Debt prescription relief for consumers

A3_B“Debt, noun. An ingenious substitute for the chain and whip of the slave driver” (Ambrose Bierce)

We are all aware how consumer debt has risen in the past several years, especially for the lower paid and poorer sections of the community. As employers, you no doubt have staff who seem to be perennially in debt.

A recent amendment to the National Credit Act has outlawed attempts by debt collectors to trade in or attempt to get consumers to pay prescribed debt.

Background

A debt prescribes if, for three years (note: three years is the prescription period for most commercial debt but there are different prescription periods for taxes due, judgments, mortgage bonds etc.):

  • No payment is made;
  • The debtor has not acknowledged that a debt is owed;
  • The creditor has not summonsed the debtor.

What has been happening is that debt collectors have been “harassing” consumers for prescribed debt. This includes not just the original amount owed but also interest due and the debt collector’s fees.

A debtor is entitled to raise prescription as a defence (if the debt has prescribed), in which case, the debt collector is not entitled to pursue the matter. However, until now the onus has been on the debtor to know his or her rights.

The trend of debtors being “harassed” has been exacerbated by companies selling their debt claims to other collection agencies who have been extremely aggressive in their collection practices.

The new amendment provisions

Debtors must no longer  raise the defence of prescription themselves.  It is now illegal for debt collection entities to collect prescribed debt. It is also prohibited to sell prescribed debts to other debt collection agencies. In addition, debt collection firms are obliged to inform debtors if they sell their existing debts.

This will prevent many of the unfair practices of debt collection businesses.

Employers, ensure your employees are aware of changes to the National Credit Act and understand that they do not have to pay prescribed debt.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Implementation of UIF proposal

A4_BThe Finance Minister has withdrawn the implementation of the UIF proposal, which was to reduce the threshold significantly. This is to allow more time for the consultation process.

Note: The budget proposal was not law and the reduction in the UIF deduction should not be implemented until a public notice is issued.

Employers who have implemented the reduction in payroll for April 2015 should resubmit their EMP201 with the correct deduction.

Media statement finance minister withdraws implementation of UIF proposal to allow more time for consultation process

The Minister of Finance has decided not to proceed with the implementation of the proposal to reduce the remuneration threshold against which contributions to the Unemployment Insurance Fund (UIF) are calculated. This decision was taken after detailed engagements with the labour and business constituencies at National Economic Development and Labour Council (NEDLAC).

In the 2015 Budget, the Minister proposed to reduce the remuneration threshold against which contributions to the UIF are calculated from the current monthly amount of R14 872 to R1 000, for a period of one year. The proposal was aimed at providing support to the economy by allowing workers and employers to keep and use for themselves R15 billion that would otherwise have gone to UIF. The UIF currently has an accumulated surplus of more than R72 billion, which is well in excess of annual expenditure on benefits. The UIF proposal was also intended to reduce the rate of accumulation of this surplus.

During the consultations the following concerns were raised:

  1. the need to implement the UIF Amendments Bill tabled in 2014, to extend benefits to workers who contribute towards the Fund;
  2. the need to speed up engagement over the broader social security reform process.

After carefully considering all of these concerns, and taking into account the 44 public comments received, it became apparent that proceeding to implement the revised threshold as originally planned in the 2015 Budget could lead to unintended consequences.

The Minister has decided that the UIF Budget proposal will therefore not be implemented in the 2015/16 fiscal year, to allow more time for consultation at NEDLAC and with other interested stakeholders. The consultations will focus on:

  • Implementation of the agreed UIF Amendments Bill to extend benefits to workers who contribute towards the Fund;
  • Review of earmarked taxes (UIF, RAF, skills levy) to address fiscal imbalances that have emerged, whether in the form of surpluses and or deficits;
  • The process for social security reform, and the need to initiate broader consultations on the road ahead, and the challenges facing such reforms.

The withdrawal of this proposal for year 2015/16 will not affect other Budget proposals or the main budget deficit, but will somewhat reduce the projected consolidated deficit for the current financial year. 

Issued on behalf of the Ministry of Finance
Date: 30 April 2015

 

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Are you a “prescribed officer”? If so, be aware of your onerous liabilities and responsibilities

A1_BThe 2008 Companies Act introduced the concept of “prescribed officers” three years ago. They are senior employees (not directors) deemed by the Act to have the obligations of directors. As such they are bound by the duties and responsibilities of directors. They also incur the liabilities imposed by the Act on directors.

Employees:  If you think you may be a “prescribed officer”, ask your directors to urgently take action to protect your position as set out below.

Directors:  Imagine your senior management makes an error which exposes them to civil liabilities. As you have taken out directors’ insurance you at least know that directors are not financially exposed. Then you learn that some of your senior managers can be deemed to have the same liabilities as directors. These managers suddenly face litigation without any insurance which could financially ruin them, with potentially devastating consequences for your business.

What are prescribed officers?  

The Regulations to the Companies Act defines a prescribed officer as a person who either –

  1. “Exercises general executive control over and management of the whole, or a significant portion, of the business and activities of the company”; or
  2. “Regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of the company.”

This definition applies no matter what title is given to the employee or to his/her functions.

The difficulty with this is that it is not specific and there is no case law to give more concrete meaning to this definition. This is because the Act is still relatively new and the South African definition of “prescribed officer” differs from other countries.

Managing the risks 

If you do have staff who potentially could be “prescribed officers” as defined, it is clearly worth doing the exercise to make that determination . To do this you will need to look at –

  • Their job descriptions
  • Their levels of authority – to what extent can they authorise budgets, strategy and expenditure?
  • Are they included in on key strategic meetings?
  • What committees do they sit on? What do these committees do?
  • If they are part of a group, do they manage subsidiaries?
  • To what extent are they supervised by the directors?

It is worth seeking professional advice especially as you will have no legal precedents to guide you.

Not only is it in your interests to identify prescribed officers but it is clearly very much in their own interests also. They will need to be advised of their duties, responsibilities and liabilities so they can prepare for what the law requires. Most importantly, they can be covered with director’s insurance.

Finally, as there are differing roles and expectations for directors as opposed to employees, it is important for the proper workings of the business that prescribed officers are identified.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Beware of fixed term contracts: What you need to know about amendments to the Labour Relations Act

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Government has followed through on its intention of improving the rights of temporary lower paid workers. Employees with fixed term contracts are now, subject to the exceptions set out below, deemed to be part of the permanent labour force if their contract runs for more than three months.

 

Whilst this legislation is primarily aimed at labour brokers, all employers need to be aware of the key elements of the legislation as failure to adhere to it can be extremely costly.

Note:  Our labour laws are complex – take advice on your specific circumstances!

What does the new law say?

Any workers whose fixed term contract runs longer than three months will (again, subject to the exceptions below), be deemed to be employed for an “indefinite duration”. Effectively, these workers’ contracts can only be terminated by death, resignation, or dismissal.

The law is retrospective and applies to any fixed term contracts including those concluded before 1 January 2015.

The exceptions and exclusions

Excluded are –

  1. Employees earning over R205 433,00 (the current Basic Conditions of Employment Act threshold),
  2. Small employers (less than 10 employees) and start-ups (under 2 years old and less than 50 employees). Note that this exclusion does not apply if you have split your operation into separate units or if you run more than one business,
  3. Fixed term contracts permitted by statute, sectorial determination or collective agreement.

Employers may continue using and renewing fixed term contracts if the nature of the work done is itself subject to a definite or limited time period. Examples would be seasonal fruit picking or a one-off project.

Alternatively you must be able to demonstrate “any other justifiable reason”.

What is “justifiable”?

One of the core principles of the revised Act is that employers need to justify why they are issuing fixed term contracts. If they can justify them, then the Act permits them. This becomes a key area for employers to focus on.

Examples are given in the legislation of what can be justified.  Briefly, these include interns, a temporary surge in workload (not more than twelve months), filling in for a full-time employee (e.g. a staff member on maternity leave), an externally funded project (this often applies to non-governmental organisations) and extending the working period for retired or about to retire staff members.

Other new requirements

Fixed term contracts are to be in writing and are to state the reason for the fixed-term nature of the contract. Both parties need to agree to the period of the contract.

Fixed term contract workers are entitled to apply for any position offered by the employer.

If a contract lasts two years or more, then on termination of the contract that person is entitled (with a few specific exceptions) to a severance package of one week’s salary for every year worked.

Whilst the legislation favours lower paid workers, it clearly reduces flexibility for employers.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Employer Annual Reconciliation Declaration (EMP501)

The 2015 Employer Annual Reconciliation Declaration (EMP501), Employees Tax Certificates [IRP5/IT3(a)s], and where applicable, Tax Certificate Cancellation Declaration (EMP601) for the period 1 March 2014 to 28 February 2015 must be submitted to SARS between 1 April and 29 May 2015.

 

It is important to submit the EMP501 forms and to issue IRP5/IT3 certificates to your employees on time as they will need the IRP5/IT3(a) certificates to file their 2015 income tax returns during tax season, starting in July 2015. There are three elements on the EMP501 that must reconcile for the reconciliation submission to be successful. These are:

  • Monthly Employer Declarations (EMP201s) reflecting your monthly PAYE, UIF and SDL;
  • Payments made (excluding penalty and interest payments); and
  • Employees Tax Certificates [IRP5/IT3(a)s] generated.

By requesting a Statement of Account after the submission, the employer will be able to see any outstanding Debt, Outstanding Returns, and Unallocated Payments.

All employers that qualify for the Employment Tax Incentive (ETI) may complete the Brought Forward, Calculated, and Carried Forward (auto calculated) ETI fields. If the employer is however, not compliant the employer will not be able to complete the ETI Utilised.

It is vital that employers meet the deadlines set out by SARS as non compliance will incur penalties.

Should you require our services in this regard, please contact Petrus Erasmus before 11 May 2015 at petrus.erasmus@bassgordon.co.za or on 021 405 8612, to ensure that we meet the SARS deadline which is 29 May 2015.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Good news: Employment Tax Incentive Act refunds now claimable

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An amendment to the Employment Tax Incentive Act (ETI) brings good news to those employers who have made use of this incentive. If you were unable to offset the full amount of ETI due to you against employees’ tax, SARS has now instituted a refund process.

 

This is now claimable at the end of each six month employers’ tax reconciliation period (1 March to 31 August and 1 September to 28 February). An ETI refund will only be paid if the employer is fully tax compliant.

SARS is giving employers six months to get their tax affairs in order – if you were not tax compliant at 28 February 2015, you have until 31 August 2015 to get compliant and the refund will be paid in that reconciliation cycle. If you are still not tax compliant by 31 August 2015, your refund will be forfeited.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Exchange control amendments with effect 1 April 2015

A4_BIn 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.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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Budget 2015 and YOU

A1_BThis budget has attracted more attention than is usual due to it being Minister Nene’s first budget. It will also give a good indication as to just how serious the government is about reining in debt. Ratings agencies have indicated that without a commitment to reducing debt South Africa’s national debt could attract junk status.

There was also plenty of interest in how the Minister planned to increase taxes, which he signalled would happen in his October Medium Term Budget speech.

In a nutshell: How the budget affects you

  • Personal income tax: Taxpayers with incomes of less than R450,000 will be better off whilst those with incomes above this threshold will face higher taxes. This is due to inflation adjusted increases for tax brackets, the tax rebate and the medical rebate.
  • The bad news is the price of fuel will increase by 80.5 cents a litre from April. This consists of fuel levy (30.5 cents) and Road Accident Fund
    (50 cents). Effectively, a large chunk of the fuel savings we have had in recent months will be taken away.
  • Sin taxes all go up as expected.
  • There is a sharp drop in the Micro Businesses Turnover Tax with the maximum rate falling from 6% to 3%. This is a significant concession to small business.
  • Transfer duty on properties that sell for less than R750,000 has been abolished and will be less for properties that sell for up to R2.65 million. Above the R2.65 million threshold, transfer duties will increase compared to the previous year.
  • The foreign exchange allowance for residents has been increased from R4 million annually to R10 million per annum. Families wishing to emigrate may take out R20 million (previously R8 million). This is another important relaxation of exchange control.
  • The country will enjoy twelve months of reduced Unemployment Insurance Fund (UIF) contributions. The maximum contribution will drop to R10 per individual. This will put R15 billion back into the economy.
  • The government will increase the electricity levy until carbon tax is implemented in the 2017 year.
  • Proposals for pension reform will be released for public comment later this year.
  • National Health Insurance has been agreed to but it has been deferred to another year.

Click here to download the MGI Bass Gordon GHF 2015/2016 Tax Guide. 

Other highlights

  • These increases in income tax and fuel levy will add R16.8 billion to tax revenues.
  • Expenditure cuts of R25 billion will be made over the next two years. In addition, there is a significant increase in capital expenditure which will underpin future economic growth.
  • Economic growth for 2015 will be 2%. This is a reduction from previous forecasts and reflects the energy crisis and uneven global growth. As population growth is 1.2%, this does reflect real growth of 0.8% for the country.
  • The budget deficit to GDP (gross domestic product) ratio is 3.9%. In recent years it has been 4.1% so this should give comfort to the rating agencies. The fact that the currency and bond yields did not move during the Minister’s speech indicates that markets were satisfied with the budget.
  • Inflation is forecast to fall to 4.3% this year and rise up towards 6% in the following two years. This decrease will encourage consumer spending.
  • The budget has endorsed recommendations from the Davis Tax Committee – the drop in tax rates for micro businesses being a case in point. Recommendations to avoid base erosion and profit shifting will also be implemented – this is to counteract companies artificially shifting profits to tax havens.
  • No mention was made of privatisation and there were no specifics on selling non-core assets to fund State Owned Enterprises such as Eskom and SAA. The Minister also stated that government is committed to tolls as a means of paying for the improvement and maintenance of roads.

The consensus is that the Minister has delivered a credible budget in difficult circumstances. There are significant risks that can derail the successful implementation of the budget. Salary increase negotiations for civil servants have begun with unions wanting a 15% pay hike and the government providing for a 7% increase. If economic growth falters, this will put pressure on tax collections – for the first time in many years, tax revenue fell short of budget in the current fiscal year.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

 

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Treasury tax free savings accounts launching 1 March 2015

A2_BThe Treasury department has been encouraging individuals to save more for several years and is following up on this by launching tax free savings accounts (TFSAs) on 1 March this year.

How will it work?

It is for individuals and allows them to invest R30,000 per annum until a threshold of R500,000 is reached. Thus a couple will be able to invest up to
R1 million but it will take more than 18 years to get to this limit.   Parents can, it seems, also invest in TFSAs for their children – a family with three children could save R150,000 per annum per family.

The advantage of this is all income received is tax free. This includes dividends (where 15% withholding tax is normally deducted), interest and capital gains.

There will be no restrictions on withdrawals from this fund as opposed to retirement funding and it would seem that one of the rationales for TFSAs is that individuals needing to access money will draw on their TFSA and leave their retirement funding intact. The penalties for withdrawal will be kept low and withdrawals are to be paid out within seven to thirty two business days depending on the type of investment.

It will not be possible to transfer existing investments into TFSAs as the intention of this measure is to encourage new savings.

From 1 March 2016, individuals will be allowed to move existing TFSAs to other TFSAs.

Who can issue TFSAs and what type of investments can be used in TFSAs?

Banks, long term insurers, managers of collective investments schemes/unit trusts, government, mutual banks and co-operative banks may set up TFSAs.

The net for investments is fairly wide and you may use unit trusts, endowments, fixed deposits, bonds and certain exchange traded funds.

Treasury want to see simplicity, transparency and suitability in the products allowed. Funds that charge performance fees are excluded from participating in TFSAs and fees charged are to be reasonable.

Penalties

Failure to comply with the regulations will result in the TFSA losing its tax free status.

What do the returns look like?

Projections done by investment analysts show that TFSAs should produce returns slightly more favourable than retirement saving products. For investors who only want interest bearing products, the return should be nearly double that of similar non TFSA products due to the tax saving.

Over the next few months most financial institutions will be launching TFSAs. This promises to be an attractive product for serious long term investors.

This article is a general information sheet and should not be used or relied on 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 business consultant for specific and detailed advice.

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MGI Bass Gordon GHF: Family office

A3_BMGI Bass Gordon GHF, together with Legacy Money Market and Portfolio Bureau offers a Family Office service. It caters not only for individuals, but also to small and medium-sized owner-managed businesses that have no need for a full-time financial accountant. Through this offering we attend to our clients’ accounting, tax, wealth management and financial planning needs.

Family Office clients are serviced by a dedicated team of accounting and financial professionals who are experts in different fields of finance such as wealth management, tax planning, estate planning, cash management and risk management and accounting. The team works together with clients to make key financial decisions and create financial solutions to suit the needs and goals of the family client.

We attend to the accounting processing, payroll preparation and supplier payments on behalf of our clients. Management accounts are prepared to support the key decision making processes.

Using the family office service within our practice certainly affords our clients the convenience of having all their family’s financial affairs integrated under one roof and managed professionally specifically with their future requirements in mind.

For more information regarding these services, please contact our Family Office team on 021 405 8500.

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