2016 BUDGET PRESENTATION

Presented by: Paul Gering

I hereby issue any and all disclaimers in terms of FAIS, FICA, POCA andthe like.

I note that this is a presentation for information purposes and does notconstitute formal advice.

Advice can, however, be given in our office for the requisite fee.

PKF cannot be held liable for any losses suffered as a result of relianceupon information discussed at this presentation.

To the extent that you may still think you have a claim, it is limited to twicethe fee for the attendance of the seminar.

DISCLAIMER

• The level of projected growth in the economy is too low.

• ESKOM does not help.

• Lack of political leadership.

• Ratings agencies.

• Unemployment.

• Corruption and wasted expenditure.

YOU CANNOT HIDE FROM:

2014 Budget 2,7%2014 Medium Term 1,4%2015 Budget 2%2015 Medium Term 1,5%2016 Budget 0.9%

“Without stronger economic growth, the revenue trend will remain muted.If revenue does not grow, expenditure increases cannot be sustained.”

GROWTH IS REQUIRED

MINISTER OF FINANCE | COME AND GO

Nhlanhla Nene

David van Rooyen

MINISTERS OF FINANCE | GO AND COME

David van Rooyen

Pravin Gordhan

Finance Minister Pravin Gordhan met with about 60 chief executive officersrepresenting industries ranging from banking to mining on January 29 at NedbankGroup’s offices in Johannesburg. They were to discuss steps to boost investorsentiment and avert a credit rating downgrade to junk.

Gordhan is seeking to restore confidence in an economy hit by sliding commodityprices, weak demand from China and policy mistakes by President Jacob Zumatoward the end of last year that pushed the rand to record lows.

The rand has plunged 14% against the dollar in the past three months. Sentiment deteriorated afterZuma fired his Finance Minister Nhlanhla Nene on December 9 and replaced him with a little-knownlawmaker. A market backlash that followed forced Zuma to reverse the decision four days later and re-appoint Gordhan.

Business stated though that they were encouraged by the Minister and Treasury’s determination andcommitment, as well as their plans to address short-term fiscal challenges.

TRYING TO AVOID JUNK STATUS

THE COST OF WASTEFUL UNAUTHORISED EXPENDITURE

INDIVIDUAL TAXPAYERS 2016/2017

Taxable bracket Number % % Tax paid0 – R70 000 6 619 854

R 70 001 – R150 000 2 583 046 36.3 2.7R150 001 – R250 000 1 733 463 24.4 7.8R250 001 – R350 000 1 071 798 15.1 10.9R350 001 – R500 000 800 990 11.3 14.6R500 001 – R750 000 497 722 7.0 17.0R750 001 – R1 000 000 197 813 2.8 11.3R1 000 001 – R1 500 000 136 782 1.9 12.1R1 500 001 + 94 578 1.3 23.5

Total 7 116 192 100.0 100.0Grand Total 13 736 046

STATE OF THE NATION ADDRESS | 2016

President Jacob Zuma with Speaker of Parliament Baleka Mbete

• E-Tolls

• Student loans and bursaries

• Improving efficiency of State companies

• Constitutional Court concessions

• How to avoid Junk Status

SECURE IN COMFORT | Report by Public Protector SA

then came Katz

now we have

Fringe Benefit: Employee debtLoan to employee

All due to the concession of private expenditure in Nkandla

BRING BACK THE OLD TAX ACT

There shall be exempt from tax.

10 (1) (c) (i) the salary and emoluments payable to the State President

• Recalling or managing exit of Zuma after the Municipal Elections.

• Need to watch out for:

– National minimum wage– March – the Zuma Spy Tape Trial– May NUMSA need political party council– July ANC mid-year Lekgotla

CNBC AFRICA RISK FORECAST

• Tshwane (Pretoria) ANC 51% in 2014 National electionsDA 31,3%

• Nelson Mandela Bay ANC 49,2% in 2014 National electionsDA 40,2% in 2014 National elections

• Johannesburg ANC 53,6% in 2014 National electionsDA 29,8%

Could be very interesting condition run; Municipalities not controlled by ANC

MUNICIPAL ELECTIONS

MEDIUM TERM BUDGET

Nhlanhla Nene Minister of Finance

The 2015 Budget assumed that the price-sector wage agreement would not depart significantly from inflation. The final settlement increases the salaries and benefits of public servants by 10.1 percent in the current year, followed by improvements that will be at least two percentage points higher than consumer inflation in the next two years. Without corresponding improvements in the quality of public services, increases of this kind are not sustainable over the long terms.

Nhlanhla NeneMedium Term Budget

BUDGET PRESSURE – PUBLIC SECTOR WAGES

This year, more than R7 billion will be transferred directly from the fiscus to support theoperations of South African companies, which also receive about R24 billion in taxincentives annually. A number of additional proposals that would increase incentives tothe private sector have also been raised for consideration.

The first phase of the Economic Competitiveness Support Programme, which wasintroduced in 2011/12, concludes in 2017/18. Over the six-year period, total allocationsto this programme amount to R22.7 billion. The programme supports training, equipmentand technological upgrades to improve competitiveness, and research and development.Government intends to renew the programme following a review of all businessincentives.

The review, which will be conducted during 2016, will assess the impact or incentives oneconomic growth, productivity, competitiveness, the balance of trade and employment.Particular focus will be given to job creation and the need to incentivise labour-intensiveeconomic activities. The outcomes of the review will inform the allocation of resourcesfor business incentives in 2018/19 and beyond

GOVERNMENT TO REVIEW EFFECTIVENESS OF BUSINESS INCENTIVES

• Separate Act

• Initially delayed due to COSATU

• End date – 31 December 2016

• Will this be extended?

• To end of July 2015: 250 000 workers36 000 employers

• Cost of incentive: R3.9 billion

EMPLOYEE TAX INCENTIVE

• Review of the current abatement

• Review of exemption to spouse

• Review of exemption on maintenance of dependents

• Review of flat rate of duty

• Possible review of interest free loans to Trusts

DAVIS TAX COMMITTEE ON ESTATE DUTY | DONATIONS TAX

• Conduit principle

• Capital transfer tax

• Taxation of offshore Trust distributions

• Criminal offence not to disclose interest in an offshore Trust

DAVIS TAX COMMITTEE ON TRUSTS

• Limit the ability to peg ones estate.

• Interest free loan = donation.

• Assets funded by interest free loan = inclusion in estate.

• Limit income splitting benefits.

BUDGET PROPOSAL

Average African Rate 16%Eu 21%

THE RUMOURS

VAT 1%

Bracket Creep

Fuel Levy Fuel Levy 50 cents

Estate Duty

Individual to Rate 45%

Capital Gains Tax

Reduce Corporate Tax to encourage growth

Amnesty to fund no fees must fall

VAT multiple rates

Delay retirement

reform again

R9 billion

R9 billion

R10 billion

“We do so in a spirit of frankness, both about our challenges and the opportunity to turn our economy’s opportunity to turn our economy’s direction towards hope, confidence and a better future for all.

We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges.”

BUDGET SPEECH

2016 BUGET

Expenditureceiling

Trusts 41%

Top Marginal

Rate 41%

Relief for Individuals

Increase in CGT

2016 BUDGET

Company Tax

Dividend Tax

Transfer DutyR10 million

VAT

2016 BUDGET

Sin Taxes

Fuel Levy 30 cents

Encourage Savings

Small Business

Australian, British and American administrations have shared intelligence,including names of offenders, relating to tax evasion through complex offshorestructures, with SARS.

This information is aimed at helping to trace South Africa’s tax evaders abroadincluding locals, expats and international businessmen, according to FinanceMinister Pravin Gordhan (as he was then).

“The data contain both the identities of the individual owners of these entities aswell as the advisers who assisted in establishing the structures,” Gordhan said.

He added that in combatting tax evasion seven main areas will be targeted:large businesses and transfer pricing, the construction industry, wealthyindividuals and their associated trusts, illicit cigarettes, clothing and textiles,small businesses, and tax practitioners and trade intermediaries.

SARS ON THE HUNT FOR TAX EVADERS ABROAD

Banking giant HSBC has threatened the Sunday Times forexposing the wealthy South Africans who stashed R23-billionin secretive Swiss bank accounts, demanding all this databe "destroyed".

The list of South African clients who held bank accounts with the secretive HSBC Bank in Switzerlandis headlined by CEOs of top blue-chip companies, diamond dealers, sports stars and a key figure inthe arms deal.

More than 100 000 clients of HSBC internationally, who included tax dodgers, drug dealers andgovernment officials who used the secret Swiss accounts to launder cash and hide money.

Altogether, 1737 clients linked to 585 South Africans had accounts, holding a total of $2.09-billion.South African Revenue Service executive Vlok Symington stated that SARS was "analysing" theinformation. "Early indications are that some of these account holders may have utilised their HSBCaccounts to evade local and/or international tax obligations."

HSBC LIST

• Most countries have moved away from source to residency tax rules. The challenge is taxing income sourced outside the country and housed in tax havens.

• FATCA due 2015

• OECD CRS adapted 2015

• First reporting period 2016

• First Report – February 2017

SOUTH AFRICA IS AN EARLY ADOPTER

REPORTING WORLDWIDE INCOME

Any resident person make a contribution or payment to a non-resident Trust exceeding R10 million.

POSSIBLE COVERS:

• Donation to foreign Trust• Loan to foreign Trust

REPORTABLE ARRANGMENTS | FOREIGN TRUSTS

• One joint process for SARS and SARB

• 6 month window period:

– 01 October 2016 to 31 March 2017

• Individuals and Companies

• Not Trusts

Settlors, donors, deceased estates, beneficiaries of foreign discretionary Trusts can participate if they elect that the Trusts offshore assets are deemed to be held by them.

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME

• May not apply if they are aware of a pending audit or investigation in respect of foreign assets.

• 50% of seed money used to fund foreign assets before 01 March 2015. If taxpayer failed to comply with a tax act administered by SARS will be subject to normal tax:

– Part disclosed in first return after 01 March 2010 then in each year thereafter;

– Income from the non-disclosed foreign asset from 01 March 2010;

– Interest from 01 March 2010;

– No penalties.

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME

• Unauthorised foreign assets can be regularised for Forex contraventions prior to 28 February 2016.

• 5% of leviable amount if repatriated.

• 10% of leviable amount if kept offshore.

• Additional 2% of SA funds are used to pay levy.

• Not able to deduct the foreign capital allowance of R10 million.

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME

• R1 000 000 over invoiced in 1990

• Invested in property

• Property sold at profit and new property acquired

• Value of property in 2016 $1 000 000

• 50% of R1 million tax : 2011 Approximately R150 000

• Rental taxed : 20112012201320142015

• Interest on tax from : 2011 Approximately R100 000

• 10% of value of property as asset remains offshore

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME

• 1 March 2015 – 2016.

• Employer contribution will be a fringe benefit.

• Individual will be able to deduct 27.5%.

• Maximum R350 000.

•

RETIREMENT REFORMS

• Nedlac• Budget 2012• Legislative process 2013• Law 2013• Amended 2014 due to pressure from COSATU

• Further consultation with Nedlac• Legislation process – 22 July 2015• Further consultation – 27 October 2015

CONSULTATION PROCESS

• Over 55 Lump sum on retirement

• Under 55 Current value plus growth lump sum on retirement

PROVIDENT FUND ANNUITISATION

New Value

Less than R247 500 lump sum

1/3 lump sum plus annuity

SARS LEADERSHIP

Oupa Magashula

Ivan PillayActing Commissioner

NEW SARS LEADERSHIP

Ivan PillayActing Commissioner

Tom MoyaneCommissioner

• SARS appears to be spending more time auditing diesel rebates claimed in prior years (especially the need by qualifying vendors to keep a logbook of diesel used for each vehicle, machine or item of equipment).

• To be delinked from the VAT system April 2016.

• Clarity on record-keeping.

ON SARS WATCH LIST

2014/2015 – 2018/2019 | SARS STRATEGIC PLAN

Value-Added Tax (VAT) refund fraud

The SARS VAT systems and processes continueto be placed under pressure as businessesrespond to the slow economic recovery and theimpact on their businesses. There is thus anincreased change of tax fraud, especially VATwhereby businesses will be over-claiming inputsand expenses or under-declaring and/or notdeclaring outputs and income to protect theirprofits.

• Enhance our risk engines to ensure onlylegitimate refunds are processed.

• Increase enforcement activities to addressfraudulent claims.

• Improve registration process, especially forVAT to ensure accurate taxpayer accounts,including bank account details.

Transfer pricing remains a significant tax issue for revenue administrations around the world. The top500 multi-national enterprises account for nearly 70% of worldwide trade and this percentage hasincreased significantly over the past 20 years. Despite the fact that South Africa was the third countryin the world to introduce transfer pricing legislation, SARS has had a limited number of transfer pricingassessments and successes.

High on the agenda for the Davis Tax Committee

LARGE BUSINESS AND TRANSFER PRICING

• Major impact on business with a turnover of R1 billion

• Annual master file, local file and country-by-country reporting

• Data base comparable to be updated every 3 years

BEPS ACTION PLAN B | TRANSFER PRICING DOCUMENTATION

• Thin capitalisation

• No longer 3:1 safe harbour rules

• From 01 April 2012 arms length principle

TRANSFER PRICING : THIN CAPITALISATION

• Low level of tax compliance.

• Price fixing scandals.

• 15 companies paying fines of R1,46 billion.

• Non registration for VAT and PAYE.

• On time filing of returns declined from 47% in 2010/2011 to 43% in 2013/2014.

• Non filing increased from 36% to 48%.

• Corporate Tax Returns late or outstanding increased from 64% to 75%.

CONSTRUCTION SECTOR – POOR COMPLIANCE

• Foreign employers may not deduct PAYE and then the employee will need to pay provisional tax.

• Amend the penalty on underpayment of provisional tax.

• Clarity on non-executive director fees and PAYE and VAT.

• Review VAT treatment of loyalty programmes.

• Extension of time to object.

• Review of understatement penalty in general anti-avoidance matters.

• Clarity on what is meant by pending audit or investigation.

• Clarification on private travel.

ANNEXURE C : POSSIBLE UPCOMING ATTRACTIONS

SARS will implement the following solution to enhance Trust taxcompliance:

• Introduce the Trusts Risk Engine for primaryrisk assessment of Trusts; and

• Conduct few but more focused audits basedon the results of the risk engine.

TRUSTS

Reporting: - Donor and deemed donor disclosure

- Beneficiary disclosure

- Amendments to Trust Deed disclosure

Requires: - Minutes of Meeting

- Proper record keeping

- Documentation of significant transactions

- Distributions in principle prior to 29 February 2016

- Need for independent Trustees

TRUST – ADMINISTRATION REQUIREMENTS

INFORMATION TO CREATE THE INCOME TAX RETURN FOR A TRUST

Related Information Related Information (continued)Is the trust registered in the Republic of South Africa or is the place of effective management in the Republic? Y N

Were any changes made during the year of assessment to the beneficiaries? Y N

Did the trust, together with any connected person in relation to the trust, hold at least 10% of the participation rights in any controlled foreign company (CFC))

Y NWhere any changes made during the year of assessment to the trust deed? Y N

If Yes, complete the applicable schedule (IT10) (refer to guide).

Indicate whether the trust was engaged in mining or mining operations as defined in s1 of the Income Tax Act. If Yes, complete the applicable schedules (Schedules A and B) (refer to guide).

Y N

If Yes, where beneficiaries have a vested right to the trust’s asset(s), has the change in the trust deed affected any of the beneficiaries’ vested interest in the trust’s asset(s)?

Did any amounts distributed by the trust or retained in the trust arise by reason of a donation, settlement or other disposition of this trust?

Y

Y

N

N

Were any changes made during the year of assessment to the trustees?

Y N Is this trust a beneficiary or another trust or are other trust(s) beneficiaries of this trust? Y N

TRUST DISTRIBUTIONS - CAPITAL

TRUST

TRUST

BENEFICIARY

Distribution

Distribution

TRUST DISTRIBUTIONS - CAPITAL

TRUST

Resident Beneficiary

Non-Resident Beneficiary

Distribution

No Section 7 issue

TRUST DISTRIBUTIONS - INCOME

TRUST

Resident Beneficiary

Non-ResidentBeneficiary

Distribution

No Section 7 issue

• Place of effective management

• Tax Administration Act

MAJOR DEVELOPMENT

In determining where a company is effectively managed one would consider theviews of the South African fiscus and the views of the international community, theOECD (the Organisation for Economic Co-operation and Development). The viewsof the OECD carry a considerable amount of weight – as the term “effectivemanagement” is a standard term in the OECD Model Tax Treaty and has beensubject to extensive discussion and debate worldwide between OECD membercountries.

It is important to distinguish ‘effective management’ from ‘control’ and from‘management and control’. Tax commentators seem agree that when consideringwhat effective management is one looks to the management of the business of acompany, not the management of the company as a legal entity. Therefore it isimportant to determine where the company carries on business and where thepeople are located who manage the business of the company.

PLACE OF EFFECTIVE MANAGEMENT

Company buys back shares from one or more Shareholders in agreement exceeding R10 million;

and

that company issued or is required to issue any shares within 12 months of that buy back.

REPORTABLE ARRANGEMENTS | SHARE BUY BACK

• Budget 2015

• The Taxation Laws Amendment 2015

• The Tax Administration Laws Amendment Act 2015

• Medium Term Budget

• Budget 2016

• Effective date of 2015 Amendments

THE WHEELS OF JUSTICE TURN SLOWLY

1. Death and taxes

2. Withdrawal of Section 6quin

3. VDP extended to admin fixed percentage penalty – late payment

4. Importance of E-filing Notices

5. VAT thresholds

6. Withholding taxes

SIGNIFICANT TAX AMENDMENTS

DECEASED ESTATE BENEFICIARY

Income to date of death

Stock sold at market value

on death

Conduit Now taxed in Estate

Income taxed in hand of

beneficiary

Deemed disposal of capital assets at death

Now recoupment

on death

Acquisition at new base cost

conduit

TAXATION ON DECEASED

TLAA 2015 AMENDMENTS | WITHDRAWAL OF SECTION 6quin

SA Co.

Foreign Co.

Provides services using

know-how and specialist

skills

Section 6quinFTC

Service feesless WHT

• Reasons for introduction of section 6quin

• What did it achieve?

• TLAA: Repeals section 6quin in its majority with effect from 1 January 2016

• Remains only the subsection dealing with a refund of rebates already claimed

• Now also covers 10% penalty – late payment penalty.

• Similar default must not have occurred in the last 5 years – previously period of similar default was indefinite.

• Taxpayer’s behaviour falls into one of the following categories:

– Substantial understatement (R1 m tax debt)– Reasonable care not taken in completing return– No reasonable grounds for tax position– Gross negligence– Intentional tax evasion

VDP EXTENDED

• Effective 28 August 2014 if SARS puts a notice on the taxpayere-filing page it is considered effective delivery of the notice.

• Problem if not read or no email notice of notice received.

• Limited time periods to object or appeal.

• Limited time periods to upload information or assessmentsdisallowing all inputs or expenses are raised.

E-FILING

• VAT threshold increases to R120,000 – 01 April 2016.

• Guest houses below this level may have a VAT surprise on capital assets claimed.

• If below threshold SARS will deregister the entity with VAT consequences.

VAT COMMERCIAL ACCOMMODATION

• Uniform withholding tax rate of 15% for:– Cross border interest– Royalties– Dividends– Service Fees

• May be reduced in terms of a DTA• Effective date for:

– Royalties and interest : 01 January 2015– Service fees : 01 January 2017 – will now be scrapped.

WITHHOLDING TAX ON PAYMENTS TO FOREIGN PERSONS

2008R

2009 R

2010 R

2011 R

Grand Total R

Copyrights, royalties and patent fees 9,193,024,882 9,972,557,798 10,218,632,767 11,753,572,186 41,137,787,633

Legal, accounting and management consulting services 19,907,138,985 26,404,401,495 25,567,916,347 29,086,527,270 100,965,984,097

Advertising and market research 2,514,255,525 2,079,309,530 2,322,484,579 2,376,620,700 9,292,670,334

Research and development 1,190,891,326 1,465,932,525 1,881,655,361 1,194,421,583 5,732,900,794

Architectural, engineering and technical services 9,502,199,748 13,261,681,931 9,140,177,372 9,580,166,654 41,484,225,705

Agricultural, mining and other processing services 1,357,914,436 1,372,840,085 1,534,995,130 2,360,485,454 6,626,235,105

Grand Total 43,665,424,902 54,556,723,364 50,665,861,555 56,351,793,847 205,239,803,668

% Movement 24.94% -7.1% 11.22%

BEPS | FOREIGN SERVICES PAYMENT

REVIEW OF CASE LAW

ABC LTD v CSARSCase: 13512STC

• Appellant was Treasury Company in group• Interest free loans channelled• SARS imposes deemed dividend on interest free loan

Court Rules

• Not from its profits• Conduit• Holistic interpretation

STC: DEEMED DIVIDEND

Mr A : CSARSVAT 1129

• Taxpayer allegedly provided all original documents to SARS

• SARS denies this

• Taxpayer tried to claim inputs by alternative means

• Court rules against taxpayer

THE IMPORTANCE OF THE AUDIT TRIAL

VAT DOCUMENTATION

CSARS: Stepney Investment77 SATC 283

• Taxpayer sold casino interest • Valuation higher than proceeds• SARS challenged valuation

Valuation found to be too optimisticSARS wrong on net asset valueDiscounted cash flow valuation to be used

CGT BASE COST

ITC 1876

• SARS tried to disallow the assessed loss when the company was acquired.

• When dealing with the matter SARS tried to bolster their case by referring to a second sale of the company.

• The court limited SARS to what it used to make the original finding.

• The important of asking SARS reasons for assessment.

REASONS PROVIDED

ABC (PTY) LTD (IN LIQUIDATION) v CSARSIT 12951VAT 855

• Prescription not considered by SARS

• Stock valuation of SARS not accepted by Court

• Testimony of witness taken into account by Court

• Ipse dixit – Evidence of taxpayer

ONUS OF PROOF

CSARS : SUSSIN

• A reminder to SARS to exercise its powers in a balanced and procedurally fair manner.

• The court recognised the important public function that SARS is required to perform in collecting taxes, but pointed out that this cannot be achieved in an unfair, unconstitutional and prejudiced manner.

TAX ADMINISTRATION

University of Stellenbosch Legal Aid Clinic and Other v Minister of Justice and Correctional Services and Other

• High Court rules that garnishee orders without judicial oversight not constitutional

What about SARS?

Not even issued by a senior SARS official anymore.

SARS GARNISHEE ORDERS

• Importance of objection

• Loss of income deduction – no longer

• Provisional Tax Rules

• Importance of tax opinion

A FEW REMINDERS

LETTER OF OBJECTION

We hereby lodge an objection to all amounts that have been deemed to have been received by or accrued to the taxpayer, the determination of the amount, the disallowance of all amounts actually incurred by the taxpayer and/or any allowances claimed by the taxpayer, as well as any under-statement penalty, or any other penalty, raised as a consequence of any of the abovementioned adjustments along with any administrative non-compliance penalty and the related interest that has arisen as a consequence.

In order to amplify this objection, the taxpayer wishes to note the following:

LETTER OF OBJECTION

INCOME PROTECTOR POLICIES WERE DEDUCTIBLE

THEN

NOT

THEN SPECIFICALLY ALLOWED

and

01 MARCH 2015 NOT

LOSS OF INCOME

Over R1 million

• Realistic estimate• No basic amount• Penalty if not within 80%

Below R1 million

• Basic amount• Penalty if not within 90%• Only if you estimate lower

PROVISIONAL TAX

IMPORTANCE OF THE OPINION

(3) SARS must remit a ‘penalty’ imposed for a ‘substantial understatement’ if SARS is satisfied that the taxpayer-

(a) made full disclosure of the arrangement, as defined in section 34, that gave rise to the prejudice to SARS or the fiscus by no later than the date that the relevant return was due; and

(b) was in possession of an opinion by an independent registered tax practitioner that-

(i) was issued by no later than the date that the relevant return was due (concession applicable if return was due prior to the 1 October 2012);

(ii) was based upon full disclosure of the specific facts and circumstances of the arrangement and, in the case of any opinion regarding the applicability of the substance over form doctrine or the anti-avoidance provisions of a tax Act, this requirement cannot be met unless the taxpayer is able to demonstrate that all of the steps in or parts of the arrangement were fully disclosed to the tax practitioner, whether or not the taxpayer was a direct party to the steps or parts in question; and

(iii) confirmed that the taxpayer’s position is more likely than not to be upheld if the matter proceeds to court.

09 December 2015: Issue 5 of Comprehensive Guide to Capital Gains Tax (153 TSH 2015). I havebeen referred so often to the disclaimer gracing this publication that I finally read it:

“This guide is provided for general guidance only. It is largely the work of a single author and becauseof it size has not been fully subjected to the normal rigorous review processes within SARS. The viewsexpressed in the guide may therefore not in all cases coincide with SARS’s official position on aparticular issue. In cases of doubt users of the guide should consider obtaining a non-binding opinion oran advance tax ruling from SARS.

While every precaution has been taken to ensure the accuracy of the information in this guide, SARSwill not be liable to any person for inaccurate information, omissions or opinions contained in this guide.”

Well, if the law is too complex for even the cognoscenti at SARS, how is Joe Schmoe meant to cope?But this is an unsatisfactory state of affairs. Perhaps this otherwise excellent publication has becometoo elaborate and detailed.

STATUS OF SARS GUIDES

Tax Shock, Horror

PENALTY TABLE

BehaviourStandard

case

If obstructive, or if it is a

'repeat case‘

Voluntary disclosure after

notification of audit

Voluntary disclosure

before notification of audit

Substantial under-statement' 25%10%

50%20%

5% 0%

Reasonable care not taken in completing return

50%25%

75%50%

25%15%

0%

No reasonable grounds for 'tax position' taken

75%50%

100%75%

35%25%

0%

Gross negligence 100% 125% 50% 5%

Intentional 'tax evasion' 150% 200% 75% 10%

A LITTLE BIT OF PLANNING

In the case of GUD Holdings (Pty) Ltd v CSARS (69 SATC 115) 2007 (NPD), thecompany operated a discount scheme for sales to wholesalers. If a wholesalermade prompt payment of its account, it was entitled to a settlement discount. Thisdiscount was provided in the standard conditions of sale. It was therefore a rightwhich existed when the goods were sold.

The Revenue Service argued that the full price of the goods had accrued at the timeof sale, and that the discount was a deduction which only arose if the customer paidearly. The court held, however, that before the time passed after which the paymentwould be ‘late’ the seller (GUD) was never entitled to the full selling price. Thevalue of its right was the selling price, net of the discount, and this lower amountwas therefore its gross income. It was only when the time of claiming the discountpassed that the discount actually accrued to the seller.

SETTLEMENT DISCOUNTS

EXAMPLE – SALE OF GOODS AT A DISCOUNT

The year-end of GD is 30 June 2015. GD sold goods to XY subject to adiscount as follows:

Selling price on 1 June 2015 …………………………………………… R10 000Discount if payment made by 25 July 2015 (condition of the sale) … (1 000)

XY only paid on 31 July 2015 and so did not claim the discount.

Include in gross income of GD at 30 June 2015: R9 000Include in gross income of GD at 30 June 2016: R1 000

SETTLEMENT DISCOUNTS | continued

• Only natural persons

• R30 000 in aggregate during any year of assessment

• R500 000 in aggregate over lifetime

• Income and capital gain exempt from tax

TAX FREE INVESTMENT

The following taxes may be claimed as a tax deduction to the extent that they are part of a deductible expense, or a tax allowance may be claimed on the cost of the article including these taxes, provided that in all cases the tax is not recoverable from the Revenue Service:

• Value-Added Tax• Customs Tax• Stamp duty• Securities transfer tax• Transfer duty• Workmen’s Compensation

GENERAL DEDUCTION FORMULA

X (Pty) Ltd provides an employee with the use of a company-owned motor vehicle whichcost R114 000 (including VAT). In terms of s 18(3) of the VAT Act the granting of thefringe benefit constitutes the supply (by X (Pty) Ltd) for a service. X (Pty) Ltd has toaccount for a monthly VAT output calculated as follows:

R100 000 x 0,3% x 14/114 = R36,84

Because this amount is a deemed output, X (Pty) Ltd does not actually recover it from theemployee. In effect it is an expense incurred by X (Pty) Ltd in the production of itsincome. Because Value-Added Tax is not a prohibited income tax deduction in terms of s23(d), X (Pty) Ltd will be entitled to claim a s 11(a) deduction of R443,08 (R36,84 x 12) inthe determination of its taxable income for the year.

The wear and tear on the motor car is based on the full cost of R114 000.

EXAMPLE – DEDUCTIBLE VAT

SMALL BUSINESS CORPORATION

2016 2017Turnover threshold R20 million R20 million

Taxable income R1 million R1 million

Tax due R185 245 R185 150

Effective rate 18.5% 18.5%

Taxable income R2 million R2 million

Tax due R465 245 R465 150

Effective rate 23.3% 23.3%

TOP MARGINAL RATE 41%

Effective Company Rate with Dividends 38,8%

2015 R673 100

2016 R701 300

2017 R701 300

OPTIMUM SALARY

• Additional measures put in place by SARS to ensure that the information submitted is accurate

• Applicable if discrepancies arises, for example-

– turnover per your VAT returns does not agree to turnover per your IT14

• Reconciliations required on IT14SD

– Income Tax reconciliation

– PAYE reconciliation

– VAT reconciliation

§ easy to do revenue recon (i.e. Output tax)

§ not so simply for expenditure recon (i.e. Input tax)

– Customs Duty Reconciliation

IT14SD

The first Budget Speech of new MinisterAmnesty reliefTrust planning under spotlightLimited tax reliefLimited focus on small companiesLevel of monetary thresholds

SUMMARY

THANKS FOR LISTENING!

IT’S

TIME FOR QUESTIONS!