REGISTERING FOR PROVISIONAL TAX

Many taxpayers file their tax returns on an annual basis unaware thereof that they may be regarded as provisional taxpayers in terms of the Income Tax Act, 58 of 1962, too. In its simplest form, provisional tax exists to provide for regular cash flows to the fiscus throughout the year. In this sense it exists for very much the same purpose as the PAYE system, with provisional tax applying though typically to non-salary type income.

The following persons are considered provisional taxpayers in terms of the Fourth Schedule to the Income Tax Act, and are thus required to file provisional tax returns and make the attendant payments of provisional tax over and above those annual obligations which exist as relates to their annual income tax returns:

  • Every person (other than a company, but including a trust) who generally earns any income other than in the form of “remuneration” as defined;
  • Every company; and
  • Any person who is notified by the Commissioner for SARS that he or she is a provisional taxpayer.

The above however excludes:

  • Any natural person who does not derive any income from carrying on a business, if the taxable income for that person does not exceed:
    • the tax threshold (for 2016: R73,650 for individuals under 65, R114,800 for individuals under 75 and R128,500 for all other individuals); or
    • R30,000 as relates to interest, dividends or rent received from letting immovable property;
  • Deceased estates;
  • Certain approved public benefit organisations;
  • Body corporates; and
  • Small Business Funding entities.

Many taxpayers may be completely unaware thereof that they are required to file returns as provisional taxpayers. This is especially true of typically individuals earning a salary but for example letting a second property which they may own to earn a second income stream. These individuals will, based on the above prerequisites, have to ensure that they file bi-annual provisional tax returns and pay the requisite amount over to SARS in time (due by 31 August and 28/29 February each year). Failure to comply in this fashion will lead to significant penalties being incurred on late payment, or underestimation of the amount of provisional tax due: failure to submit a return when required is considered as the taxpayer having filed a return for Rnil.

As is the case for PAYE though, the provisional tax system does not operate as a tax per se but rather as the prepayment of a yet to be determined income tax liability. Therefore, once the ultimate amount of tax due for any given year of assessment has been determined after filing one’s annual income tax return, the resultant tax liability is reduced by provisional tax payments already made (and PAYE withheld) and the difference is then either due to SARS or to the taxpayer as a refund of the provisional tax paid too much.

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)

NEW PROPOSED TAX AMENDMENTS

National Treasury releases proposed amendments to tax legislation on an annual basis. Some of the most important of these are already foreshadowed when the Minister of Finance delivers his budget speech in Parliament. The proposals made in that Budget Review are then formalised into proposed draft tax legislative amendments in the form of the Draft Taxation Laws Amendment Bill and the Draft Tax Administration Laws Amendment Bill.

This year, after the budget speech on 24 February earlier this year, the proposed amendments were released by Treasury on 8 July 2016. We set out below some of the more significant proposed amendments:

  • As announced in the budget speech, targeted anti-tax avoidance legislation is introduced as relates to trusts. However, Treasury has opted to retain the conduit pipe principle many feared would disappear, and proposes to target interest-free loans made to trusts instead;
  • Further refinements to the harmonisation of the tax treatment of withdrawals from pension, provident and retirement annuity funds;
  • Repeal of the withholding tax on foreign service fees paid by SA tax residents;
  • As a result of the very complex and targeted anti-tax avoidance legislation linked to employee share incentive schemes, almost every year amendments are required to close new tax structures set up to reduce the tax consequences of these reward programmes as they relate to employees. This year is no different with certain targeted new anti-avoidance measures being proposed to the taxation of these schemes upon termination, as well as the taxation of dividends paid out on these shares throughout;
  • Significant amendments are introduced to the existing hybrid equity and debt instrument provisions in sections 8E to 8FA of the Income Tax Act, 1962. Most notably, the treatment of interest on subordinated debt as dividends for tax purposes have been addressed as relates to intra-group debt or cross-border debt issued to a South African tax resident;
  • Further relaxation of the rules as relates to venture capital companies are proposed to further entice taxpayers to make use of this very beneficial income tax incentive regime;
  • The Customs and Excise Act, 1964, is to have its own general anti-avoidance rules introduced as section 119B; and
  • A new understatement penalty category is proposed for a transaction to which the general anti-avoidance provisions in the Income Tax Act, 1962, or Value-Added Tax Act, 1991, are applied.

The public is invited to comment on the proposed changes by 8 August 2016. Please contact us should any of the above be of particular relevance to you and should it appear necessary to discuss these prior to these draft bills being passed by Parliament, very probably later this year.

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)

THE 2016 TAX SEASON IS OPEN

As is the case every year, the Commissioner for SARS recently published the annual notice to officially ‘open’ the 2016 tax season. Individuals are now able to file their annual income tax returns for the 2016 year of assessment (which ended on 29 February 2016) from 1 July.

In the recent Government Gazette No. 40041 (dated 3 June 2016) the persons required to file annual income tax returns for the 2016 year of assessment was announced. The following time frames will apply:

  • For a company, within 1 year of its year-end (for example, a company with a financial year-end of 31 March 2016 is required to submit its 2016 tax return by 31 March 2017);
  • For all other taxpayers (including natural persons and trusts), returns are to be submitted at the latest by:
    • 23 September 2016 for persons still making use of manual hardcopy returns;
    • 25 November 2016 for persons (excluding taxpayers registered for provisional tax) making use of SARS’ eFiling system; and
    • 31 January 2017 for all provisional taxpayers making use of SARS’ eFiling system.

As was the case in previous years, companies may only file returns using eFiling – manual returns are no longer allowed in terms of the above SARS notice.

Various criteria are listed which, if met, means that a person is obliged to submit a return to SARS.  For example, all companies, whether incorporated in South Africa or not, are obliged to submit returns if South Africa is the place from which the company is effectively managed.  Non-tax resident companies, but which were incorporated in South Africa, must also render returns, as well as non-tax resident companies incorporated outside of the Republic and earning income from a South African source.

Taxpayers (excluding companies) are required to submit returns if they carried on any trade in South Africa during the 2016 tax year. This does not include the mere earning of a salary. A variety of other factors are listed in terms of which non-company taxpayers are required to submit returns. The primary exemption from the requirement to submit a return for tax resident natural persons though is if the person earned only a salary from a single employer during the year which did not exceed R350,000, and income from interest for that person was also less than R23,800 (or R34,500 if the person is older than 65).

Quite a number of taxpayers are therefore potentially exempt from the requirement to submit an income tax return, even if registered for income tax purposes. However, even though it may in terms of the notice not be required to submit a tax return, it may still be beneficial to do so. Natural person taxpayers are often under the unfortunate impression that the completion of a return necessarily gives rise to the incidence of tax.  This is of course not so and many may have suffered tax consequences during the year already by having amounts deducted from salaries in the form of pay-as-you-earn contributions deducted from their salaries. This of course amounts to a mere cash flow mechanism introduced to ensure a steady supply of cash to the fiscus and which contributions are set-off from the annual tax liability when the annual tax return submitted is assessed. However, the opportunity to negate this is presented through the completion of a tax return and claiming deductible expenses in the form of e.g. medical aid or pension fund contributions. The principle in this regard is that all income is taxable irrespective of whether a return is completed or not. However deductions can only be claimed by completing a tax return and natural persons specifically should jump at the opportunity to do so.

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)

OBJECTING TO AN ASSESSMENT

One of the risks of not using a tax professional to attend to one’s tax affairs arises when SARS assesses an individual’s income tax return.  Quite often, a return submitted is assessed incorrectly, or on a basis in terms of which SARS is disputing certain submissions made by the taxpayer in filing his or her (or even a family trust or company’s) income tax return.

It is then important to have an experienced tax professional at your disposal who is aware of the specifically legislated and prescribed dispute resolution rules that are required to be followed in order to object to an assessment with which the taxpayer disagrees.  The benefit of using a tax professional becomes even more pronounced when considering that individuals without tax experience and knowledge very often do not understand correspondence issued by SARS (and which would be informing the taxpayer of an adverse assessment for example being issued), and further that they can check assessments issued to ensure that these have indeed been issued on the basis on which the relevant return has been filed.

Various requirements exist for a valid objection to be lodged with SARS, and these are prescribed in terms of Rule 7(2) of the Rules published in terms of section 103 of the Tax Administration Act, 28 of 2011, which govern the dispute resolution process where SARS is concerned.  The requirements for a valid objection include that the objection be lodged in the prescribed format and by using the correct form, and that the objection be lodged within 30 business days from the date of the assessment issued.

If a taxpayer is unsure of the basis on which SARS would have issued an assessment, the taxpayer is entitled to first request reasons from SARS for the assessment issued in order to allow them to consider whether lodging an objection would be necessary or not to dispute the assessment (Rule 6).  These reasons, if requested, must be clear enough to allow the taxpayer to understand why SARS would have issued an adverse assessment and to then be able to lodge an objection against the assessment in question if required.  A request for reasons too (as is the case for an objection) needs to be submitted to SARS within 30 business days from the date of the assessment, where after the objection must be lodged within 30 business days of these reasons being provided to the taxpayer (and which SARS is obliged to provide, if requested, within 45 business days from receipt of the request for reasons from the taxpayer).

The Rules further make provision for an unsuccessful objection to be appealed to the Tax Board or the Tax Court, or for the Taxpayer and SARS to enter into ADR (‘alternative dispute resolution’) to have the dispute resolved.

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)