Ampersand Vol15

Ampersand Volume 15 | November 2009

WHAT’S IN

> TOUGH TALK SARS flexes its muscle

> IFRS FOR SMES New standards explained

> CHOOSING A CHARITY Heart of the matter

Do you qualify for DTI incentives? Originally launched in July 2008, the Department of Trade and Industry has recently revised their Enterprise Investment Programme (EIP). The result of these amendments is an increased number of incentives across numerous industry sectors. Using the manufacturing and tourism industries as examples, Shaun Fisher demonstrates just how these changes could be of benefit to you.

Manufacturing

> TELL YOUR SPOUSE New estate duty abatement

Up to 30% of the cost of the investment can be claimed back.

New and expanding entities (including

Expanding entities will only qualify if

companies, close corporations and

they increase their existing plant and

co-ops) that are investing in qualifying

machinery (cost value) by at least 35%

assets may qualify for a tax free cash

(or 30% for smaller projects). While

grant which is paid out over a two- or

expansions or upgrades of textile or

three-year period depending on the size

clothing manufacturing entities need

of the project.

only increase their current cost of plant and machinery by 10%.

Tourism Entities involved in the tourism industry can take advantage of EIP incentives when they increase their existing furniture and fittings (cost value) and capacity by at least 30%. If you think you qualify, or would like to investigate other DTI incentives that apply to your sector of industry, please contact C&P. We will be more than happy to guide you through the necessary steps involved.

SARS targets non-compliance THE South African Revenue Service (SARS) has indicated that it will start to impose severe penalties on any taxpayers who are non-compliant, with effect from 23 November 2009. David Warneke explains just what’s in store. SARS will impose a draconian penalty

of the imposition of a one month

The failure to register as a taxpayer

regime for, amongst other things,

penalty for each outstanding return.

frequently occurs in the case of

failure to register as a taxpayer, for

Should they fail to submit the

dormant trusts, which, it should be

outstanding income tax returns or for

outstanding returns within 30 days of

noted, are required to register even

failure to notify SARS of a change

the date of this notice, a second penalty

though they may earn no income.

of address.

will be applied, and so on. The new

Details of these penalties were outlined in Ampersand Vol 12 (4th Quarter 2008), but the regime has

penalties may be applied each month for up to 35 months.

not yet been implemented, mainly in

If you, or any

order to allow SARS time to develop

entities with which

its systems to monitor non-compliance and to impose the penalties.

you are involved, have

The penalties are calculated at a

multiple returns outstanding,

minimum amount of R250 per month for the duration of the non-compliance. The monthly penalty amounts go to a maximum of R16 000 per month, depending on the extent of the taxpayer’s most recently assessed taxable income. As stated in a SARS media release, the penalties will be phased-in

it would be wise to hand the information over to your accountants in order for them to submit the returns before this deadline.

over a period of time, beginning on 23 November 2009, and will first be imposed against repeat offenders taxpayers who have failed to submit returns for multiple years. Taxpayers with multiple outstanding returns after this date will be notified

In due course the penalties will also be applied for failure to register as a taxpayer or failure to notify SARS of a change of address.

If your trust documents are kept with C&P your trust should, by now, have been registered for tax. If however your trust documents are not held by C&P and you are aware that the trust has not been registered, please notify us so that we can attend to the registration. SARS has promised to be extremely severe in their punishment on noncompliance. However, fair warning has been given and it would be in everyone’s own best interests to ensure proactive measures are taken to avoid these penalties.

ED’S DESK

One always knows that the end of the year is drawing close when headlines such as “lose centimetres in seconds” or “6 steps to a bikini-ready body” shout from the covers of lifestyle magazines. So to celebrate the impending arrival of summer, Ampersand Vol. 15 is rippling with tips and info on how to keep your business in top shape. Peter Prentice flexes his knowledge about estate planning; David Warneke buffs up on how SARS will be putting lackadaisical taxpayers through their paces and Chris Norris tackles hot topical questions in this issue’s Q&A. But summer wouldn’t be complete without a touch of the attractive, which is why Boryana Mintcheva outlines International Financial Reporting Standards for Small and Medium – sized Entities and Shaun Fisher takes a shine to the new incentives available thanks to the Department of Trade and Industry’s revised Enterprise Investment Programme.

IN BRIEF

Residential property companies - an update As mentioned in Ampersand 14, SARS had proposed the introduction of “rollover” relief in respect of entities with inactive real estate. However, the Draft Explanatory Memorandum on the 2009 Taxation Laws Amendment Bill which had been released at the time, did not allow for the relief to be applied to residences owned by Trusts. The legislation has now been finalised and includes transfers of residences from trusts as long as the natural person, to whom the transfer is to take place, either donated the property to the trust or financed all the trust’s expenditure in acquiring that property. The legislation also no longer requires the company or trust to be liquidated, wound-up or deregistered after the transfer takes place. The concessions apply to all qualifying transfers occurring before 1 January 2012. Enhanced learnership deductions

But if things really start to get a little too hot to handle before the year is out, you can always unwind by taking a quick jog along the ocean front, blazing a trail through the forests on your mountain bike or by simply celebrating with sundowners on the beach. So until next time “Cheers!” ED

Section 12H deductions have been extended to allow for a deduction of R30 000 for each year of the learnership agreement. In the year of completion, a further R30 000 multiplied by the number of consecutive 12 month periods within the duration of that learnership agreement, will be allowed as a deduction. There is a further enhancement if a disabled person is employed and there are special rules if a learnership is transferred from one employer to another - in this latter case the recoupment provision that affected the transferring employer falls away. The changes will be effective for years of assessment ending on or after 1 January 2010.

Second provisional tax estimates A two-tier approach for second provisional tax estimates has now been introduced by SARS. Taxpayers with a taxable income up to R1 million will be able to make use of the old “basic amount” system where estimates have to be at least equal to the basic amount or 90% of taxable income in order to avoid penalties. SARS will however increase the basic amount automatically by 8% per annum. Taxpayers with taxable incomes of over R1 million will have to estimate their taxable income at at least 80% of their actual taxable income in order to avoid being penalised for underestimating. The penalty provisions will however be discretionary for SARS and not automatic. Tax Enquiry Insurance now in SA Having in effect implemented a system of self-assessment via E-filing, SARS is gearing up to focus their efforts on the audit of taxpayers. This is a fact and tax practitioners have already begun to see queries from SARS rolling in. An exciting product which originated in the UK and has now become standard practice there, where the tax system underwent a similar change a number of years ago, is now available in South Africa. This product is known as ‘Tax Enquiry Insurance’ and covers the taxpayer for time spent by accountants or legal professionals in responding to queries or audits from SARS. We are recommending that our clients take up this insurance as it can save a great deal of money and is affordable. We will be sending you more information on this product shortly.

The final standard IFRS for SMEs has been issued THE Exposure Draft of IFRS for SMEs (International Financial Reporting Standards for Small and Medium – sized Entities) was issued by the International Accounting Standards Board (IASB) during 2007. South Africa adopted the Exposure Draft during the same year in advance of the issue of the final standard in July 2009. Boryana Mintcheva explains the new standard. The new standard aimed at providing

It was aimed to produce accounting

relief to limited interest companies

statements which are easy to

measured at cost. Subsequently

from the comprehensive and onerous

understand and apply. It is also

all investment properties must be

requirements of full IFRS or Statements

expected that financial statements

measured at fair value unless a reliable

of GAAP (Generally Accepted

prepared according to IFRS for SMEs

fair value is not possible to obtain

Accounting Practice). A limited interest

will be used to prepare annual tax

without incurring undue cost or effort.

company is defined in the Corporate

returns after necessary adjustments

Laws Amendment Act of 2007 as

have been made for tax purposes.

a company which is not subject to public accountability. IFRS for SMEs is applicable to small and medium sized businesses and can not be applied by companies with listed debt or equity or companies holding funds in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. Often entities hold assets in trust on behalf of others. Such SMEs are not exempt from using the standard for SMEs if the above activity is not one of their primary businesses, e.g. travel or real estate agents, schools, charitable organizations, retailers who sell goods and receive payment in advance may choose to apply IFRS for SMEs even though they hold assets in trust.

Financial statements prepared according to IFRS for SMEs can be used by various external users for decision making, such as banks, creditors and shareholders who are not involved in the managing for the business.

• Investment property is initially

An entity electing to adopt IFRS for SMEs needs to restate the opening

IFRS for SMEs is less onerous and is

balances at the beginning of the

expected to be amended only every

comparative period using the transitional

two or three years. Below are a few

procedures detailed in the statement.

examples of some relief provided in

An adoption of this statement is not

IFRS for SMEs :

recommended if an entity has plans

• No requirement for annual review of residual value, useful life and depreciation methods of property,

to be listed on the stock exchange or become part of a listed group in the near future.

plant and equipment only if there are

IFRS for SMEs can be applied for

no indicators of changes in the above;

annual financial statements which

• No requirement to straight-line operating leases in the case where lease costs increase in line with expected general inflation based on published indexes or statistics;

were authorized for issue after 13 August 2009.

A word of advice

How to think smart when it comes to matters of the heart As leading business author C.V.Rajan writes, “As an individual living in a cohesive society, every citizen has certain social responsibilities to boot. Business houses too are parts of society and naturally they too are necessarily bound by certain commitments and responsibilities.”

The question is no longer should

Making a difference?

business support the community

Ask the charity what it achieves. Look

in which it operates - it is more a question of whom to support. With so many worthy organizations to choose from, how do you decide which initiatives merit your company’s help? Below are some key points to take into consideration when nominating your corporate charity of choice:

Personal touch Choose a cause that is close to the hearts of the men and women who work in your company. This often ensures a deeper level of commitment that goes above and beyond the call of duty.

Locally owned and locally operated Is the initiative you’re looking to support staffed and run by local people and

for a combination of numbers and stories that indicate whether an initiative is genuinely changing the lives of the people it works with.

Cause vs symptom Does the programme seek to address both the cause and the symptom of the problem? While reacting to existing problems is an effective option for short-term term solutions, preventative work is important too as it can improve circumstances in the long-term.

A realistic level of support Some organizations will be happy to receive an occasional donation, while others will want a greater level of support from established sponsors.

volunteers? Local ownership means

Budget

that the programme is a trusted part of

It is easy to be swayed by the heart,

the community and is therefore able to

which is why it is imperative that you

reach people that other’s would not be

decide what you can afford to donate -

able to.

and then stick to your budget.

Sources:

oosecharity www.tinyurl.com/candp-ch port, Sup to How to Choose a Charity 8 200 23, r Decembe by Sophie S www.tinyurl.com/ candp-socialresponsibilities C.V.Rajan arity www.tinyurl.com/candp-ch : Thinking... Community Philanthropy to choose a and funding locally, How Tris Lumley local charity to support, by

DID YOU KNOW ? WELCOME

outfield players and a goalie, the first

C&P’s Accounting Department is

season comprised of ten official matches

sporting two new faces. We welcome

against other corporate soccer teams

towards the end of the season. BREAKING RECORDS

and produced two wins and eight losses,

For the first time in C&P history we have

to the C&P team.

placing us 9th on the log. Apart from

the highest number of candidates set to

SKILL ON THE FOOTBALL FIELD

the ten league games, we have also

write the Public Practice Examination.

participated in ten friendly games. There

We’d like to wish Mary-Anne Greisdorfer,

C&P entered a football team in the May

has been a noticeable improvement in

Yatin Ranchod, Jacobie Wagter, Lauren

2009 season of The Corporate Soccer

the team’s performance and style of

Davids and Krishnen Kistnen the best of

League. A seven a side league, with six

play, as evidenced by improving results

luck for the upcoming exam.

Patrick Adams and Tyrone Thoresen

New Estate Duty abatement The Taxation Laws Amendment Bill of

One common estate planning tool is to

2009 proposes that spouses will in effect

leave growth assets in the first-dying

share in a R7 million combined Estate

spouse’s estate, equivalent to the

Duty abatement. The amendment is

Section 4A abatement, currently R3.5

set to take effect in the case of persons

million to a family trust, with the balance

dying on or after 1 January 2010. Peter

of the estate left to the surviving spouse.

Prentice explains the implications.

There is no Estate Duty on assets left to

The way in which the shared abatement

a surviving spouse as the Estate Duty

will work is that the first-dying spouse will receive the current abatement up to a maximum of R3.5 million and the second-dying spouse will receive a R7 million abatement, reduced by the abatement utilized in the estate of the first-dying spouse.

Q&A Q: What are the VAT implications for a registered vendor of receiving a short-term insurance payout? A: When a short-term insurance payout is made to a vendor it is deemed to be payment of consideration for a supply of services. This means that the recipient vendor must include the insurance receipt in its VAT return for the period during which it received the payout. Where an asset that did not qualify for an input tax credit (such as a motor car or entertainment assets in a non-

Overheard We’ll be closing our doors over the festive season from 24 December 2009 to 4 January 2010.

Act gives a deduction for the value of assets so bequeathed. In this way, when compared to leaving the entire estate to the surviving spouse, the planner is able to shift R3.5 million of value into the trust, ensuring that both spouses get the full benefit of their

combined R7 million abatement and saving estate duty on R3.5 million of the combined assets. It is a common misconception that the amendment will nullify the benefits of using this tool. This is not the case because the R3.5 million worth of assets left to the trust would invariably have grown in value by the time that the second-dying spouse dies. In order to claim an abatement of more than R3.5 million in the hands of the second-dying spouse, the executor will have to submit to SARS a copy of the Estate Duty return of the estate of the first-dying spouse. This requirement may prove to be problematic where copies of these returns have not been kept, or where contact with the executor in the first-dying spouse’s estate has been lost. It is therefore imperative that copies of these returns be kept, in the case of any person who dies in future.

entertainment business) is stolen

comment. The new Companies Act

or damaged beyond repair, then no

itself is still set to be enacted in the

output tax needs to be paid to SARS.

middle of 2010.

Where the insurance company makes a payment to a third-party, the insured shows the deemed output tax in its return and is paid an amount equal to the VAT amount of the payout by the insurance company. Q: Have the regulations for the new Companies Act been finalised yet and when will they be effective?

Q: If I transfer shares in a company that I own to another company that I own, is this transfer of shares subject to Capital Gains Tax? A: Yes, there are unfortunately no corporate restructuring rules or CGT rollover provisions that would apply in this instance to delay the triggering of a CGT liability. The transfer of

A: The regulations and transitional

the shares in this case is a disposal

arrangements have still not yet

for CGT purposes since the transfer

been published or finalised. Once

takes place between two separate

published, the regulations are still

taxpayers.

going to be subjected to full public

ANDY