Second Provisional Tax 2010

Published on January 20, 2010 in Notices. 0 Comments Tags: .

The second provisional tax payment for the 2010 tax year is due on the 28th of February 2010.

SARS now has different rules for those taxpayers whose taxable income is in excess of R1 million and for those taxpayers whose taxable income is less than R1 million.

Tier 1 – Larger Taxpayers (Taxable Income exceeds R1 million)

Provisional tax calculations must be based on actual figures.

This means that the SARS basic amount for the provisional calculation cannot be used and the calculation must be based on actual income. The estimated income used must be at least 80% of the actual taxable income as finally determined on assessment.  An underestimation will result in a penalty of 20% on the shortfall arising on the amount paid to SARS.

Tier 2 - Smaller Taxpayers (Taxable Income below R1 million)

If your taxable income will be below R1 million for the 2010 tax year the rules have not changed. You may still use the basic amount issued by SARS or if you estimate your taxable income for the 2010 tax year to be less than the basic amount, a lower estimate may be used, provided that the lower estimate is at least 90% of your actual taxable income finally determined on assessment.

VAT Amendments

Published on January 8, 2010 in Notices. 0 Comments Tags: .

Recently notable amendments to the VAT Act are as follows:

  • VAT rulings issued prior to 1 January 2007 must be re-submitted for approval.
  • VAT on excess considerations/payments received:
    Sometimes a vendor receives payment which is more than the consideration charges on the invoice. Typically, this involves payments made by two different persons for the same supply. In many instances the overpayment is not refunded by the vendor, and after the general prescription period of 3 years, the vendor claims this amount as income.

    The amendment is to ensure that the vendor accounts for VAT in respect of the amount of the excess consideration received on the last day of the tax period which ends 4 months after the excess amount has been received. If after 4 months the vendor refunds any part of the excess payment, the vendor is entitled to claim a deduction by applying the tax fraction
    (i.e. 14/114) to the amount refunded.

     

Travel Logbooks

Published on January 8, 2010 in Notices. 0 Comments Tags: .

In the 2009 Budget speech it was announced that the deemed kilometer system will be scrapped from next year.

This means that from the 2010/11 tax year, you won’t be able to use the deemed kilometer system when completing your travel calculation on your tax return.

What does this mean for you?

If you haven’t got an up to date logbook, you’ll have to forfeit the benefits of an allowance and will be taxed fully on your travel allowance.

Although this change only applies from the tax year starting on 1 March 2010, it would be a very good idea to get into the habit of keeping a logbook now. This will ensure that by the time next year comes around, you will be a logbook pro and the tax benefits of your travel allowance will be secure.

Sars 2009 logbook

Transfer Pricing Policy Documents

Published on January 8, 2010 in Notices. 0 Comments Tags: .

Although there is no explicit statutory requirement to prepare and maintain transfer pricing documentation, it is in the taxpayer’s best interest to document how transfer prices have been determined, since adequate documentation is the best way to demonstrate that transfer prices are consistent with the arm’s length principle, as required by Section 31.

A taxpayer electing not to prepare transfer pricing documentation is at risk on two counts. Firstly, it is more likely that the Commissioner will examine a taxpayer’s transfer pricing in detail if the taxpayer has not prepared proper documentation. Secondly, if the Commissioner, as a result of this examination, substitutes an alternative arm’s length amount for the one adopted by the taxpayer, the lack of adequate documentation will make it difficult for the taxpayer to rebut that substitution, wither directly to the Commissioner or in the Courts.

SARS confirms that its policy remains that there is no statutory requirement that the taxpayers compile a formal transfer pricing policy document. The requirement for submission of a formal transfer pricing policy document in terms of the annual return of income must, therefore, be read as a requirement to submit such a policy document where a taxpayer has in fact already compiled one. In the event that a taxpayer has not compiled such a policy document it is sufficient to formally confirm that one has not been compiled.

Taxpayers choosing not to prepare documentation must, however, realize that they are at risk and that it may be more difficult to discharge the onus of proving that an arm’s length price has been established.

Tax Blow for Provisional Taxpayers

Published on January 8, 2010 in Notices. 0 Comments Tags: .

Legislation currently before Parliament will change the way in which the 2nd provisional tax payment is calculated.

In previous years provisional tax was calculated using the last assessment as the basic amount on which the 1st and 2nd provisional tax payments were based.  Actual income had to be used to calculate the third provisional tax payments. If a taxpayer used an estimate of taxable income for their 1st and 2nd provisional payments which was less than their last assessment, penalties and interest were levied if the estimated amount was less than 90% of actual income.

From <1 January 2009,> the 1st provisional tax calculation may still be based on the last assessment. The 2nd provisional tax payment must now be based on an amount of at least 80% of the income for the year. If on assessment it is found that the second provisional payment has been based on an income which is less than 80% of the taxable income as finally determined, a 20% penalty will be charged.

This therefore moves the tax computation requirements forward from the 3rd provisional tax period to the 2nd provisional tax period.

In short, this means that individuals will have to estimate their interest and rentals and quantify their capital gains by February 2009 in order to ensure that their second provisional tax payment is within 80% of the taxable income as finally determined. Companies will have to run a “dummy year end” or prepare management accounts in order to ascertain their taxable income for the full year.

Small Business Tax Amnesty Deadline

Published on January 8, 2010 in Notices. 0 Comments Tags: , .

The 2006 Budget announced a small business tax amnesty to facilitate the entry of marginalised small businesses into the economic mainstream and to help non-compliant small businesses to regularise their tax affairs and thus avoid potential penalties in future. It covers Income Tax, PAYE, SDL, UIF, VAT, Withholding Tax and Secondary Tax on Companies (STC).

The deadline for the Amnesty applications is 31 May 2007.

Share Incentive Schemes

Published on January 8, 2010 in Notices. 0 Comments Tags: .

Share Incentive Schemes

10 May 2007

Provisions concerning the taxation of share schemes have been introduced in the form of Section 8C to the Income Tax Act. One of the most significant changes to the legislation concerns the “replacement” of the application of Section 8A of the Act (which deals with the tax implications of share schemes for employees and directors) to rights granted before 26 October 2004 with Section 8C in respect of shares acquired on or after that date. This section contains substantial differences regarding the manner, amount and timing of the tax implications of the abovementioned gains, and will have a significant effect on current employee share schemes, as well as any future share grants or awards.

In terms of the new provisions, a tax liability would only arise once an equity instrument has vested in an employee or director. The timing of vesting depends on whether the equity instrument in question is a restricted or an unrestricted instrument. A restricted equity instrument is one which is subject to restrictions such as a prohibition of the disposal thereof freely at market value and/or that it may not be deliverable until the happening of a certain event, other than payment of the purchase price.

A restricted equity instrument is deemed to vest at the earliest of the cessation of the relevant restrictions, immediately prior to disposal or, in the case of an option, when such option terminates. If an option is exercised, and a restriction still exists in respect of the underlying share, the tax consequences only occur on the vesting of the underlying share.

Unrestricted equity instruments have no restrictions and are deemed to vest in the taxpayer at the time of acquisition.

The gain to be included in the income of a taxpayer is the sum of the amount by which the market value of the equity instrument determined at the time of vesting exceeds the sum of any consideration paid in respect of that equity instrument. Similarly, the loss to be deducted from a taxpayer’s income is the amount by which the sum of any consideration paid in respect of that equity instrument exceeds the amount received in respect of the disposal thereof.

Should an option be disposed of (e.g. lapse), the taxable gain would be the amount received in respect of the vesting, which exceeds the consideration paid for the option. It is, however, unlikely that the lapsing of an option would give rise to a taxable gain, as no amount would be received in consequence of the lapsing. Where employees were required to pay for an option, the lapsing thereof would give rise to a loss.

Wide-ranging amendments relating to broad based share incentive schemes have also been introduced in terms of Section 8B relating to years of assessment ending on or after 1 January 2005. Employer companies may issue qualifying shares up to a limit of R9 000 per employee in the current tax year and in the immediately preceding two tax years. A tax deduction limited to a maximum of R3 000 per annum per employee will be allowed in the employer’s hands. Provided the employee holds onto the shares for at least five years there will be no tax consequences for the employee, other than CGT. The usage of this incentive appears to be minimal and therefore the Receiver of Revenue will accordingly be reviewing it for possible changes.

SARS to Get Nasty on Penalties

Published on January 8, 2010 in Notices. 0 Comments Tags: , .

As you may be aware from recent newspaper articles, SARS is introducing a new penalty system which comes into effect on 21 November 2009 makes failing to submit your tax return timeously an expensive exercise. 

Taxpayers therefore have until 20 of November 2009 to submit any outstanding returns to avoid being penalised under the new penalty regime.

Taxpayers with multiple outstanding returns after 20 November 2009 will be notified in writing or electronically (for registered eFilers) of the imposition of a one month penalty for each outstanding return.  Should the taxpayer fail to submit these outstanding returns within 30 days, a second penalty will be applied, and so on. The new regulations allow for penalties to be applied each month or part thereof for up to 35 months.

Where a taxpayer fails to pay their penalty SARS will approach their employers or other parties in control of their funds to act as an agent in terms of Section 99 of the Income Tax Act, and deduct and pay over any outstanding amounts. 

Failure to submit your return by the due date will now result in the following penalty charges:

Item Assessed loss or taxable income

for the preceding year of assessment

 Penalty for the

first 3 month period

 Penalty for each

additional 3 month

period

 Maximum

Penalty
(i) Assessed loss 500 1,000 11,500
(ii) R0 – R299999 500 1,000 11,500
(iii) R300 000 – R999 999 1,000 2,000 23,000
(iv) R1 000 000 – R9 999 999 2,000 4,000 46,000
(v)  R10 000 000 – R49 999 999 as well as

Companies described in subparagraph (2)

 4,000 8,000 92,000
(vi) R50 000 000 and higher 8,000 16,000 184,000

 

These penalties are not tax-deductible.

Annual tax returns for companies are due 12 months after year end and individuals and trust returns are due by a specific date published by SARS annually. For the 2009 tax year, individuals and trusts still have until 20 November to submit their returns electronically.

We therefore strongly advise that should you have any outstanding returns that are overdue in terms of the above, the necessary information for the completion thereof be provided to us before 30 October 2009 so that we can assist you in bringing your tax affairs up to date.

SARS Overcharges for UIF

Published on January 8, 2010 in Notices. 0 Comments Tags: , .

The Unemployment Insurance Fund Commissioner has agreed to allow employers to claim back refunds.

Employers were incorrectly advised by the South African Revenue Service (SARS) in Notice 3 of 2007 dated 2 October 2007 to apply an annual limit of R149 736 to UIF contributions with effect from 1 October 2007. In Notice 1 of 2008, SARS announced that the annual contribution limit of R149 736 should only be applied with effect from 1 February 2008.

In the same notice, SARS granted employers who implemented the increased limit with effect from 1 October 2007, the opportunity to make the necessary adjustments as soon as possible by reducing the amount payable in respect of a future month by the amounts calculated incorrectly in the previous months.

The Unemployment Insurance Fund Commissioner has agreed to allow employers to claim these refunds in any month from March 2008 but no later than 30 September 2008.

Personal Service Entity Changes

Published on January 8, 2010 in Notices. 0 Comments Tags: .

One of the most difficult aspects of tax legislation for companies that use the services of certain suppliers in recent years has been the narrow definitions of personal service companies and trusts. Payments to such entities are subject to the deduction of employee’s tax, and the entities are prohibited from deducting any expenditure except remuneration in determining their taxable income.

In terms of the old definitions in the Fourth Schedule to the Income Tax Act 58 of 1962 (“the Act”), a Personal Service Entity (“PSE”) was one where any service rendered on behalf of the entity was rendered personally by a connected person in relation to the entity and:

  • the person would have been regarded as an employee of the client had the person rendered the service directly to the client; or
  • the person was subject to the control or supervision of the client as to the manner, or hours of duty of the service; or
  • the amounts payable for the service accrued at regular intervals; or
  • more than 80% of the income was from one client or its associated institutions.

These provisions did not apply if the entity had more than three full-time employees, who were not connected to a shareholder, member, and those employees were engaged full-time in the main business of the entity.

The definitions of Personal Services Entity’s have now been amended in three respects:

  • the control or supervision provision applies only if the service is performed at the premises of the client;
  • the provision as to the regularity of payments has been deleted entirely; and
  • the requirement for more than three unconnected employees has been reduced to three or more.

Importantly, as a result of the amendments, tax payers may now also rely on an annual affidavit or solemn declaration by a contractor that it is not a personal service entity, without risking penalties.

Finally, the severe restrictions on deducting expenses by personal service entity’s have been eased, and they may now deduct operating expenses incurred (refer section 23(k)), e.g. contributions to funds, legal expenses, bad debts, rent, finance charges, insurance, repairs etc. (provided these are incurred wholly and exclusively for trade).

As a rule of thumb, do not allow permanent of full time employees to render their services through the form of a separate legal entity. Alternatively, if in doubt, insist on an Affidavit confirming that it is not a personal service entity, or deduct PYE at the tax rate of the entity (i.e. that the entity is indeed an independent contractor) or in terms of a South African Revenue Service affidavit if provided.