NEWSLETTER APRIL 2015 SERVICES WE OFFER: Accounting Auditing Tax planning Due diligence Planning and installation of information systems Management and financial advisory services Registration of trusts and companies Special investigations Modernising capital flow management In the recent budget review it was stated that rules and conditions continue to be modernised to attract investment and enable South African organisations to expand internationally, particularly into Africa. To this end the exchange control manual is being simplified and will be completed in 2015. The following threshold changes will take effect from 1 April 2015: Authorised dealers may process corporate investment up to R1 billion per year, from R500 million previously, as well as the carrying forward of any unused allowance. South African residents foreign capital allowance will increase from R4 million to R10 million per calendar year or upon emigration, or R20 million per family unit. The subcategories under the individual single discretionary allowance are removed and the annual R1 million allowances may be used for any legal purpose abroad. The dispensation for credit card usage, currently limited to individuals, will be extended to corporates. These dispensations will be subject to the statutory requirements of the Reserve Bank and the South African Revenue Service. We will update you once further administrative details have been communicated by the Reserve Bank. 1.
2015 Budget Speech highlights In his first National Budget speech, Finance Minister Nhlanhla Nene stated that it was a challenging budget to prepare, under difficult circumstances, including electricity supply challenges and a weaker economic environment. As stated by Minister Nene, The 2015 Budget tax proposals aim to increase tax revenues, limit the erosion of the corporate tax base, increase incentives for small businesses, and promote a greener economy. He went on to state that the main tax instruments that will be adjusted to generate additional revenues for 2015/2016, are personal income taxes and fuel levies. The marginal personal income tax rate will be increased by one percentage point for all taxpayers earning more than R181 900, and tax brackets and rebates adjusted to account for fiscal drag. This will also include a one percentage point increase in the tax rate for trusts. Some of the other tax proposals outlined in the budget were as follows: Raise the general fuel levy by 30.5 c/litre. The Road Accident Fund levy will also increase by 50 c/litre, bringing the total fuel levy increases to 80.5 c/litre. Take further steps to combat base erosion and profit shifting. Provide a more generous turnover-tax regime for small businesses. Businesses with a turnover below R335 000 a year will pay no tax, and the maximum rate is reduced from 6 per cent to 3 per cent. Increase excise duties on alcohol and tobacco products. Review the diesel refund scheme. Strengthen the energy-efficiency savings initiative. Raise the electricity levy. Change transfer duty rates and brackets to provide relief for middle income households. Despite a recommendation that VAT be increased to 15 per cent, it has remained the same at 14 per cent. There were no changes to estate duty, donations tax or Securities Transfer Tax provisions. Note that these are proposals as per the budget speech, many of which are yet to be implemented. We will keep you posted on further developments. Feel free to contact our offices with any queries. 2
How will the 2015 Budget affect my personal taxes? Finance Minister Nene stated in his budget speech that personal income tax remains a buoyant source of revenue, and that the tax policy aims to raise revenue in a manner that is fair and efficient. The budget proposals therefore aim to increase tax revenues in order to bridge the gap between revenue requirements and projected tax proceeds. Included in these proposals are some changes to personal income tax, including adjustments to tax brackets and rebates. The budget proposes an increase in marginal tax rates for individuals earning more than R181 900, by one percentage point, and an increase in medical tax credits. The effect is as follows: A 1% increase for all taxpayers earning more than R181 900 annually. This means those earning a minimum of R15,158.30 average monthly salary will be affected A taxpayer below age 65 with an annual income of R200 000 will pay R21 a month more tax A taxpayer earning R500 000 annually will pay R271 a month more tax A taxpayer earning R1.5 million a year, will pay R1 105 more per month The overall effect is that there will be tax relief below R450 000 a year, while those with higher incomes will pay more in tax. Taxpayers will also feel the effects on their pockets due to: The increase in the fuel levy from 1 April 2015 The proposed electricity levy increases, to encourage power saving Pay packets will change from 1 April 2015, in that government proposes a temporary reduction in the monthly UIF contribution threshold from the current R14 872 to R1 000. This would be applicable for the 2015/2016 year only. Overall, taxpayers will see the effect of the proposals on their monthly earnings from 1 April 2015, except for those in the lowest tax bracket. 3
Transfer duty impact on property sales The 2015 budget proposals provide that rates and brackets for transfer duties on the sale of property will be adjusted to provide relief to middle-income households. From the 1 March 2015, transfer duty will be eliminated on properties below R750 000. In addition, there will be a decrease on transfer duty for properties acquired up to around R2.25 million while, the rate on properties above R2.25 million will increase. This applies to any person, including companies, close corporations or trusts. As from 1 March 2015, transfer duty is payable at the following rates on transactions which are not subject to VAT. Acquisition of property by all persons: Value of property (R) Rate 0 750 000 0% 750 001 1 250 000 3% of the value above R750 000 1 250 001 1 750 000 R15 000 + 6% of the value above R1 250 000 1 750 001 2 250 000 R45 000 + 8% of the value above R1 750 000 2 250 001 and above R85 000 + 11% of the value above R2 250 000 In effect, this means that a property purchased for R1.5 million before 1 March 2015 will cost the purchaser R37 000 in transfer duty. After the proposed changes, the transfer duty would be R30 000. All properties purchased for R750 000 or less will be exempt from transfer duty (as opposed to the previous R600 00 threshold). However, a property purchased for R10 million which previously cost the purchaser R717 000 in transfer duty, will, after the proposed changes, incur a R937,500 transfer duty fee. The proposed changes therefore, are positively geared towards the middle to lower income group, yet will negatively affect those purchasers who buy properties for R2.25 million or more. SARS IMPORTANT DEADLINES Please take note of these important SARS deadlines: 1 April 2015 Employer Annual Reconciliation starts 7 April 2015 Submission and payment of EMP201 24 April 2015 Submission and payment of VAT201 - manual registered vendors Note that taxpayers need to file their returns within the SARS deadlines if they wish to avoid fines and penalties. Feel free to contact our offices if you have any questions or if you need any help. 4
Tax free Savings and Investment Accounts National Treasury issued a media statement on Friday 20 February 2015 to indicate that the Minister has approved the publication of the Regulations and Notice under section 12T(8) of the Income Tax Act, 1962 that allows for the introduction of Tax Free Savings and Investment Accounts with effect from 1 March 2015. Therefore, from March 1 this year, individual investors can invest up to R30 000 a year in tax-free savings accounts. While the capital investment will be capped at R500 000 over his or her lifetime, all proceeds earned (interest, dividends and capital growth) will be 100% tax-free. As stated in the media statement, the regulations aim to ensure that appropriate financial products are developed and market conduct practices are in line with the objectives of financial sector regulatory reform. A financial instrument or policy in respect of a tax free investment may only be issued by- A bank as defined in section 1 of the Banks Act A long term insurer as defined in section 1 of the Long-term Insurance Act A manager as defined in section 1 of the Collective Investment Schemes Control Act (other than a manager of a collective investment scheme in participation bonds) A manager as defined in section 1 of the Collective Investment Schemes Control Act of a collective investment scheme in participation bonds that complies certain requirements The government of the RSA in the national sphere A mutual bank as defined in section 1 of the Mutual Banks Act A co-operative bank as defined in section 1 of the Co-Operative Banks Act Most savings accounts with banks, fixed deposits, unit trusts (collective investment schemes), retail savings bonds, certain endowment policies issued by long-term insurers will be eligible as tax free savings accounts Amongst other things, this means that all earnings on tax-free investments will be exempt from tax, including dividends. All contributions must be in cash unit transfers will not be allowed during the first year of the incentive, until 1 March 2016. Tax free investments will however be added to the estate of the taxpayer, and therefore subject to estate duty, however the returns thereon will continue to be exempt from income and dividends tax. The reporting requirements of service providers will be set out in the Business Requirement Specifications to be published by SARS. This article provides a brief overview of the new Regulations. You are strongly advised to contact our offices for further information and assistance on the topic. 5
TRUSTS SARS NEW REQUIREMENTS During 2014 SARS redesigned, and set in place stricter requirements regarding Tax Returns for Trusts. One of their main goals for doing so, was to obtain more accurate returns, and greater compliance. There are many advantages to setting up a trust, some of which include: Good risk and estate planning device Assets don t from part of the insolvent estate in the event of sequestration Strict controls trustees are accountable to the Master of the High Court Perpetuity the trust ordinarily continues to exist as an entity, despite the death of the founder, a trustee or beneficiary Special trusts can be formed for the mentally ill or seriously disabled, and will be allowed a CGT exemption if a fixed property is held in the trust, and if it is a primary residence (and meets other requirements to qualify) In light of SARS s new requirements regarding trust tax returns, and to ensure general legal compliance, it is advisable for trustees to review their trust deed from time to time. Particularly to ensure that the criteria set by the Trust Property Control Act, case law and SARS regulations are met. The review would encompass questions such as: are my beneficiaries correctly listed and updated? is there a recent Letter of Authority reflecting who are the authorised trustees registered at the Master s office? are the minimum number of trustees appointed, as set out in the deed? have minutes of trustee meetings and resolutions been recorded and updated in a trust minute book? does my trust set of accounts correctly reflect distributions made to beneficiaries in accordance with the deed and for taxation purposes? Should you wish to review your trust deed, or require any other assistance in this regard, please contact our offices. 6
Management Reporting A key tool A management reporting system is a structured method in which to capture data essential to the management of a business. The reports produced comprise crucial data needed to monitor the business on a regular basis. The reports should be concise, yet telling, and every element that is reported on should contain information that is relevant to achieving the goals of the business. The purpose of management reports is to monitor both the overall success of the business, and performance against plan. It is useless to set up Key Performance Indicators (KPI s) if they are not being monitored and managed. By creating management reports it is possible to see downward trends early and to take action to prevent them from further declining. Alternatively, it is possible to see upward trends and determine what is going well and possibly apply that concept across the organisation - in particular to the areas that are not doing so well. In designing a management reporting system, base it on KPIs derived from the business' strategic plan. Key steps in developing a management reporting system Gain an understanding of your strategic business plan. Review the current management information system Design the management reports Design the reporting system The system should include, at a minimum: A list of the management reports along with the recipients Frequency of reporting and a timetable for production of all reports, i.e. end dates for input, processing, output and reconciliation, presentation Responsibilities for providing input data, outputs, delivery of reports, and identity of key managers responsible for performance in each area being measured Sources of all input data should be identified Should you wish to implement a management reporting system or review your existing system please do not hesitate to contact us for professional advice in this regard. 7