INSTITUTE OF ACCOUNTING AND COMMERCE

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1 INSTITUTE OF ACCOUNTING AND COMMERCE The Professional Special points of interest: Tax Board jurisdiction increased to disputes amounting to R1million. (Effective from 1/1/2016) Inside this issue: Deceased estates Tax Board Donations tax STT BPRs Royalties Share plans Taxing dividends Claiming foreign tax Share-based payments Joint ventures Exchange control Unprofessional conduct Group functioning Diversity Fees & penalties IAC Helpline CPD 15 Volume 7, Issue IFRS for SMEs T h e I F R S f o r SMEs together with accompanying documents such as the Basis for Conclusions and illustrative financial statements are now available for free download on the following IFRS SME webpage: SMEs/Pages/IFRS-for-SMEsand-related-material.aspx The International Accounting Standards Board ('the Board') has set up a procedure whereby small companies and other interested parties can submit implementation issues on the IFRS for SMEs for consideration. IFRS for SMEs is the Standard developed for entities that do not have public accountability and regarding the preparation of general purpose financial statements. Welcome 2016 Welcome to the first edition of the Professional for In this issue we revisit the various taxes administered by SARS, including some of the withholding taxes. We also have a look at IFRS for SMEs in respect of share-based payments and provide some food for thought on group dynamics. In this way we January 2016 The Board decided that a procedure should be established to allow interested parties to submit implementation issues on the IFRS for SMEs. Submitted issues will be dealt with one of two ways: The issue will be referred for consideration by the SME Imp lementation Group (SMEIG) if the issue is likely to be pervasive; unintended or inconsistent implementation has or is likely to occur because of lack of clarity in the Standard; and the SMEIG can reach a consensus on the appropriate treatment on a timely basis. For these issues the SMEIG will then consider whether to develop non-mandatory implementation guidance to address the issue in the form of questions and answers (Q&As). Other issues will be consid- ease into the new year before the announcement of the Annual Budget by the Minister of Finance in February. Given the current turmoil in South Africa s economy and the sword of credit ratings above our heads it will be very interesting to see how our new (old) Minister of Finance will perform the very ered when updating the education material or held for consideration during the next periodic review of the IFRS for SMEs, as applicable. Members can forward suggestions and comments to the IAC office. Currently there are no Q&As. All Q&As issued before the 2015 Amendments to the IFRS for SMEs have either been incorporated into the IFRS for SMEs (and made mandatory) and/or the IFRS Foundation's educational material (remains non-mandatory). delicate balancing act to fund the various needs of South Africans. We hope that you will enjoy this newsletter and please feel free to submit your comments, suggestions and questions to the IAC office.

2 Page 2 The Professional Deceased estates The tragedy of life is not death but what dies inside us while we live. Robin Williams At the beginning of a new year, the last thing one wants to think about is death. Unfortunately one cannot avoid it and it is therefore very important to ensure that all the necessary documents are accessible when needed. As a tax practitioner, clients may also expect you to assist with the winding up of their estate, especially with regards to tax affairs. SARS has to be notified when a person dies, irrespective of whether estate duty is payable. Estate duty is only payable to the extent a deceased person s net estate exceeds R3.5 million and is levied at 20%. Notification Copies of the following documents must be sent to SARS: Death certificate or death notice. Identity document of the deceased. Letters of Executorship (J238) (if applicable). Letter of Authority (J170) ) (in cases where the estate is less than R ). Certified copy of the executor s identity document. Power of attorney (if applicable). The name, address and cont a c t d e t a i l s o f the executor or agent. The last Will and Testament of the deceased. An Inventory of the deceased s assets. The liquidation and distribution accounts (if available). These documents may be sent to the relevant Centralised Processing Centres that is closest to the Master of the High Court where the estate is administered. The documents may be sent to the following mailbox facilities: For Gauteng North including Centurion and Pretoria, North West, Mpumalanga and Limpopo: contact.north@sars.gov. za. For Western Cape and Eastern Cape south of East London: contact.south@sars.gov.za. For KwaZulu-Natal and northern parts of the Eastern Cape up to and including East London: contact.east@sars.gov.z a. For Gauteng South including Midrand, Greater Johannesburg, Kempton Park, Boksburg, Vereeniging and Springs, Free State and Northern Cape: contact.central@sars. gov.za. Postal addresses Alternatively the documents may be mailed to: Alberton - Alberton CPO Private Bag X 15 New Redruth 1450 Bellville - Bellville CPO P/Bag X 11 Bellville 7535 Doringkloof - Doringkloof CPO Box 436 Pretoria 0001 Durban - Durban CPO PO Box 921 Durban 4000 Free State Bloemfontein office PO Box 313 Bloemfontein 9300 East London P/Bag X9012 East London 5200 Port Elizabeth and Uitenhage PE office PO Box 345 Port Elizabeth 6000 Once SARS has coded the taxpayer s profile as a deceased estate, SARS will issue the applicable letters to the executor, advising of what further steps need to be taken. Other estate duty considerations Additional guidance is provided by SARS in the form of guides which addresses the estate duty implications on key man policies and buy and sell agreements. These guides are available on the SARS website. Payment due Estate Duty is due within 1 year of date of death or 30 days from date of assessment, if assessment is issued within 1 year of date of death. Interest is levied on late payments. VAT If the deceased person was a vendor, the executor also need to consider the VAT implications of the various supplies made by the estate, including distributions. For further information, please refer to VAT413 Guide for deceased estates.

3 Volume 7, Issue 1 Page 3 Tax Board The Tax Board came into operation in It was established to speedily deal with appeals by the taxpayer against the Commissioner s assessment. With the introduction of the Tax Administration Act (TA Act), the Tax Board is now governed by sections of the TA Act. The Tax Board hears tax appeals involving tax in dispute that does not exceed the amount determined by the Minister under section 109(1) (a). Jurisdiction An appeal against and assessment or decision must firstly be heard by a Tax Board if the dispute does not exceed the amount the Minister of Finance determines by public notice and A senior SARS official and the taxpayer agrees to present the matter to the Tax Board. From 1 May 2007 until 31 December 2015, this amount was R The amount was however increased to R1million with effect from 1 January The Tax Board must hear the matter at a place which is closest to the taxpayer s residence or place of business, unless the taxpayer and SARS agree that the appeal may be heard at another place. The chairperson of the Tax Board may direct that the appeal should rather be heard by the tax court based on the grounds of the dispute or legal principles related to the appeal. In this instance, the appeal will be set down for hearing de novo before the tax court. Constitution of tax board The chairperson must be an advocate or attorney from a panel appointed by the Minister of Finance. If the chairperson or parties to the dispute considers it necessary, the Tax Board will also consists of an accountant and representative of the commercial community who are members of the appointed panel. The list of appointed chairpersons to the Tax Board was published in General Notice 637 of 27 August 2013 in Government Gazette Appointed persons hold office for a period of five years and are eligible to be re-appointed as the Minister thinks fit. Proceedings The Tax Board is not required to record its proceedings. The chairperson may, when the proceedings open, formulate the issues in the appeal. He may also adjourn the hearing to a convenient time and place. A senior SARS official must appear at the hearing in support of the assessment/decision. The taxpayer must, in the case of a natural person, appear in person at the hearing. In any other case, the representative taxpayer must appear at the hearing. If a third party (e.g. the taxpayer s accountant) prepared the return involved in the assessment, the third party may also attend the hearing. The taxpayer may also request (within the prescribed time) to be represented a the hearing. Tax Board decision The Chairperson must prepare a written statement of the tax board s decision that includes the tax board s findings of the facts of the case and the reasons for its decision. This statement must be prepared within 60 business days after the hearing concluded. The clerk must submit a copy of the tax board s decision to SARS and the taxpayer. Appealing to the tax court SARS or the taxpayer may request that the appeal be referred to the tax court if not satisfied with the Tax Board s decision or if the Chairperson fails to deliver the decision within 60 business days. This request must be lodged in writing within 21 business days (or further period allowed by the Chairperson) after the date of the Chairperson s notice or expiry of the 60 business day period. The tax court must then hear de novo a referral of an appeal from the Tax Board s decision. De novo is a Latin phrase meaning from the new. When a court hears a case de novo, it is deciding the issues without reference to the legal conclusions or assumptions made by the previous court to hear the case. An appeals court hearing a case de novo may refer to the trial court s record to determine the facts, but will but rule on the evidence and matters of law without regarding that court s findings. All roads that lead to success have to pass through hard work boulevard at some point.

4 Page 4 The Professional Donations tax Donations tax is payable at a flat rate of 20% on the value of property disposed of by way of a donation (including instances where property is disposed of for an inadequate consideration). Exemptions There are however certain exemptions which are contained in section 56 of the Income Tax Act. These include donations between spouses and donations to approved public benefit organisations. Non-residents are not liable for donations tax. Annual exclusion Companies/trusts are not required to pay donations tax if the total value of the donations in the form of casual gifts during the year of assessment do not exceed R Donation tax will also not be payable if the value of all property disposed as donations by the donor during the year of assessment does not exceed R Paying donations tax The donor is liable to pay the donations tax and has to complete and submit an IT144 form to SARS after making the donation. The tax must be paid by the end of the month following the month in which the donation takes effect. Donations tax can only be paid by a bank cheque at the local SARS branch office. If the donor fails to pay the tax within the required time, both the donor and donee will be jointly and severally liable for the tax. Securities Transfer Tax Hard work beats talent when talent doesn t work hard. Tim Notke Securities transfer tax (STT) is levied in respect of - Every transfer of any security issued by: A close corporation or company incorporated, established or formed inside South Africa; or A company incorporated, established or formed outside South Africa and listed on an exchange; Any reallocation of securities from a member s bank restricted stock account to a member s general restricted stock account. STT is levied at 0.25% of the taxable amount of that security. Security is defined as any share or depository receipt in a company or any member s interest in a close corporation. Exemptions It is important to note that several exemptions are listed in section 8 of the STT Act. These exemptions include securities transferred to - a person under section 42 to 47 of the Income Tax Act; an approved public benefit organisation. BPR213 Repayment of intercompany loan Background The applicant is a South African company whereas the holding company (which holds 100% of the applicant s shares) is not a South African resident. The applicant obtained intercompany loans from its holding company and other group companies to fund its operational expenditure. The holding company will subscribe for additional no par value shares in the applicant. The subscription price equals the total amount of outstanding intercompany loans and will be paid in cash. The applicant will use the cash to repay the outstanding loans (including capital and interest). Ruling The following ruling was made: The issue of the additional shares will not constitute a transfer under the STT Act and will, therefore, not be subject to securities transfer tax. Section 8(4)(a) of the Income Tax Act will not be applicable to the payment of the capitalised interest on the intercompany loans. Section 19 and paragraph 12A of the 8 th Schedule will not be applicable to the repayment of the intercompany loans, or to the payment of the interest on the intercompany loans.

5 Volume 7, Issue 1 Page 5 BPR211 Transfer of exchange items using corporate rules BPR 211 deals with the tax consequences of intra-group loan assets which are denominated in foreign currency in terms of an asset-for-share transaction under section 42. The transferor is a South African company which is wholly owned by a listed company. The transferee is also a South African resident company that is wholly-owned by the transferor of the loan assets. Proposed transaction Over time, the transferor extended interest-bearing long term loans (loans) to a fellow subsidiary based offshore. These loans are unsecured, have no fixed terms of repayment and are considered mezzanine debt. As a result the provisions of section 24J was not applied. The transferor intends to transfer these loans to the transferee in exchange for the issue of shares in terms of an asset-for-share transaction under section 42. The transferor treated these loans as capital assets and the transferee will continue to do so. The transferee will be a group treasury entity, providing funding from South Africa to certain of the foreign jurisdictions where the group is active, once the loans have been transferred. For accounting purposes, the loans will be transferred at face value, determined in Rand. Ruling SARS confirmed that the proposed transfer of the loans in exchange for shares in the transferee qualified as an asset -for-share transaction under section 42. SARS further ruled that: For purposes of section 24I, the ruling exchange rate, as defined, on the date of the transaction, will be deemed to be the spot rate applicable on the date that each loan was advanced to the debtor. Therefore, no amount will be included in the income of the transferor in respect of exchange differences in consequence of the transfer of these loans. At the end of the year of assessment during which the transaction will occur, the transferee must determine the exchange difference on the loans acquired, by multiplying the exchange item by the difference between the spot rate, applicable at the time when these loans were advanced by the transferor to the debtor, and the spot rate on the translation date (the end of that year of assessment). This exchange difference must either be included in or deducted from the transferee s income under section 24I(3) or deferred under section 24I(10A), if the requirements of that section are met. Conditions The ruling is subject to the following additional conditions and assumptions: No unrealised exchange differences in relation to the loans that comprise the assets to be transferred in terms of the proposed transaction have previously been included in or deducted from the Applicant s income. No forward exchange contract or foreign currency option contract serves as a hedge for any of these loans. The reward for work well done is the opportunity to do more. BPR215 Satellite Capacity Fees The Applicant is a South African resident company which distributes satellite services in Africa (excluding South Africa) and the Co-Applicant (SA resident) is the owner and operator of satellites. The Applicant and Co-Applicant are members of the same group of companies. lite capacity services to them and receives fees from its customers for the use of the satellite capacity. The Applicant will contract with and pay the Co- Applicant fees to provide the satellite capacity to the Applicant s customers. Ruling The ruling made in connection with the proposed transaction is as follows: The source of the satellite The Applicant will conclude contracts directly with its customers in Africa (excluding South Africa) to provide satelcapacity fees will not be within South Africa. The satellite capacity fees to be paid by the Applicant to the Co-Applicant will not be subject to the withholding tax on service fees as contemplated in section 51B. It is therefore important to consider where the services are rendered and who will benefit from the services.

6 Page 6 The Professional Withholding tax on Royalties The best preparation for good work tomorrow is to do good work today. Elbert Hubbart The Withholding Tax on Royalties is due on any amount of royalty paid to or for the benefit of a foreign person from a source within South Africa. The foreign person is responsible for the tax, but it must be withheld from the royalty payment by the person paying it to the foreign person. The tax is levied at 15% of the royalty payment for: The use, right of use or permission to use any intellectual property Making known any scientific, technical, industrial or commercial knowledge or information, or Providing any help or service in connection with the use of that knowledge or information. This tax is a final tax. The completed Return for Withholding Tax on Royalties (WTR01) must be submitted at a SARS branch or posted to SARS. These forms must be retained for five years. Reduced rate & Exemptions A Withholding Tax on Royalties Declaration (WTRD) must be submitted if an exemption or reduced rate is applicable. A number of exemptions apply, (most of which need to be filled in on the WTRD), including where: The foreign person is a natural person who was physically present in the Republic for a period more than 183 days in total during the twelve-month period before the date on which the royalty is paid. The property, for which the royalty is paid, is effectively connected to a permanent establishment of that foreign person in the Republic if that foreign person is registered as a taxpayer in terms of the Act. The WTRD need not be filled in when the royalty is paid by a headquarter company allowing the use, right of use or permission to use intellectual property in certain circumstances. The foreign person could be allowed a reduced rate of tax in terms of an Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion (DTA) between South Africa and the country of residence. It s also possible for the foreign person to be exempt in terms of the DTA, for example where South Africa doesn t have the right to tax royalties. A summary of the DTA s can be found on the SARS website. Payment The withholding tax must be paid before the end of the next month, after the tax was withheld. In terms of section 49B, a royalty is deemed to be paid on the earlier of the date on which the royalty is paid or becomes due and payable. If the last day of the month is a public holiday or weekend, the payment must be made on the last business day before the public holiday or weekend. The following payment methods are available: efiling, EFT, at a branch of the relevant approved banks. Royalty withholding tax refunds Withholding tax on royalties is refundable to the person to which the royalty was paid if: An amount was withheld from the royalty payment; The Withholding Tax on Royalties Declaration (WTRD) for that royalty was not submitted to the person paying the royalty by the date the royalty was paid; AND Such WRTD is submitted to SARS within three years after payment of the royalty for that declaration was made. The refund will be so much of the amount that would not have been withheld if the WTRD was submitted by the time the royalty was paid or became due and payable. In order to request the refund, a REV16 form needs to be submitted. If the person paying the royalty requests the refund on behalf of the person receiving the royalty, a power of attorney must be submitted. Original receipt of DWT must be submitted as well as the reasons for claiming a refund.

7 Volume 7, Issue 1 Page 7 Shares: Revenue or capital in nature For purposes of determining the appropriate tax treatment of shares it is important to assess whether the profit/gain made on disposal thereof is subject to normal income tax or CGT. If the shares are held as trading stock, that is the main purpose is to resell the shares at a profit, the gain or loss on disposal will be of a revenue nature. Revenue gains are subject to income tax at the taxpayer s marginal tax rate (if applicable) which may vary between 18% and 41% in the case of a natural person. If the shares are held as a longterm dividend-producing investment the gains and losses will be of a capital nature. Capital gains are subject to tax at a lower effective rate than income tax. The effective rate of tax on an individual s capital gain in a year of assessment can thus vary between 0% and 13,65%. The 0% rate would apply if the sum of capital gains and losses does not exceed the annual exclusion; the sum of capital gains is less than or equal to the sum of capital losses; or taxable income falls below the level at which tax becomes payable. The effective tax rate on a capital gain for a company is 28% 66,6% = 18,65% whereas any trust which is not a special trust has an effective CGT rate of 41% 66,6% =27.31%. A special trust is treated the same as a natural person in this instance. Broad-based employee share plans A taxpayer that acquired shares via a broad-based employee share plan has to consider section 8B. This section applies to qualifying broad-based employee share plans if at least 80% of the employees in the company are entitled to participate. In order for an employee to qualify, the market value of the shares given to him or her in the current and immediately preceding four years of assessment must not exceed R If the employee hold a share acquired under such a plan for at least five years, the gain on disposal will be of a capital nature and subject to CGT. But if the employee dispose of the share within five years, any gain will be taxed as income in your hands, and section 9C, which deems shares held for at least three years to be on capital account, will not apply. This long-term holding requirement serves as an encouragement for employees to hold their shares for at least five years. The benefits of section 8B do not apply if the employee was a member of any other employee share incentive scheme at the time he or she received the shares. In that case, the employee will be taxed under section 8C. Don t count the days, make the days count. Muhammad Ali Shares and options If an employee acquires equity instruments such as shares and options from an employer, section 8C needs to be considered. enue gain or loss will be determined at the time when the restriction is lifted. Once the employee have been subject to income tax under section 8C on the shares acquired from the employer a further gain or loss may arise when the employee dispose of them. The capital or revenue nature of this further gain or loss is determined in the normal way; A revenue gain or loss will arise when a share or option vests in the employee. Vesting will usually happen when the employee acquire the share with no restrictions, or when all restrictions are lifted. If the employee is restricted from disposing of the share, the revthat is, shares held as capital assets will be subject to CGT, while shares held as trading stock will be subject to income tax in full. For CGT purposes the base cost of the shares will be the market value that was taken into account in determining the section 8C gain.

8 Page 8 The Professional Happiness does not come from doing easy work but from the afterglow of satisfaction that comes after the achievement of a difficult task that demanded our best. Theodore Rubin Taxing dividends Normal tax Dividends from South African resident companies are exempt from normal tax under section 10(1)(k)(i) unless the proviso to that section applies. Dividends tax Dividends from resident companies and non-resident JSElisted companies are subject to dividends tax. (Refer to sections 64D to 64N.) Dividends tax is a stand-alone tax (that is, it is not part of normal tax). It is levied under Dividend tax exemptions There are a number of exemptions from dividends tax. For example, it is not imposed on dividends paid to a resident company; a public benefit organisation approved by the Commissioner under section 30(3); various other tax-exempt persons such as the three levels of government (national, provincial and lo- A foreign dividend received by or accrued to a person will be exempt if that person (whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10% of the total equity shares and voting rights in the company declaring the foreign dividend (the participation exemption ). section 64E at a rate of 15% on the amount of any dividend paid by any company other than a headquarter company. The tax is withheld by the company paying the dividend or by a regulated intermediary but the persons who are liable for the tax are the beneficial owner of the dividend, or in the case of a dividend in specie, the company paying the dividend. A dividend in specie is a dividend that is cal) and retirement funds; a shareholder in a registered micro business to the extent that the sum of dividends paid during the year of assessment does not exceed R ; a non-resident on a dividend paid on a JSE-listed share in a non-resident company; and A person to the extent that dividend forms part of the Foreign dividends Complete exemption if that person is a company and the foreign dividend is paid or declared by another foreign company that is resident in the same country as that company; if that foreign dividend is derived from a CFC.; to the extent that the foreign dividend is received by or accrues to that person from a JSE-listed share and does not consist of a distri- paid otherwise than in cash, for example, when the company distributes shares in another company. SARS therefore has the right to recover dividends tax from a beneficial owner of a dividend should the amount not have been withheld by the company or a regulated intermediary. The prescribed return and payment of dividends tax must be submitted to SARS by the end of the month following the month in which the dividend was paid. person s income. Non-resident shareholders should consult the relevant tax treaty to determine whether a lower dividend tax rate may be applicable. The lower rate generally apply to corporate shareholders holding an interest of between 10% and 25%. If applicable, the shareholder must submit a declaration to the company or regulated intermediary. bution of an asset in specie. This exemption applies because dividends paid by non-resident JSE-listed companies are subject to dividends tax unless an exemption applies. But a dividend in specie distributed by such a company is subject to normal tax in the recipient s hands because it is not subject to dividends tax

9 Volume 7, Issue 1 Page 9 Foreign dividends Partial exemption A portion of a taxable foreign dividend may be exempt from normal tax under section 10B (3). The exempt portion of the foreign dividend is determined by multiplying the dividend that is not otherwise exempt under section 10B(2) by a factor to arrive at a maximum tax rate of 15% thus giving a result similar to that produced by dividends tax. The following proportions of the foreign dividend are exempt from normal tax: Individuals, deceased estates, insolvent estates and trusts: 25/40; Claiming foreign taxes South Africa provides relief to its residents from double taxation in its domestic law mainly by way of three different rebate methods for foreign taxes payable on income that is subject to South African normal tax or a deduction for foreign taxes payable on income that is similarly subject to South African normal tax. The rebate and deduction methods are supplemented by a number of exemptions for foreign-source amounts received by or accrued to residents. Rebates The following rebate methods are employed in South Africa: Section 6quat(1) which is the principal mechanism used to provide relief for foreign taxes proved to be payable on income derived from a foreign source that is included in a resident s taxable income. Foreign taxes falling within this category do not qualify for the section 6quat (1C) deduction or the section 6quin rebate. Companies: 13/28. The exemption from normal tax under section 10B(2) and (3) will not apply to any foreign dividend received or accrued in respect of services rendered or to be rendered or in respect of or by virtue of employment or the holding of any office. The rule is aimed at preventing employers from disguising remuneration in the form of foreign dividends. It will not, however, apply to foreign dividends received or accrued in respect of a restricted equity instrument contemplated in section 8C or when the employee or Section 6quin which provides for relief for foreign taxes paid on South African source service income included in a resident s taxable income. Foreign taxes falling within this category may also qualify for a deduction under section 6quat(1C). In these circumstances the taxpayer may choose the rebate under section 6quin or the deduction under section 6quat(1C), Section 64N which provides relief from foreign taxes paid on foreign dividends paid by a foreign company listed on the Johannesburg Stock Exchange to a resident. Foreign dividends The amount of the rebate is equal to the amount of any tax paid to any sphere of government of any country other than the Republic, without any right of recovery by any person, on a foreign dividend paid by a foreign company on a listed share. A rebate will only be allowed to the extent that the amount office bearer owns the shares generating the foreign dividends. Translation Foreign dividends received or accrued in a foreign currency must be translated into rand using the spot rate on the date of receipt or accrual. Individuals and non-trading trusts can however elect to use the average exchange rate during the year of assessment. The election must be applied consistently to all foreign income derived during the year of assessment. of the foreign tax is proved to be payable to a sphere of government of a foreign country without a right of recovery. To the extent that a beneficial owner receives a refund of foreign taxes or is the recipient of a benefit resulting in the removal or reduction of double taxation, the double taxation will either diminish or be eliminated and there would be no reason to provide relief in these circumstances. The beneficial owner or any other person must not be able to recover the foreign taxes proved to be payable. The existence of a right of recovery, held either by the beneficial owner or any other person, means that the amount of the foreign tax liability will not be allowed as a rebate.. A rebate will not be permitted while the tax is in dispute and not yet finally determined. For further information, refer to Interpretation Note 18 which is available on the SARS website. When one door of happiness closes, another opens, but often we look so long at the closed door that we do not see the one that has been opened. Helen Keller

10 Page 10 The Professional IFRS for SMEs Share-based payments A share-based payment transaction is a transaction in which an entity receives goods or services as consideration for issuing its own equity instruments, or in exchange for a liability based on the price of the entity s shares or other equity instruments. In summary, Section 26 requires the fair value of the goods or services received in an equity-settled share-based payment transaction to be recognised in the financial statements either as an asset or, if the asset recognition criteria are not met, as an expense. If the fair value of the goods or services cannot be estimated reliably, (as would generally be the case for transactions for employee services), it is measured by reference to the fair value of the equity instruments granted. The measurement of the asset or expense in an equity-settled share-based payment transaction is identical regardless of how the entity will source the shares, for example, whether it will issue new shares or will use treasury shares. The goods or services received in a cash-settled share-based payment transaction are recognised at an amount equal to the fair value of the liability for the cash-settled share-based payment. The liability for a cash-settled share-based payment transaction is remeasured through profit or loss until it is settled. The important distinction made, for equity-settled share-based payment transactions, is that when an asset does not arise, there is an expense rather than a direct decrease in equity. Having recognised an asset or expense, the other side of the entry is to equity and Section 26 does not distinguish where in equity this entry is made. The exact entries made when shares are given to the other party will depend on the legal requirements in the jurisdiction in which the entity is based. Recognition An entity has to recognise the goods or services received or acquired in a share-based transaction when it obtains the goods or as the services are received. The corresponding increase in equity or liability is recognised if the goods or services were received in an equity-settled or cashsettled share-based transaction respectively. In the case where sharebased payments granted to employees do not vest until the employee completes a specified period of service, the entity has to account for the services as they are rendered by the employee during the vesting period with a corresponding increase in equity or liabilities. Joint ventures vs joint operations A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. Joint ventures can take the form of jointly controlled operations, jointly controlled assets, or jointly controlled entities. In the case of jointly controlled operations, each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturer s employees alongside the venturer s similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers. In this instance the venturer has to recognise the assets that it controls and the liabilities that it incurs, and the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture.

11 Volume 7, Issue 1 Page 11 Jointly controlled entities A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity. Measurement The venture has to account for all of its interests in jointly controlled entities using one of the following models Cost model Equity model Fair value model. Cost model A venturer has to measure its investments in jointly controlled entities, other than those for which there is a published price quotation at cost less any accumulated impairment losses recognised in accordance with Section 27 Impairment of Assets. Distributions received from the investment is recognised as income without regard to whether the distributions are from accumulated profits of the jointly controlled entity arising before or after the date of acquisition. The investments in jointly controlled entities for which there is a published price quotation are measured using the fair value model. Equity model The equity model is used where the venture holds significant influence. Work for a Exchange control cause not for applause. Exchange control regulations restricts the in and outflow of capital in South Africa. The administration of exchange control is performed by the South African Reserve Bank. The Reserve Bank has delegated some of its powers to deal with exchange control related matters to commercial banks. These banks are known as authorised dealers in foreign exchange. Residents of South Africa wishing to remit, invest or lend amounts abroad are generally subject to exchange control restrictions and will need to approach these authorised dealers. Individuals older than 18 years (in good standing with their tax affairs) may invest a total of R4 million a year outside South Africa provided they have a valid bar-coded South African identity document. However, individuals are also able to invest, without restriction, in foreign companies that are inward listed on South African security exchanges. In addition individuals are allowed a total single discretionary allowance of R1 million a year for purposes of travel, donations, gifts and maintenance. Companies are not limited in their use of South African funds for new approved foreigndirect investments. Companies may retain foreign dividends offshore and repatriated dividends may be transferred offshore again for the financing of approved foreign direct investment or expansion. Live life to express not to impress. Don t strive to make your presence noticed just make your absence felt. Jointly controlled assets Entities may also involve the joint control, and often the joint ownership, of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture. A typical example would be where two independent oil companies jointly control and operate an oil pipeline. In this instance, each venturer has to recognise its interest in the jointly controlled asset in its financial statements as follows: Its share of the jointly controlled assets, classified according to the nature of the assets; any liabilities that it has incurred; its share of any liabilities incurred jointly with the other venturers in relation to the joint venture; any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and any expenses that it has incurred in respect of its interest in the joint venture.

12 Page 12 The Professional Unprofessional conduct Honesty is the first chapter in the book of wisdom. Thomas Jefferson Any person (including an aggrieved client) may lodge a complaint with SARS against a person who carries on a profession governed by the IAC (e.g. accounting officer or tax practitioner) where that person believes that section 241 of the Tax Administration Act was contravened. In order to lodge such complaint in respect of a tax practitioner, an RTP001 form needs to be completed and submitted to SARS. A senior SARS official will then consider the complaint and, if in agreement, lodge a formal complaint with the IAC in respect of the specific practitioner. Grounds A senior SARS official may lodge a compliant with the IAC is a member did or omitted to do anything with respect to the affairs of a taxpayer, including that person s affairs, that in the opinion of the SARS official was intended to assist the taxpayer to avoid or unduly postpone the performance of an obligation imposed on the taxpayer under a tax Act; by reason of negligence on the part of the person resulted in the avoidance or undue postponement of the performance of an obligation imposed on the taxpayer under a tax Act; or constitutes a contravention of a rule or code of conduct for the profession which may result in disciplinary action being taken against the person by the body. In the case of a tax practitioner, a complaint may be lodged if the registered tax practitioner has without exercising due diligence prepared or assisted in the preparation, approval or submission of any return, affidavit or other document relating to matters affecting the application of a tax Act; unreasonably delayed the finalisation of any matter before SARS; given an opinion contrary to clear law, recklessly or through gross incompetence, with regard to any matter relating to a tax Act; been grossly negligent with regard to any work performed as a registered tax practitioner; knowingly given false or misleading information in connection with matters affecting the application of a tax Act or participated in such activity; or directly or indirectly attempted to influence a SARS official with regard to any matter relating to a tax Act by the use of threats, false accusations, duress, or coercion, or by offering gratification as defined in the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004). SARS response SARS must deliver by mail or via to the taxpayer and the tax practitioner against whom the complaint is to be made notification of the intended complaint and information to be disclosed before the complaint is lodged or the information is disclosed to the IAC. The taxpayer and tax practitioner has 21 business days in which to object. Response to complaint by SARS Once the complaint is received from SARS, the IAC will consider the complaint according to its rules. A hearing will be held where the details of the taxpayer s tax affairs will be disclosed. This hearing may only be attended by persons whose attendance, in the opinion of the IAC, is necessary for the proper consideration of the complaint. The IAC and its members will preserve the confidentiality of the taxpayer s affairs that are disclosed by SARS or are determined through an investigation into the complaint. The IAC will not communicate the information concerning a taxpayer s tax affairs to any person other than the person concerned, or the person against whom the complaint is lodged. The only exception is if the disclosure of such information is ordered by a competent court of law. A Senior SARS Official may attend the hearing of the matter by the IAC where the details of the person s tax affairs will be disclosed, if required. A Senior SARS Official may also request feedback from the IAC on the progress or outcome of the hearing or investigation of the reported case. For further information, refer to sections of the Tax Administration Act.

13 Volume 7, Issue 1 Page 13 Group functioning In the work environment employees are generally required to work in teams or groups. Depending on the nature of the work, the level of interaction differs. Working in a group does not always come naturally, especially taking into account the diversity in the work force. In studying group behaviour the following five unconscious basic assumptions are generally used as a staring point. Dependence The assumption is that the group is dependent on its leader who is seen as the source of knowledge and holder of power. If the employees need for protection, care and acceptance are not met, they may experience frustration, helplessness and disempowerment. In this instance, the group and their leaders need to become aware of the dependency and move from dependent behaviour to more mature interdependent behaviour. Fight and/or flight Employees unconsciously experience the workplace as filled with anxiety as it may be highly competitive. Employees may therefore find it difficult to realise, own and express their fear as they are constantly competing with other employees for a place in the sun. The fight response manifest as aggression against other group members. This may result in being jealous or envious towards others as well as other negative behaviour such as verbal-bullying, boycotting and excluding other employees from meetings. Flight response manifests in employees physically and/or emotionally withdrawing themselves from the group. They can become ill or avoid contact with others. In these instances the group and its leaders need to become aware of the fight and flight responses and opportunities need to be provided to study and become aware of own defensive behaviours and the group needs to move towards maturity. Pairing Employees unconsciously experience fear of loneliness, which may lead to the artificial pairing of differences or opposites. This may however be counterproductive. Me-ness Me-ness assumes that the group is not one, but consists of various individuals. Employees are afraid that the group will deprive then of their individuality and therefore resists the group. In this instance, the group and its leaders need to be aware of how they use me-ness as a defense against connection with others and how it affects the group s performance negatively. The group also need to explore related feelings, processes and dynamics to achieve more cohesion. We-ness/One-ness In this instance it is assumed that the group is given ultimate power and that individuality does not count. Employees experience lack of authority and fear being prosecuted for acting as an individual. They compensate by surrendering their own individuality to the group. This can be quite dangerous as group pressure may lead to negative behaviour especially with regards to strikes and other types of labour disputes. Respect is earned. Honesty is appreciated. Trust is gained. Loyalty is returned. Diversity There are various definitions for diversity. It not only refers to differences in age, race, gender, physical ability, sexual orientation, religion, socioeconomic class, education, region of origin and language but can also refer to differences in life experience, position in family, personality, job function and any other characteristic that helps to form an individual s perspective. Primary diversity refers to attributes that generally do not change, e.g. age, race and gender. Secondary diversity attributes can change or be modified and includes communication style, marital status, work experience and education. These dimensions shapes a person s values, principles and perceptions throughout life. Workforce diversity represents the relationships between peo- ple and the organisation they work while creating an ongoing organisational culture. It is therefore crucial, from a strategic perspective, to acknowledge and actively manage workforce diversity. By managing the diversity within the workforce the individual strengths can be unlocked and synergized instead of trying to conform everyone to the historical way of doing things.

14 Page 14 The Professional 2016 Fees Membership category Total fee for 2016 Close corporation as accounting officer 1, Financial accountant in commerce 1, Financial accountant in practice 4, Students on learnership Certified tax practitioner 2, Technical accountant 1, Associate tax practitioner 2, Additional assessment fees for new members Accounting officer 2, Tax practitioner Approved training centre 2, Penalties for late payment Payment date Feb-16 Mar-16 Apr-16 Financial accountant in practice Financial accountant in commerce , Tax practitioner Technical accountant Technical tax practitioner IAC technical Helpline Phone: (021) Fax: (021) Prakash Singh Ehsaan Nagia

15 Volume 7, Issue 1 Page 15 Continuous Professional Development Start early 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 Reviewers / Accounting Officer and Accountants 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. Accounting Technicians (only) 20 CPD hours / annum (10 structured + 10 unstructured hours dispersed evenly into the various categories on the website) Tax Practitioners and Technical Tax practitioners 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 and catching up on outstanding CPD hours Second time offenders R and catching up on outstanding CPD hours Third time offenders ` R and catching up on outstanding CPD hours and More than 3 offences IAC membership is cancelled.