Blog images-03The latest annual nation budget presented in Parliament proposed the dividends tax rate to be increased with almost immediate effect from 15% to 20%. The increased rate brings into renewed focus what anti-avoidance measures exist in the Income Tax Act[1] that seeks to ensure that the dividends tax is not avoided.

Most commonly, the dividends tax is levied on dividends paid by a company to individuals or trusts that are shareholders of that company. To the extent that the shareholder is a South African tax resident company, no dividends tax is levied on payments to such shareholders.[2] In other words, non-corporate shareholders (such as trusts or individuals) may want to structure their affairs in such a manner so as to avoid the dividends tax being levied, yet still have access to the cash and profit reserves contained in the company for their own use.

Getting access to these funds by way of a dividend declaration will give rise to such dividends being taxed (now) at 20%. An alternative scenario would be for the shareholder to rather borrow the cash from the company on interest free loan account. In this manner factually no dividend would be declared (and which would suffer dividends tax), no interest accrues to the company on the loan account created (and which would have been taxable in the company) and most importantly, the shareholder is able to access the cash of the company commercially. Moreover, since the shareholder is in a controlling position in relation to the company, it can ensure that the company will in future never call upon the loan to be repaid.

Treasury has for long been aware of the use of interest free loans to shareholders (or “connected persons”)[3] as a means first to avoid the erstwhile STC, and now the dividends tax. There exists anti-avoidance legislation; in place exactly to ensure that shareholders do not extract a company’s resources in the guise of something else (such as an interest free loan account) without incurring some tax cost as a result.

Section 64E(4) of the Income Tax Act provides that any loan provided by a company to a non-company tax resident that is:

  1. a connected person in relation to that company; or
  2. a connected person of the above person

“… will be deemed to have paid a dividend if that debt arises by virtue of any share held in that company by a person contemplated in subparagraph (i).” (own emphasis)

The amount of such a deemed dividend (that will be subject to dividends tax) is considered to be effectively equal to the amount of interest that would have been charged at prime less 2.5%, less so much of interest that has been actually charged on the loan account.

It is important to also appreciate that the interest free loan capital is not subject to tax, but which would also have amounted to a once-off tax only. By taxing the interest component not charged, the very real possibility exists for the deemed dividend to arise annually, and for as long as the loan remains in place on an interest free basis.

[1] 58 of 1962
[2] Section 64F(1)(a)
[3] Defined in section 1 of the Income Tax Act

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.

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Blog images-04JOHANNESBURG – The death of a spouse, friend or relative is often an emotional time even before estate matters are addressed.

And truth be told, death can be an expensive and cumbersome affair, particularly if estate planning was neglected, the claims against the estate start accumulating and there isn’t sufficient cash to settle outstanding debts.

People generally underestimate the costs related to death, says Ronel Williams, chairperson of the Fiduciary Institute of Southern African (Fisa). Most individuals have a fairly good grasp of significant expenses like a mortgage bond that would have to be settled, but the smaller fees can also add up.

To avoid a situation where valuable assets have to be sold to settle outstanding debts, it is important to do proper planning and take out life and/or bond insurance to ensure sufficient cash is available, she notes.


The costs involved in an estate can broadly be classified as administration costs and claims against the estate. The administration costs are incurred after death as a result of the death. Claims against the estate are those the deceased was liable for at the time of death, the notable exception being tax, Williams explains.

Administration costs as well as most claims against the estate will generally need to be paid in cash, although there are exceptions, for example the bond on the property. If the bank that holds the bond is satisfied and the heir to the property agrees to it, the bank may replace the heir as the new debtor.

Williams says quite often estates are solvent, but there is insufficient cash to settle administration costs and claims against the estate. In the event of a cash shortfall the executor will approach the heirs to the balance of the estate to see if they would be willing to pay the required cash into the estate to avoid the sale of assets.

If the heirs are not willing to do this, the executor may have no choice but to sell estate assets to raise the necessary cash.

“This is far from ideal as the executor may be forced to sell a valuable asset to generate a small amount of cash.”

If there is a bond on the property and not sufficient cash in the estate, it is not a good idea to leave the property to someone specific as the costs of the estate would have to be settled from the residue. Where a particular item is bequeathed to a beneficiary, the person would normally receive it free from any liabilities. This could result in a situation where the beneficiaries of the residue of the estate may be asked to pay cash into the estate even though they wouldn’t receive any benefit from the property, Williams says.

The most significant administration costs are generally the executor’s and conveyancing fees.

If the will does not explicitly specify the executor’s remuneration, it will be calculated according to a prescribed tariff, currently 3.5% of the gross value of the assets subject to a minimum remuneration of R350. The executor is also entitled to a fee on all income earned after the date of death, currently 6%. If the executor is a VAT vendor, another 14% must be added.

Assuming an estate value of R2 million comprising of a fixed property of R1 million, shares, furniture, vehicles and cash, the executor’s fee at a tariff of 3.5% would amount to R70 000 (plus VAT if the executor is a VAT vendor). Conveyancing fees will be an estimated R18 000 plus VAT. Depending on the situation, funeral costs may be another R20 000, while other fees (Master’s Office fees, advertising costs, mortgage bond cancellation and tax fees) can easily add another R10 000. By law advertisements have to be placed in a local newspaper and the Government Gazette, with estimated costs of between R400 and R700 and R40 respectively. Master’s fees are payable to the South African Revenue Service (Sars) in all estates where an executor is appointed with a gross value of R15 000 or more. The maximum fee is R600.

Where applicable mortgage bond cancellation costs, appraisement costs, costs of realisation of assets, transfer costs of fixed property or shares, bank charges, maintenance of assets and tax fees will also have to be paid. The executor is also allowed to claim an amount for postage and sundry costs, while funeral expenses, short-term insurance, maintenance of assets and the cost of a duplicate motor vehicle registration certificate may also have to be taken into account.

Luckily, there are ways to reduce the costs involved

Williams says the first step is to try and negotiate the executor’s fee with the appointed executor when the will is drafted. The fee could then be stipulated in the will or the executor could give a written undertaking confirming the agreed fee. But even if the deceased did not negotiate it at the time of drafting, the family or heirs can still approach the nominated executor and negotiate a competitive fee when they report the estate to the executor.

“Depending on who the executor is and what the composition of your estate is, you can probably negotiate up to a 50% discount.”

The composition of assets will generally be a good indicator of the amount of work that needs to be done and the executor will quote a fee against this background. The sale of a fixed property and business or offshore interests may complicate the process of winding up the estate.

If the surviving spouse is the sole heir, and/or there are no business interests and sufficient cash is available to cover the costs, the executor will generally offer a larger discount. Ultimately, the executor is responsible for signing off the liquidation and distribution account, confirming that all the costs are correct and that it will be settled.

Unfortunately, most of the smaller administration costs will have to be paid, with limited scope for negotiation, Williams says.

Costs of security can be avoided completely by exempting the nominated executor from lodging the bond of security in the will, Williams says.

This article was brought to you by the Fiduciary Institute of Southern Africa

Compiled by: Ingé Lamprecht 

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.



shutterstock_592131227Following the annual national budget speech delivered by Finance Minister Pravin Gordhan on 22 February, we highlight some of the most significant matters arising below:

  • A new tax bracket will be introduced targeting the wealthy as well as trusts. It is proposed that trusts will from now on be taxed at 45% on all taxable income, while individuals earning more than R1.5million per tax year will pay 45% income tax on such income (estimated to be around 103,000 individuals);
  • The dividends withholding tax rate is proposed to be increased from 15% to 20%. This is linked to the above increase in individual income tax rates to prevent wealthy individuals from exploiting the arbitrage opportunity that may exist in receiving fees in a company and having these paid out as a dividend;
  • The much debated VAT rate has been left unchanged, which was widely expected given the political sensitivity coupled with the effect that this may have on the poor;
  • Increase in withholding taxes on non-residents disposing of immovable property situated in SA;
  • The “duty free” threshold for transfer duty (tax levied on purchasers of immovable property) has been increased from R750,000 to R900,000;
  • The corporate income tax, donations tax and estate duty rates have been left unchanged;
  • The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too;
  • The above and other most significant changes can be summed up as follows:
Top marginal PIT rate 41% 45%
Dividends tax 15% 20%
Tax rate for trusts 41% 45%
Estate duty abatement R3.5 m R3.5 m
CGT annual exclusion R40,000 R40,000
Primary rebate for individuals R13,500 R13,635

The Minister also alluded to the following matters which could expect legislative intervention or refinement during the course of the year:

  • Renewed focus on transfer pricing and cross-border tax avoidance schemes;
  • Further refinements to anti-avoidance legislation introduced in 2016 as applies to trusts;
  • Section 42 “asset-for-share” relief to be extended to also provide for the assumption of contingent liabilities (as opposed to only applying to the issuing of shares or the assumption of existing debt);
  • Share issue and buy-back transactions (commonly used as part of corporate restructurings whereby CGT is avoided) are to be addressed as part of an anti-avoidance effort;
  • The anti-avoidance provisions linked to “third-party back shares” (section 8EA) are to be relaxed;
  • Further refinement and relaxation of the VCC regime as relates to rules restricting such investments;
  • Measures will be introduced whereby foreign companies held by foreign trusts with SA beneficiaries will be drawn into the SA tax net under the “controlled foreign company” regime

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.

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Blog images-01Extract from Chief Master’s Directive 2 of 2017 – Trusts: Dealing with various trust matters

The deregistration of trusts

There is no provision in the Trust Property Control Act, 1988 that requires the deregistration of trusts.

However, there may be circumstances that may require confirmation from the Master that a trust has been terminated. If a trust has been terminated the Master will close his or her file and may then confirm that the trust has been terminated and that the file is closed. In order to close the file, the Master must request the following documents form the trustees:

  1. Reasons for termination of the trust or, where applicable, the original signed resolution terminating the trust. The resolution must contain the following information:
    • State whether the trust was dormant or active;
    • Whether a bank account was opened in the name of the trust and if so, that it has been closed.
  2. The original letter of authority;
  3. Bank statements reflecting a nil balance or the final statement or a letter from the bank confirming that the account has been closed (if a bank account was opened);
  4. Proof that the beneficiaries have received their benefits; and
  5. An affidavit from the trustees confirming that the trust has been divested of all assets.

When confirming the termination of the trust and informing the trustees that the trust file is closed, the Master must direct the attention of the trustees to the provisions of section 17 of the Trust Property Control Act, 1988.

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.

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Blog images-02If they receive fees exceeding R1m in 12-month period – SARS.

Ingé Lamprecht  /  14 February 2017 00:04 Moneyweb

JOHANNESBURG – A ruling by the South African Revenue Service (SARS) that non-executive directors are required to register and charge VAT where they earn director’s fees exceeding the compulsory VAT registration threshold of R1 million during a 12-month period will likely create a significant administrative burden for non-executive directors and the companies they serve.

The ruling also raises questions about whether SARS will be able to cope with the large number of VAT registration applications that are likely to be submitted over the next three months before the ruling becomes effective.

Moreover, many listed companies – often holding companies earning mainly dividend income – are not registered for VAT and will not be able to claim a VAT deduction even though their non-executive directors will charge 14% VAT.

After a prolonged period of uncertainty about whether amounts payable to a non-executive director are subject to the deduction of employees tax, SARS issued two Binding General Rulings on the issue on Friday.

Parmi Natesan, executive at the Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA), says there has been much confusion and debate around  the issue in the past, with the IoDSA and other bodies having written to both SARS and National Treasury requesting clarity on the varying interpretation of both the Income Tax Act and the Value-Added Tax Act.

The IoDSA welcomes the fact that clarity has been provided, she says.

Gerhard Badenhorst, tax executive at ENSafrica, says SARS has previously ruled that director’s remuneration is not subject to VAT and although the rulings did not specifically refer to non-executive directors, the scenario described in the ruling was typically that of a non-executive director.

The rulings were withdrawn in 2009, but it was generally accepted that SARS still subsequently applied the principles set out in these rulings.

Badenhorst says in his experience, most companies considered non-executive directors to be employees.

“In most instances, companies purely deducted employees tax and they [non-executive directors] weren’t registered for VAT.”

The SARS ruling now explicitly states that director’s fees received by a non-executive director for services rendered on a company’s board are not subject to the deduction of employees’ tax.

“I think the administrative burden will be substantial for all parties involved and only time will tell whether the additional revenue collected by SARS will be substantial.”

Badenhorst says a further practical issue or question that has arisen is with regard to the VAT registration process.

“It is currently a difficult process to register for VAT purposes as SARS often rejects VAT registration applications  for various reasons, which causes the applicant to submit his or her application a number of times before the application is eventually accepted. The issue is whether SARS will be able to cope with the large number of VAT registration applications that are expected to be submitted over the next three months.”

While the ruling applies from June 1 2017, industry commentators differ on whether non-executive directors could face a VAT liability, penalties and interest related to prior tax periods.

Badenhorst says generally SARS would issue a binding general ruling in draft form, allowing industry to comment before a final ruling is issued, but in this case the ruling was issued in final form, and this issue would have to be clarified.

Since the ruling applies from June 1 2017 it seems that SARS may not seek to apply it retrospectively.

But Chris Eagar, attorney and director at Finvision VAT Specialists, says the ruling is not legislation and merely a confirmation of SARS’s interpretation. Therefore it doesn’t change the law.

If Sars agrees that the situation was unclear in the past, it may decide not to actively pursue the  application of the law retrospectively. However, its role is to apply the legislation as it stands. In such instance, there would be a historic liability going back five years, he says.

Non-executive directors and their employers would typically be on friendly terms and companies could decide to pay the VAT to the director retrospectively, with the employer claiming an input tax credit (if it is entitled to do so). In this way the director will not be out of pocket as far as the tax is concerned, upon payment to SARS.

But penalties and interest may still need to be paid, Eagar argues.

Under the Tax Administration Act, penalties range from 10% to 150%, but it is unlikely that SARS would impose these penalties, as the default seems to have arisen due to “bona fide inadvertent error”. The 10% late payment penalty will remain, however. Where the default constitutes a so-called “first incidence”, it is likely that SARS would waive this penalty upon application. This still leaves the potential VAT liability over the five-year period as well as the interest payable, he says.

SARS did not respond to a request for clarity on whether the ruling would be applied retrospectively by the time of publication.

In a statement issued on Tuesday after the publication of this article, SARS said non-executive directors will not be required to account for VAT in respect of directors fees received prior to June 1, 2017 provided they were subject to PAYE. “SARS would like to encourage those non-executive directors already registered for another tax type to register for VAT via SARS eFiling at or to visit their nearest SARS branch,” it said.

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.

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shutterstock_599566427Estate planning is like backache – sometimes you need alignment.
Tiny Carroll*  /  19 June 2012 09:01

I often say to clients that “Estate planning is like dealing with a backache – sometimes all it requires is a visit to the chiropractor for an alignment to feel some relief.”  In the same way, an estate planning process involves the alignment of estate planning instruments for a client’s benefit during their lifetime and the benefit of their ultimate beneficiaries.

In essence, there are four estates that one has to deal with in the estate planning process:

  • A client’s personal assets (these will be dealt with in their will)
  • Trust assets (These are dealt with by the trustees of the trust in terms of the powers granted in the deed)
  • Contractual arrangements such as life assurance proceeds and buy-and sell agreements (to be paid out to a nominated beneficiary or to the surviving business partners)
  • Retirement fund benefits. (These are regulated by the Pension Funds Act while you are a member of the fund. If you elect a living annuity after retirement you will be able to nominate a beneficiary for the living annuity proceeds).

In addition to having four ‘estates to consider,’ life is not simple, and many things will happen to you along the way – both good and bad. Estate planning has to take all of these events (and potential events) into account and be flexible enough to meet your changing needs.

These are some of the key questions planners should be asking their clients when doing their estate planning:

  1. Do you have a strategic estate plan in place?

Do you have a plan in place that takes the ‘four estates’ and your personal requirements into account?  Does the plan meet the long-term wishes you hold for your estate? Is the plan flexible enough to allow you to change the structure should your circumstances change?

  1. Do you have a signed and up-to-date will?

This is the pivotal point of a successful estate plan – your plan may collapse without it.  A will must express your wishes, be valid, signed and up-to-date. It can only deal with your personal assets; it cannot deal with trust assets. If you’re married in community of property, remember that your will may only deal with your half share of a joint estate.

If you have assets offshore, you can have a foreign will in addition to a South African will, or one will dealing with both your local and foreign assets. If you have a large or complicated estate offshore, it may be better to have a will in the foreign jurisdiction where planners are familiar with the legislation. But be careful when updating your local will that you don’t revoke the foreign one.

  1. Have you used the R3.5m abatement to best effect?

Each estate is entitled to a deduction of R3 500 000. For spouses the unused portion of the R3.5m abatement amount will ‘roll over’ to the surviving spouse’s estate if not used. The abatement can be used in the estate of the first-dying spouse to remove estate duty on growth assets from the second-dying spouse’s estate. The issue is to identify growth assets as opposed to a non-growth asset such as a loan account. Typically a share portfolio can be bequeathed to a trust to limit growth in the surviving spouse’s estate. On the other hand a loan account can be left to the surviving spouse as it gives them the opportunity to keep reducing the amount in this account, thereby saving on estate duty.

  1. Is ‘my’ family trust at risk?

Trustees are required to:

  • give effect to the provisions of the trust deed
  • perform their duties with care, skill and diligence which can be expected of a person who manages the affairs of another
  • exercise their discretion with the necessary objectivity and independence.

Often in family trust situations these requirements are ignored. The control, ownership and benefits become so mixed up that there is no trust and the risk exists that the trust assets actually vest in the ‘planner/client’ thereby doing away with most of the benefits of the trust as an instrument in your estate planning.

  1. Am I using my family trust effectively?

If used effectively, a trust is an estate planning and a tax planning instrument that can save you money and protect your family when they need it most.  Using it effectively could provide many benefits over and above estate duty savings. Despite its tremendous potential as an estate planning instrument, many trusts exist in name only and it is not unusual to come across planners who have established a trust (sometimes at great cost) only to leave the deed in a filing cabinet.

  1. Are my buy & sell agreements going to protect my family?

Research shows that 75% of buy & sell agreements don’t work to the benefit of the client. Typical problems include agreements not properly signed, agreements in conflict with a client’s will, or in-community of property marriages not taken into account.

  1. Are my policy beneficiary nominations up to date?

It’s important to note that nominating a beneficiary can save on executor’s fees but won’t save on estate duty (as the policy still forms part of the estate).

  1. Have I made sufficient provision for liquidity?

An estate plan should also provide for expenses incurred in winding up the estate, to prevent dependants having to sell off assets to meet these expenses. A life assurance policy is a reliable and convenient way to provide for liquidity within the estate.

  1. How will my retirement fund benefits be dealt with?

Whilst you are still a member of a retirement fund, the fund is an asset in your estate and this has implications in the case of divorce. Once you’ve retired and converted the retirement fund savings into a living annuity, you enjoy protection in the case of divorce. In addition, you may nominate anyone as a beneficiary on a living annuity. The benefit of a retirement annuity (or an occupational retirement fund) is that they fall outside of your estate so neither the lump sum nor the annuity is subject to estate duty.

  1. Will my family know what to do in the event of my death?

Make sure that you, your spouse and family build a relationship with a good financial adviser who will be able to walk a surviving spouse through the financial intricacies of the death of a family member. Also make sure that your family knows where to access a copy of your will.

*Tiny Carroll, fiduciary specialist, Glacier by Sanlam

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.

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Blog images-02A company would satisfy the solvency and liquidity test if, considering all reasonably foreseeable financial circumstances of the company at that time:

(a) the fair value of the assets of the company equal or exceed the fair value of its liabilities; and

(b) it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of –(i) 12 months after the date on which the test is considered; or
(ii) in the case of a distribution/dividend generally, 12 months following that distribution/dividend declaration.

The test is generally required to be applied by the board of directors of a company and in so doing the board must consider appropriate and satisfactory accounting records and financial statements of the company in coming to their conclusion regarding the company’s solvency and liquidity. Section 4(2)(b) of the Companies Act also introduces a ‘substance based’ approach, whereby the directors must consider a fair valuation of the company’s assets and liabilities (including any reasonably foreseeable contingent assets and liabilities and irrespective of whether or not these may arise as a result of the proposed transaction). The directors may further consider any other valuation of the company’s assets and liabilities that is reasonable in the circumstances.

The purpose of the test is to ensure that other stakeholders of the company are not prejudiced by certain transactions which have the ability to erode the value of the company to the benefit of only a select group of stakeholders. For example, only a solvent and liquid company may grant a loan to one of its directors to ensure that e.g. the shareholders are not prejudiced through an irrecoverable investment that the company has made. Similarly, creditors would be prejudiced if an insolvent or illiquid company is allowed to impoverish itself by distributing profits by way of dividends to shareholders, leaving the company unable to pay its debts.

When a company declares dividends or provide financial assistance the Act specifically requires a written board resolution and compliance with the solvency and liquidity test should be documented in the resolution. This resolution should be completed and signed at the date of dividend declaration or provision of financial assistance.

Article source:  01 Jul 2016

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)

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Blog images-01In terms of South African law natural persons (individuals) and legal persons all enjoy legal personality: in other words, both groups represent “persons” capable of e.g. legally acting on their own behalf, own property and to earn income. Consequently, they are also capable of being taxed.

Where legal persons are concerned, legal personality is typically attributed to companies and close corporations. The position of trusts (as a hybrid-type entity) is somewhat more complicated. What is clear though is that a “partnership” is not a legal person or entity.[1] A partnership represents merely a contractual arrangement entered into by two or more persons to pool their respective resources in striving to achieve some common (typically commercial) goal.

Section 1 of the Income Tax Act, 58 of 1962 defines a “person” as including:

(a) an insolvent estate;

(b) the estate of a deceased person;

(c) any trust; and

(d) any portfolio of a collective investment scheme.

It is notable that neither natural persons nor companies are specifically included in the above list, yet a moment’s reflection shows that it would be unnecessary to be so included by virtue thereof that the law already ordains these persons with legal personality. On a similar basis, by not including a “partnership” in the above list, the common law position serves as the prevailing position, being that the partnership is not a person for purposes of law. It follows that a partnership is not a “taxpayer” for purposes of the Income Tax Act.

Juxtaposed to this is the position in the VAT Act, 89 of 1991, where an unincorporated body of persons, or a partnership, is specifically included in the definition of “person” in section 1. Sometimes confusingly so therefore, whereas a partnership is not a legal person nor a “person” for income tax purposes, it is treated as a separate VAT vendor, and taxed accordingly on VAT account.

As for income tax purposes though, the position of the partnership remains simply that each partner’s profits and losses arising from the partnership are attributed to each separately, and consequently taxed separately too in each partner’s hands as and when accruing to that partner.

The Income Tax Act is almost surprisingly quiet on the tax treatment of general partnerships, with but limited provisions contained in section 24H(2) and (5) thereof. These provisions in essence dictate that:

  • the partners of a partnership are individually each deemed to be carrying on the trade of the partnership collectively; and
  • the income of the partnership accrues to the partners each as and when it will have accrued to the partnership (and that qualifying deductions otherwise available to taxpayers may be claimed by the partners each against such income accruing and at such time).

[1] Michalow, NO v Premier Milling Co Ltd 1960 (2) SA 59 (W)

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.

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Blog images-03An 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.

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 reconciliations
  • 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.

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

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Blog images-04It is very important for you to plan your estate, which could include a living will, a last will and a living trust. This can help families prepare for difficult times when you are no longer around to assist or advise them. Our lives get busier and more complicated by the day, so estate planning for young and old becomes increasingly important. Young people should consider preparing certain estate planning documents, and in particular financial powers of attorney and living wills.

At the age of 18 a young man or woman officially becomes an adult in the eyes of the world. This means that you are entitled to make important financial, legal or health decisions about your lives. But what if something happens and you are unable to make these decisions at a critical time? Such situations can range from a small inconvenience to a life-threatening crisis, but if your estate is in order, it can speak on your behalf. Consider the following:

Financial power of attorney

A financial power of attorney allows you to appoint someone you trust, like another family member, to make financial decisions on your behalf. This document can be activated when you are incapacitated or right after it has been signed, and it will remain effective until you can resume charge of your own decisions again.

A financial durable power of attorney will allow the appointed person to handle important legal and financial matters on behalf of the grantor. In the case of a business or financial situation which involves the young adult, such as a passport or car registration renewal, it is convenient for the power of attorney to act on his/her behalf if they cannot tend to the problem. This arrangement may come in very handy when there is a legal situation which requires quick action and the young adult is unable to attend. Families with a disabled family member can also benefit from the security of a power of attorney.

Living will

A living will enables you to state specific medical wishes if you are alive, but unable to communicate them. Artificial life support in the case of a coma or terminal illness is an issue often discussed in such a document. Preferences regarding administering of pain medication, artificial nutrition and other treatments can be dictated in this document.

The Terry Shaivo case shows what can happen if this document is not in place. The legal battle between her husband, family and state of Florida lasted for years before she was granted her wish and taken off life support.

Health care power of attorney

With this type of power of attorney, you give someone else the power to make health decisions on your behalf. These decisions regarding serious health and emotional crises will be made based on instructions which you have given to your power of attorney beforehand. Sometimes a living will is combined with a health care power of attorney, because both of these can be revoked, i.e. it can be cancelled at any time by destroying it, communicating your wishes to your doctor, writing a letter regarding the cancellation or by creating a new living will and health care power of attorney, indicating that the new will revokes all the previous ones.

Start the conversation

Every family’s legal needs are different, so perhaps you should take the first step in being prepared for the worst. Remember that every time your family composition changes, like when a child is born, you need to adapt your will to include them. Start the process and be prepared.

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)

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