Ampersand Vol9

4TH QUARTER 2007 VOLUME 9

HOW ETHICAL ARE YOU REALLY? Antonie van der Hoek recently had the opportunity to attend an Ethics For Accountants workshop. This workshop, facilitated by Dr Larry Kaufmann from the Unilever Ethics Centre at University of Kwazulu Natal, proved a fascinating experience and a topic that invites very varied opinion. I have to admit, that when I booked onto the course I was mainly doing it for the CPD points. To my surprise I found the workshop most stimulating and Dr Kaufmann an excellent facilitator who encouraged attendee participation and debate. To warm up we had to complete an exercise whereby we had to rate eleven statements relating to ethics. We had to rate each statement on a scale of 1 to 6, 1 being total agreement and 6 being total disagreement with the statement. I diligently spent 5 minutes completing the exercise and then compared my ratings to the person sitting next to me, the financial director of an international company. In our profession dealing with audit risk in terms of International Auditing Standards, ethics has a high priority. Consequently my ratings were all 1’s or 2’s indicating a high awareness of ethics. I was shocked that the financial director sitting next to me had mostly 5’s or 6’s, indicating a very low awareness of ethics in his business environment.

We discussed this result in depth and one of the possible conclusions we came to was that the audit profession with all its rules, regulations and standards had forced an ethical awareness on practitioners, whereas generally in business the main objective is profit or gain with very little regulated requirement for the way in which this is achieved. I somehow doubt that regulation is the only way to make people behave ethically, but the thought that some people or organizations might only behave ethically to avoid the consequences of laws and regulations is scary. Ethics is the way we determine values. It is the ability to discern right from wrong, good from bad, and to choose freely and in an informed way to live by what is discerned as right and good. If we need laws and regulations to do this for us then society is really in a bad state. Continued inside

WHAT’S IN NO CGT FOR CERTAIN DISPOSALS A legally sanctioned way TEST YOUR ETHICS How do you fare? TAX-FRIENDLY CHANGES To brighten your day DIVORCE GETS DIRTY Watch your Will CASH IS KING The oldest rule in the book

IN BRIEF Tax on share transfers

ED’S DESK By now, the end of year parties are in full swing. Holidays are in view and I bet the bags are packed. But wait, some of us are still grafting away and making sure that the balance sheet balances, your VAT is what it should be and tax deadlines are met.

With effect from 1 July 2008, the current laws relating to the payment of stamp duties on the transfer of shares will be replaced by the Securities Transfer Tax Act. Transfers of listed shares, unlisted shares and members’ interests in close corporations will be subject to a securities transfer tax at the rate of 0.25% of the market value of the shares or members interests transferred. In respect of unlisted shares and members interests, the tax will have to be paid within two months of transfer. Late payments of the tax will be subject to interest, at the SARS official rate, and a ten percent late payment penalty. Annual returns for CC’s CIPRO announced earlier this year that, although 1 April 2007 was the commencement date for the submission of Annual Returns by CC’s, they anticipated that annual returns for CC’s would only have to be lodged with effect from the latter part of 2007. It now appears that CIPRO will not be enforcing the submission of annual returns for CC’s in 2007. Secondary Tax on Companies Rate

Although we do shut our doors over the festive season (which for Cameron & Prentice will be from 21 December until 2 January) it’s work as usual at Cameron & Prentice. It’s only a few months away from end of financial year for many, which pretty much means our days are busy. Because it is the end of the year, we thought we’d create a reason to celebrate and feature a few positives that are coming your way. Dave Warneke highlights taxfriendly changes and an interesting way of reducing CGT. Peter Prentice examines what we believe it means to be an accounting officer. Over the years, we have come to realise that although we are an audit firm, we also add enormous value to clients in terms of providing business advice. We have seen how important it is for the success of a business to understand and practise basic business principles. That’s why we have established a new feature called A Word Of Advice that focuses on this. We would like to wish you all a fantastic festive season. We trust that you will have a prosperous 2008! Ed

As mentioned in an earlier issue of our newsletter, the STC rate was reduced from 12.5% to 10% with effect from 1 October 2007 UIF benefits increased With effect from 1 October 2007 unemployment insurance fund benefits have been increased by 7%. The maximum that may be claimed from the UIF has been increased from R11 662

Continued from cover Fortunately, I believe in the good of people. Some may need persuasion to behave and live in an acceptable way, however most of us have it in us to recognize right from wrong.

Take the ethical test. 1

You consciously think about ethics and ethical consequences when performing your job

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2

You feel equipped to deal with ethical issues

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3

There is a general awareness of ethics in your profession or industry

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4

The CEO of the firm is committed to ethics

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5

The Board is committed to ethics

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6

Members are committed to ethics

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7

Ethical role models are present in the profession/industry

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8

People actually talk about ethics in the profession/industry

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9

Ethical behaviour is encouraged

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10

The atmosphere in the firm makes it easy to make ethical decisions

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(Acknowledgement: Deon Rossouw, Business Ethics, pp 210 – 211).

WHAT DO YOU EXPECT FROM YOUR ACCOUNTING OFFICER? While Section 62 of the Close Corporations Act, 1984 (No 69 of 1984) governs the duties of an accounting officer, Peter Prentice questions whether or not the minimum duties required of an accounting officer can ever live up to the member’s expectations. At Cameron & Prentice we feel that there is a significant service gap that exists between simply following the letter of the law (and doing the bare minimum), or going the extra mile to ensure that the financial statements reasonably and accurately present the financial position of a client’s close corporation. According to the Act the duties of an accounting officer are as follows:

1 The accounting officer of a corporation shall, not later than three months after completion of the annual financial statementsa) determine whether the annual financial statements are in agreement with the accounting records of the corporation; b) review the appropriateness of the accounting policies represented to the accounting officer as having been applied in the preparation of the annual financial statements; c) and report in respect of paragraphs (a) and (b) to the corporation.

2 If during the performance of his duties an accounting officer becomes aware of any contravention of a provision of the Act, he shall describe the nature of such contravention in his report.

3 If an accounting officer of a corporation a) at any time knows, or has reason to believe, that the corporation is not carrying on business or is not in operation and has no intention of resuming operations in the foreseeable future; or b) during the performance of his duties findsi) that any change, during a relevant financial year, in respect of any particulars mentioned in the relevant founding statement has not been registered; ii) that the annual financial statements indicate that as at the end of the financial year concerned the corporation’s liabilities exceed its assets; or iii) that the annual financial statements incorrectly indicate that as at the end of the financial year concerned the assets of the corporation exceed its liabilities, or has reason to believe that such an incorrect indication is given, he shall forthwith by registered post report accordingly to the Registrar.

financial statements, irrespective of whether or not the financial statements are patently incorrect or misleading.

Given the above, the barest minimum an accounting officer is expected to do is issue his report after agreeing the general ledger balances to the annual

It is our contention that the accounting officer should go above and beyond to ensure that the annual financial statements reasonably present the financial position and results of the close corporation so that you, the member, can issue the financial statements to the South African Revenue Service or your bankers with the comfort and knowledge that they will stand up to scrutiny and not embarrass you in any way.

TAXPAYER-FRIENDLY CHANGES FOR INDEPENDENT CONTRACTORS AND PERSONAL SERVICE COMPANIES In the past few years many independent contractors and companies offering personal services have battled against the withholding of Employees’ Tax from payments made to them by their clients. Dave Warneke takes a closer look at the new changes that are sure to put a smile on the face of many. Often the reason for the withholding of the Employees’ Tax was that in terms of the definition of “remuneration” in the Income Tax Act, a person was deemed not to be independent if payments to that person were made at regular monthly or other intervals. This meant that these contractors and companies, who were in reality independent from their clients, were subject to the withholding of Employees’ Tax as if they had been employees.

The good news is that with effect from 1 March 2007, the regularity of payment will no longer be decisive in determining whether or not the contractor or company is independent. A further problem that was experienced by independent contractors and personal service companies was that they were also deemed not to be independent where the rendering of their services was subject to control and supervision by the client as to the

manner in which the duties were performed or their hours of work. Also with effect from 1 March 2007, this criterion is only to be taken into account where the services are required to be performed mainly at the premises of the client. In other words, where the services are not required to be performed mainly at the premises of the client, control and supervision is no longer decisive in determining whether or not the contractor or company is independent.

A WORD OF ADVICE

Going with the cash flow

A LEGALLY SANCTIONED WAY OF GETTING AROUND CAPITAL GAINS TAX The disposal of growth assets to trusts can now be done with no adverse Capital Gains Tax effects. Dave Warneke explores this new territory. Where a taxpayer has a growth asset in their own hands, or owns the shares in a company that in turn holds the growth asset and for reasons of estate planning wants to get the asset out of their hands and into a trust, a rollover is afforded by section 42 of the Income Tax Act. This means that a capital gain that may otherwise have arisen in the individual’s hands can be circumvented. In this structure the trust would end up holding up to 80% of the shares or members’ interest in a company or CC with the individual holding a minimum of 20%. In this way up to 80% of the ownership in the underlying asset can effectively be transferred to the trust. The company or CC then takes over the asset at the individual’s or

company’s base cost and a capital gain in the hands of the individual or company is rolled over. It must however be borne in mind that in order to be able to get around capital gains tax in this manner the restructuring should be done mainly for reasons other than for tax planning. Where the growth asset is residential property, one must bear in mind that transfer duty at a flat 8% of the market value of the property would have to be paid. Where the growth asset is commercial or industrial property, it may well be possible to structure the transaction as being VAT neutral, through the sale of the property as a going concern. If you are in this situation, please contact our tax department to discuss this matter further.

Whether you’re running a giantsized international corporation, or a small one-man band business concern, there is one thing that both business owners struggle to maintain: an adequate cash flow. While this is a seemingly simple and seemingly obvious concept, getting your cash flow levels right is one of the hardest things to do. Without cash, a business must eventually close its doors. Here are some basic principles to help you get on the path to financial cash flow freedom: Do your invoicing. If you don’t invoice clients, you’re not going to get paid. Simple. Work on a retainer basis. Find clients who are willing to pay you a guaranteed amount of money each month. Watch those cheques. Cheques can take up to at least 10 business days before they clear. This may just be the difference between whether you sink or swim. Accept credit cards. That way you can get paid within days. The associated expenses may be negligible when you consider the alternatives. Get some or all of your money up-front. Then try to spread the remaining payments so you cover all your ongoing expenses for the project. Keep an ear to the grapevine. Ask others who have dealt with a potentially new client and find out if they received prompt settlement. Catch credit problems early. Don’t wait until clients are months behind in payment before chasing. Raise your prices. What you were charging 3 - 4 years ago, may not be making you the profit you need anymore. (source http://www.businessknowhow.com/ money/cashflow.htm)

‘TIL DIVORCE DO US PART? The last thing on a person’s mind when contemplating divorce is estate planning. However, as Peter Prentice points out, perhaps it should be given more priority. On divorce your will automatically lapses. Ah, you say, that’s not so bad as this will prevent my ex from inheriting in the event of my untimely death. WRONG! On divorce a will lapses and has no force or effect for a 3 month period only. Should you fail to renew your will, your pre-divorce negotiations and battles over the division of

assets may come to naught as your lapsed will is automatically reinstated after 3 months and your ex may laugh all the way to the bank as he or she may very well inherit everything. Be warned, check the nominated beneficiary on your life policies. Divorce may also affect a child’s inheritance. For example, when a man remarries, then dies leaving

Q: My personal tax return was not submitted to SARS before 31 October 2007, will I be penalised by SARS? A: SARS will not be charging penalties on individual tax returns that are submitted via their e-filing facility as long as the returns are submitted before 31 January 2008. Cameron & Prentice is registered on the e-filing system and all personal income tax returns that are submitted by us to SARS after 31 October 2007, are submitted via the e-filing channel. Q: When is an individual taxpayer required to submit a statement of assets and liabilities to SARS? A: In terms of the 2007 tax return brochure a statement of assets and liabilities is required from a director of a company, a member of a CC or any individual in receipt of income from a business, trade or farming activity. In 2006 a statement of assets and liabilities was also required from an individual whose gross income from investments exceeded R100 000.

(overheard)

SARS plans to audit larger CCs

valuable property such as Kruger Rands, antiques or artwork, it may be extremely difficult for a child to prove that the deceased father did not donate the property in question to the stepmother during his lifetime. So think carefully about estate planning in the event of divorce or re-marriage.

Q: When will the new Companies Act take effect? A: The Department of Trade and Industry has indicated that the new Companies Act should be promulgated before the end of 2008. It is however envisaged that the new Companies Act will only be implemented with effect from 1 January 2010. Q: If I have not yet submitted my 2006 income tax return, will I still be able to complete and submit the “old” form to SARS? A: SARS has indicated that they will no longer be accepting income tax returns in the “old” format. Where tax returns for the 2006 tax year and earlier are to be submitted, new forms will have to be obtained from SARS, either online or from a SARS office. SARS has indicated that where it receives tax returns for 2006 and earlier on the original forms, these returns will be rejected and returned to the taxpayer concerned.