A4_bOur clients will have noted the various advertisements on radio and in the media generally of financial service providers inviting the public to invest in their respective so-called ‘tax free savings’ investment products. These accounts are made possible by section 12T of the Income Tax Act, 58 of 1962, introduced in 2015 as an initiative by National Treasury to encourage a savings culture in the South African public through making use of these predetermined and specific income tax concessions linked to these accounts.

In essence, all amounts received from tax free savings are exempt from income tax and specifically:

  • Dividends paid to such accounts will not attract dividends tax;
  • Realisation of assets in tax free savings accounts will not give rise to capital gains or losses (and are thus effectively exempt from the capital gains tax regime); and
  • Any amounts received will be exempt from income tax.

The tax free savings regime however only applies to natural persons and deceased estates of persons who had during their lives contributed amounts towards these ‘tax free savings’ accounts. The regime is therefore not available to companies or trusts. Contributions to such accounts are limited though to R30,000 annually as well as a total of R500,000 during a person’s lifetime. Where these amounts are exceeded, the excess amount shall be deemed to be taxable income of the contributing individual, and which is prescribed to be taxed at 40%. (Interestingly, this amount appears to have been overlooked by the Legislature when it recently increased the maximum marginal income tax rates of individuals from 40% to 41%…) This is quite an onerous provision, and care should thus be taken that these amounts are not breached by individuals contributing to these tax free savings. Transfers between tax free savings accounts by an individual are however not included in the R30,000 or R500,000 limitations, as well as any income received from tax free savings capital. The limitations therefore only apply to new capital being introduced into an individual’s tax free savings viewed cumulatively.

It is questionable whether the initiative goes far enough and is as lucrative as may seem at first blush. Natural person taxpayers will be reminded that they are already afforded an annual R30,000 effective rebate from capital gains tax (the first R30,000 of capital gains/losses realised in a tax year is ignored for capital gains tax purposes), and further that an annual interest exemption of R23,800 (R34,500 in the case of individuals older than 65) applies notwithstanding the section 12T concessions.

When taking into account that financial products perceived as conservative are typically those approved by the Financial Services Board as ‘tax free investment savings accounts’, it does not naturally follow that after-tax profits from tax free savings will necessarily exceed savings in the conventional form.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)



A3_bSomething that is a frequent question by consumers is “Why did my medical aid not cover the full cost of my hospitalization?” Thinking they were covered for 100% of all the hospitalization costs. Medical aid can be a minefield for the regular Jane out there, who is just looking for the peace of mind that her medical aid will cover her adequately in all circumstances. All Jane wants to know is, as long as she pays her medical aid contributions, she will be covered in the event of a catastrophe, such as a car accident, as well as all her normal day-to-day expenses at a healthcare provider. She definitely does not want to become bankrupt over additional costs she becomes aware of only once she has been discharged from hospital, costs which she can ill afford, and which are likely to put her back in hospital due to the financial stress she is now placed under.

In South Africa, medical schemes have different options from which you can choose, and these options vary in the benefits offered, and of course also the cost of the contributions. When choosing a medical aid option, you will see that professional services (such as the surgeons or anesthetists) in hospital will be reimbursed at either 100%, 200% or 300% of the scheme rate. Anyone will be forgiven for assuming that being covered at 100% means exactly that – you are fully covered! However, specialists in South Africa are not currently regulated as to what they can charge patients for their services, and could charge in excess of the 100% rate which medical schemes are willing to pay, sometimes as much as 500% of the scheme rate. The end result is that the patient ends up with a shortfall on the specialist’s account, which has to be paid out of his pocket.

To give an example of how significant these costs could be, have a look at this example of the cost of different procedures:





Medical Aid Payout




Gap Claim




R3 441.46


R1 388.20


R2 053.26


R2 053.26


Caesarean Section


R12 605.86


R4 192.10


R8 413.76


R8 413.76


Coronary Bypass


R40 751.80


R13 587.60


R27 164.20


R27 164.20




R12 977.80


R4 751.00


R8 226.80


R8 226.80




R12 297.70


R4 119.91


R8 177.79


R8 177.79


Wisdom Teeth Removal


R6 260.00


R1 958.50


R4 301.50


R4 301.50


From the above, you see that one can easily have a gap in cover between what is actually charged and what the medical aid is willing to pay for the specialist for the procedure. This is an expense you did not perhaps consider when joining the medical aid, as you mistakenly believed you were fully covered for hospital expenses.

So how does gap cover work?

Gap cover does not form part of your medical scheme membership. In fact, it is not even regulated by the same laws. Medical schemes are regulated by the Council for Medical Schemes, and the Medical Schemes Act, while gap cover falls under the Short-term Insurance Act.

Although there is an on-going debate between government and the different stakeholders as to whether gap cover products are in fact doing the business of a medical scheme, this matter has not yet been resolved, and for now, gap cover products are still available to the public. The value of having gap cover cannot be stressed enough, even for members of medical scheme options that pay at 300% of the scheme rate. Claims experience by the gap cover providers show that specialists often charge above 300% of scheme rates. Although government has published draft regulations to prohibit the marketing of these products, because of the on-going debate, these products are still being marketed and their value is clearly self-evident

While your medical aid will reimburse the hospital or specialist directly when you are hospitalized, because of the regulatory issues, gap cover providers will refund you, the member, directly. It is then your responsibility to reimburse the service provider. The process of claiming is also separate from your medical scheme. Usually, a gap cover claim must be submitted after your medical scheme has paid the service provider. Having a gap policy is also not dependant on a specific medical scheme. You can change medical schemes, but still keep the same Gap cover.

Often downgrading your medical aid option from one that pays a higher scheme rate to one that pays a lower rate and getting gap cover to ensure full payment of specialists is a consideration for consumers, but that may not always be wise as there may be other benefits that you are forgoing on. You should only downgrade your medical scheme option after obtaining advice from your financial advisor, who is accredited to give advice on your specific circumstances.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)



A2_bAre buyers of property responsible for the payment of outstanding municipal debt run up by the previous owner of the property? The short answer is “Not anymore”. For the long answer please read the rest of this article.

What happened in the past

Municipalities had to issue rates clearance certificates without which a property couldn’t be transferred from a seller to a buyer. The rates clearance certificates certified that all outstanding debts owing to a municipality up to the date of transfer have been settled in full.

Property buyers reasonably relied on these certificates as proof that all previous debt on the property have been fully settled and that transfer of the property to the buyer could proceed.

However, in some cases it happened that rates clearance certificates were issued while all charges for the period before the transfer date of a property to a new owner were not allocated to the municipal accounts of the previous owners yet.

The first court case

In a court case between a municipality and a ratepayer in May 2013, the judgement made by the court was incorrectly interpreted by municipalities. Based on their interpretation, municipalities held new property owners liable for municipal debt incurred by previous owners and refused to issue rates clearance certificates until all such debt were paid.

In addition, municipal services to a property would be cut off and municipalities would refuse to reconnect such services until all debt were fully settled. Buyers who wanted to take transfer of the property had no choice but to settle debt for services not consumed by themselves.

The second court case

A subsequent court case issued judgement on 8 September 2014, stating that the municipalities’ interpretation of the previous judgement was wrong. The following principles were laid down in this court case:

  •  A municipality’s right to payment, although attached to a specific property, ended when a property was transferred to a new owner. Outstanding municipal debts up to date of transfer had to be recovered from the seller.
  •  Payment of debt for services consumed by a previous owner remained the responsibility of that owner. The buyer of a property is not liable for debt incurred for services consumed prior to the transfer of the property.

What happened next?

As a result of the judgement in the second court case, property buyers who had to settle a debt in favour of a municipality which was incurred by the seller before transfer of the property, could request a refund from municipalities.

Municipalities could not refuse to issue rates clearance certificates or to connect municipal services on sold properties based on the fact of unsettled debt between the municipality and a previous owner. The issue of unsettled debt incurred before the transfer date was between a municipality and the previous owner, and the buyer did not automatically become a party to this relationship.

The only way that a buyer can become responsible for settling the previous owner’s municipal debt is if it is specified or implied in the sales contract. Buyers are advised to include a clause in sales contracts that explicitly states that municipal debt incurred up to date of transfer will be settled by the seller.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference List:

Accessed on 21 June 2015:



A1_bAn audit can protect business stakeholders from the risk of fraudulent practices and therefore stakeholders will often require audits to be done annually. If a business doesn’t have a choice whether to have an audit done or not, they can still control the expense to a certain extent by planning for the audit and supporting the auditors as best as they can.

The main purpose of a financial audit is to ensure that a business’ accounting information accurately reflects its financial position. By trying to put yourself in the shoes of an auditor and attempting to anticipate what information they might require to complete their audit procedures, you can prepare a significant amount of the information needed for an audit in advance. Thorough preparation will reduce pressure on the side of both the auditors and the business during the time of the audit and can potentially reduce audit fees.

A business owner and/or management can increase the efficiency and reduce the costs of an audit by following the proposed steps below.

1. Preparation before the start of the audit

  • Designate an audit liaison person

Designate one person with experience as well as good communication and organisational skills as the auditors’ main contact with the business. Ideally all communication between the auditors and the business should happen through this person first.

  •  First meeting with auditors

Make a list of items to discuss with the auditors and arrange a preliminary/planning meeting a while before the audit. Some of the points that can be included for discussion are the following:

  •  the purpose and scope of the audit
  •  information required by auditors
  •  who the audit liaison person will be
  •  how communication between the auditors and the audit liaison person and ultimately the employees will be handled
  •  the expected finish date of the audit
  •  a budget for the audit broken down in terms of the time the auditors expect to work on the audit and the resulting costs to the business (for a first audit with a new auditor it might be difficult to budget for audit hours as the auditors will probably not have much background information about the business or experience with the client)
  • Financial records and other information

Obtain a list of the reports, documents and other information from the auditors that they will require to conduct the audit. Generally auditors will require the following documents where relevant:

  •  Income statement
  • Balance sheet
  •  Cash flow statement
  •  Budget(s)
  •  Trial balance
  • General ledger
  •  Debtors ledger, age analysis and reconciliations
  •  Inventory reconciliations and stock counting records
  •  Creditors ledger, age analysis and reconciliation
  •  Bank statements and bank reconciliations (including petty cash)
  •  Tax related documentation e.g. tax returns submitted and paid during the year being audited
  •  Major contracts e.g. sales contracts, purchase agreements, leases, insurance policies
  •  Minutes of meetings where important decisions were taken which had or can have a material effect on the business
  •  Policy and procedure manuals
  •  Internal audit reports
  •  Any other information which might have a material effect on the financial health of the business

Collect as many of the above items in advance as you can, review them thoroughly and try to anticipate what questions the records may provoke from the auditors’ side.

2. During the audit

  •  Communicate with the auditors regularly.
  •  Respond to auditor queries as soon as possible with accurate information.

3. After the audit

  •  Audit management report

Obtain an audit management report from the auditors setting out suggested solutions and improvements in the way business is conducted. Implementing as many of these suggestions as possible before the next audit can reduce audit fees for the next audit.

  •  Post-audit evaluation

Identify weaknesses and time-wasters experienced during this audit and consider possible solutions and different approaches to improve the next audit.

As can be seen from the above, there is quite a bit of planning and preparation that can be done in advance to make an audit less disruptive for a business and its employees and at the same time also pay off in reduced audit fees.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference List