

exists between origami

competencies and integrity position us as

explains why the change and what it means to the team. The audit profession is changing and so are we. We are moving from being a smaller concern into a significant player in the industry, and to reflect this gear shift we have embraced a new corporate

and the C&P business offering is that everything in origami has to be 100% precise. The folds that a craftsman makes in the origami paper have to be sharp and made in exactly the correct place - or

strong contenders in the market place – we are still highly approachable. All six of the partners maintain an open door policy and encourage staff and client interaction. In short, we are very excited about our revitalised and cohesive brand image. We feel that it accurately reflects how we have

identity which consistently appears in all

else the end product will be sub-

our brand elements, including our logo,

standard. It was this combination of

newsletter and web site.

flexibility and precision that

than ever before. Take a look at the new

attracted the team to this

C&P web site and see what you think.

A key creative feature that forms the thread throughout our communication is

creative route.

that of origami. The inspiration for this

Another reason why we are so thrilled

idea came from the blocks that contain our corporate letters ‘C & P’. Imagine that each of these blocks is a flat sheet of paper that can be transformed into anything the imagination conjures up. This flexibility is indicative of the work that C&P does.

with this origami idea is that it conveys a message of personalisation and ‘the human touch’. Origami is an art form that is literally ‘hands on’, which mirrors our company ethos of accessibility and friendliness. And while we are the first to acknowledge that we are no longer

been gearing up for change and are now ready to take on even bigger challenges

Visit www.campren.co.za

ED’S DESK

Reality can be a bitter pill to swallow at the best of times. Just open any newspaper and you’ll see what I mean. But luckily our friends in the world of entertainment have put a positive spin on our day-to-day “ordinariness” thanks to reality TV. As viewers, we are glued to our screens as we watch men and women battle it out in steamy tropical jungles just for a bowl of rice. Or are thrilled when supermodels bare their well-manicured claws at one another in their quest to seize the beauty queen crown.

IN BRIEF

SARS penalty regulations As mentioned in Ampersand 12, draconian new administrative penalty regulations have been introduced by SARS to penalise taxpayers for instances of administrative non-

the gazetted rate for their category of vehicle. Also with effect from 1 March 2010, 80% of the travel allowance (up from the current 60%) will be included in remuneration for purposes of calculating PAYE.

compliance. Details of the penalty amounts and applicable offences were discussed in Ampersand 12. The regulations setting out the penalties have now been gazetted, and became effective on 1 January 2009. The penalties will increase for each month, In fact, this obsession with reality has even spilled over into our C&P brand identity, as revealed in our exciting image makeover. We’re thrilled with this new look as it reflects the new direction in which we, as a firm, are heading. But Antonie van der Hoek discusses this topic in more detail in our cover feature “A new look. A new approach”.

or part thereof, where the taxpayer fails to rectify the non-compliance and are separate to the percentagebased penalties that apply for late payment of taxes (VAT, PAYE etc). In respect of cases of non-compliance that existed on 1 January 2009, a transitional arrangement means that the regulations became effective on 1 April 2009. The regulations provide SARS with the discretion as to whether

Ampersand’s Word of Advice also

or not to impose a penalty in cases of

helps temper the cold reality of making

non-compliance – i.e. the penalties are

expensive hiring mistakes, while Peter

not automatic.

Prentice takes a hard look at how the credit crunch affects your will and Shaun Fisher gives us a guideline on how to save one’s business via careful tax strategies.

Travel allowances With effect from years of assessment commencing on or after 1 March 2010, taxpayers will no longer be able to

So until next time, if reality feels as

claim travel deductions based on the

though it’s getting a bit too much to

deemed kilometre method. Taxpayers

bear, I suggest that you tune into the

who use their vehicles for business

next episode of Fear Factor and be

purposes and who receive a travel

grateful that you aren’t the one who

allowance will have to keep a logbook

has to eat a bucketful of worms.

of business kilometres travelled in order

ED

to claim a travel deduction based on

SARS Wear & Tear Interpretation Note SARS has issued a new Interpretation Note (No. 47) covering section 11(e) wear and tear allowances. The Note replaces Practice Notes 15, 19 and 39 previously issued by SARS. The list of approved write-off periods has been expanded and amended. For example, cell phones now qualify for write-off over two years instead of three and write-off periods for gym equipment have been split into more meaningful categories. The maximum allowed in respect of the cost of “small” items has been increased from R5 000 to R7 000. The Interpretation Note has the status of a binding general ruling under section 76P of the Act and is effective in respect of any asset brought into use during any year of assessment commencing on or after 1 March 2009.

Careful tax strategies can save businesses

So, for example, if a delegation is sent overseas with the purpose of exploring or setting up a potential new market, the expenditure would be of a capital nature and not deductible. The same hapless result is achieved if a director is sent abroad in order to negotiate the purchase or disposal of a major asset. It has also been found by the Tax Court to

In these difficult economic times it is

which are exempt from tax. So if one is

be the position where a company sent

wise to think twice before spending

considering the acquisition of a business

employees overseas to gain knowledge

money. This obvious statement pertains

housed in a company and borrowing

of the latest developments and

to everyone in South Africa but in this

money to affect the acquisition, it would

advances in the products manufactured

instance refers specifically to business

make sense from a tax point of view if

by the company.

owners and managers who need to not

one were to acquire the assets out of

only reduce expenditure where possible

the company rather than the shares in

but as Shaun Fisher points out, also

the company. In the former case the

adopt a prudent tax strategy in order

interest would be deductible and in the

to ensure expenses incurred are tax

latter case it would not.

deductible. It can be extremely unpleasant for

Another bar to

business owners and managers to

the deductibility

find out that expenses incurred under the misconception that they are tax

of expenditure is the

deductible are not deductible.

further Income Tax Act

Directors or owners of businesses are often only alerted to the tax status of an expense by their auditors, when it is too late to do anything about it. Although many expenses are unavoidable, it is invaluable to understand the main principles that govern the deductibility of expenditure and also to be aware of commonly encountered types of nondeductible expenses.

requirement that the expenditure must not

Another common example of capital expenditure is a lease premium. However, even though expenditure on a lease premium is of a capital nature, the taxpayer does qualify for a deduction under a specific section of the Act, which grants the lessee a deduction provided that the lessor is not a tax-exempt institution (such as a pension fund). The expenditure cannot be deducted upfront though, and has to be claimed over the lease period, with a maximum spread of 25 years. This has negative cash flow implications for the lessee. The lessor,

be ‘of a capital

on the other hand, is taxed

nature’.

on the full amount of the lease premium received upfront.

Expenditure will be considered to

In these tough economic

be ‘of a capital nature’ if it is more

times where businesses

closely aligned to the structure of a

are struggling and many

A common bar to the deductibility of

business than to the business’s

expenditure is the Income Tax Act

operations, for example company

are failing, it makes

requirement that the expenditure

formation expenditure and the

sense to cut down on

must be ‘in the production of income’.

purchase of fixed assets (capital)

For expenditure to be considered ‘in

compared with rent

where expenses cannot be

the production of income’, it must be

or advertising (non-

avoided, business owners

expended for the purpose of producing

capital).

an income that is taxable and not exempt.

expenditure. However,

and managers should consult a reputable

However, many

tax practitioner on a

corporate decision-

A practical consequence of this principle

makers are unaware

that is often encountered is that if one

that the test for

borrows money to fund the purchase

capital expenditure

of South African shares, the interest

extends to

on the loan is not tax deductible, as

expenditure such

the loan is used to produce dividends

as travel expenses.

regular basis to ensure that anticipated expenditure is structured in the most tax-friendly way

possible.

Rare legislative concession gives tax relief to domestic residences The Draft 2009 Taxation Laws Amendments contain a proposal that, if enacted, will allow individuals to transfer their domestic residence out of a company or close-corporation, for a period of two years, tax-free. The motivation for the

Despite the narrower relief mentioned above, the effect of the proposal is that the transfer will be free from Capital Gains Tax, Secondary Tax

proposal was to allow such entities to avoid the payment of annual duties.

on Companies and Transfer Duty.

David Warneke explains.

The transferee will also be able to benefit from the R1.5 million ‘primary

Although similar relief was previously

from 11 February 2009 until the date the

residence exclusion’ from CGT if the

available where the residence had to be

residence is distributed out of the entity.

residence is subsequently sold for

acquired out of the company or close corporation by 30 September 2002, the current proposal is narrower than the previous relief in a number of respects.

The residence has to be used exclusively for domestic purposes during the above period and has to be the sole asset of the company or close

Trusts that distribute domestic

corporation. It must also be distributed

residences will not benefit from any

out of the entity between the 1st of

relief. Also, all of the shares or members’

January 2010 and the 31st of December

interests in the entity have to be held by

2011 and finally, the entity has to be

the person residing in the property, or

wound up after the above distribution.

that person’s spouse, during the period

a profit.

The transfer will be treated as a ‘roll-over’, meaning that the transferee will step into the shoes of the transferring entity insofar as the history of the residence is concerned. Although transferring a growth asset into the hands of a natural person usually leads to an increased Estate Duty liability, it must be remembered that the only entities that qualify for the relief are those in which the natural persons held all the equity. Therefore the transfer will be tax-neutral from the point of view of Estate Duty. This is an example of an uncommon legislative concession and should the proposal in fact become law, we strongly encourage those taxpayers who did not take advantage of the previous concession to do so this time.

A word of advice

Think smart. Hire smart.

As author Jim Collins writes, “In the good-to-great transformation, people are not your most important asset. The right people are.” Your company’s continued growth and success depends on making the right choices and hiring the best staff members’ possible. You want someone who not only has the necessary skills for the job, but easily blends with the culture, interacts positively with the team and believes in your overall corporate mission. Here are some tips to help you employ the right person for the job the first time around:

Before the interview: Know what you need. Identify the key competencies required before you interview. For example, if you’re hiring

Pre-screen by phone. To save time,

clear message with their assistant or

pre-screen people by asking certain

on voicemail, e.g. “Zo is a candidate

“knockout questions” designed to

for (the position) in our company. Your

eliminate unqualified applicants.

name has been given as a reference. Please call me back if the candidate

someone in sales - create questions that will tell you whether the person has

During the interview:

good interpersonal and organisational

Ask the right questions. Find out

skills.

whether a person is more comfortable

Advertise the position. Cast the widest

with details or the big picture or is a

net possible. Often the best candidates

self-starter or an order-taker and so on.

are those not looking for jobs.

Create questions that will give you the

Look at what works. Ask questions

answers you need.

that will help you determine whether

Close your mouth and open

the candidate will adapt well to your

your ears. Too often interviewers

organisation’s culture.

turn an interview into a “wish list” of

Read CVs in teams. It’s helpful - and faster - to read the top candidates’ CVs in teams of three to five people.

their wants and needs. Ask focused questions and then listen carefully. Take notes.

was outstanding.” The results are both immediate and revealing. If the candidate is excellent, eight out of ten people will respond quickly and want to help. If only two or three of the references selected by the candidate return your call, this message is also loud and clear. Go with your gut. Sometimes, however, you can’t put into words why someone is or is not clicking with you. If you aren’t sure whether to trust your intuition, delay the decision for a day or two.

Teams that work well together are more accurate and insightful about potential

After the interview:

employees than individuals are.

Check applications. Look for lack of

Schedule multiple interviews. Have

information, inconsistencies, or phony

key people, those who will be working

companies.

with the potential employee, interview

Check references. Deliberately call

the top candidates, and ask for their feedback.

references when they are most likely to be out of the office and leave a

DID YOU KNOW ?

Sources: www.replacementcontracto ronline.com/industrywww.businessknowhow.com/ manage/hire_best.htm www.kk.org/cooltools/ archives/000452.php

BEE Rating

online version of Ampersand visit our

Change of Voice

We have now received our BEE rating.

website or email [email protected]

Have you noticed that Jacky Sokanyile

Please contact us if you require a copy

with your request.

is no longer answering the phone at

of our level 2 certificate.

CONgratulations

C&P. That’s because she has taken up

Ampersand Online

Lauren Davids, Candice McDonald,

Save the trees. Ampersand can now

Jacobie Wagter and Yatin Ranchod have

be received online. To subscribe to our

recently passed their Board Exam 1.

an internal position within the firm. Anita De Pontes is now filling her shoes at the front desk.

The credit crunch and your will The adverse economic conditions

was when you formulated your estate

in which we now find ourselves could

plan and drafted your will.

have a major impact on your estate planning and a negative impact on your beneficiaries if you were to die before the markets regain their previous highs. Peter Prentice shares insight during these troubled times.

Let me illustrate the problem with the following example: Mr A, a widower, drafted his will two years ago at which point in time his estate was

interest rates it is quite conceivable that

charity an amount of R3 million. To his

your estate is not worth today what it

close companion, who he felt obliged to

A: The new Companies Bill provides for the co-existence of the new Companies Act and the Close Corporations Act, with amendments to the CC Act to harmonise the laws as far as practicable. Once the new Companies Act becomes effective, the Close Corporation Act will no longer be used for the formation of new corporations. i.e. it will not be possible to form a CC after the implementation of the new Companies Act. CC’s will however be able to continue in existence and

Overheard If an investment return sounds too good to be true, it probably is!

of R15 million. After payment of R2.3 million comprising mainly of estate duty and executor’s remuneration there was a residue available for distribution of R12.7 million. The three children and the charity each received approximately 85% of the amounts bequeathed to them in terms of the will and the The moral of the story is take your

children an amount of R4 million. To a

implemented?

time his estate realized a total value

He bequeathed his assets in terms of

lower property values and reduced

when the new Companies Act is

Mr A died in January this year at which

companion received nothing.

his will as follows. To each of his three

Q: What will happen to my CC

payment of estate liabilities. Regrettably

conservatively valued at R25 million.

With falling and volatile share prices,

Q&A

care for, the residue of his estate after

estate planning seriously and review your will regularly. Even the credit crunch can trip you up!

will not immediately be required to

fall under the definition of “labour

convert to companies.

broker” contained in the Income Tax

Q: What are the deadline dates for submitting 2009 income tax returns? A: Income tax returns for individuals and trusts must be submitted by 18 September 2009 unless the returns are filed via e-filing, in which case the deadline for submission is 20 November 2009. As far as companies, CC’s and exempt institutions are concerned, the tax return deadline is 12 months after the financial year end. Q: SARS is no longer issuing labour broker employees’ tax exemption certificates. How will this affect me in practice? A: With effect from 1 March 2009, companies and CC’s no longer

Act. Essentially, payments made by clients to companies or CC’s that provide labour will not be subject to the withholding of PAYE as long as the company or CC employs at least three non connected-person employees who are on a full-time basis engaged in the business of that company or CC. However as the tax legislation governing labour broker and personal service entities is complex and can be confusing at times, we advise any clients, who fall within the labour broker or personal service entity legislation, or who may be making payments to such entities, to consult our tax department for clarification if in doubt as to the applicability of the rules to their specific circumstances.

ANDY