Category Archives: Taxation

VAT: The difference between standard-rated, zero-rated and exempt supplies

A2There are three categories of supplies that can be made by a VAT vendor: standard-rated, zero-rated and exempt supplies. Output tax must be levied on all supplies except exempt supplies. The VAT Act gives specific guidelines for zero-rated and exempt supplies but these fall outside the scope of this article. Please contact your tax practitioner for more information.

The following simplified formula is used to calculate the amount of VAT that a registered VAT vendor have to pay to SARS or can claim as a refund from SARS:

Output VAT levied on standard-rated and zero-rated supplies* – Input VAT claimed on qualifying expenses = Net VAT due to/(refundable by) SARS

* A supply is defined as the provision of a product or service by a VAT vendor in return for payment in cash or otherwise.

Standard-rated supplies

Standard-rated supplies are supplies of goods and services on which output VAT is levied at a rate of 14%. The input VAT incurred on purchases of goods and services to generate standard-rated supplies can be deducted from output VAT payable to SARS.

Example 1:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000 (VAT included).
  3. All inventory sales qualify as standard-rated supplies.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on standard-rated supplies (R10 000 x 14/114) R1 228
Less: Input VAT on purchases to make standard-rated supplies (R7 000 x 14/114) (R    860)
Net VAT due to/(refundable by) SARS R   368

Zero-rated supplies

Zero-rated supplies are supplies of goods and services on which output VAT is levied at a rate of 0%. The input VAT incurred on the purchase of goods and services to generate zero-rated supplies can be claimed against output VAT payable to SARS.

Example 2:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000 (VAT included).
  3. All inventory sales qualify as zero-rated supplies.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on zero-rated supplies (R10 000 x 0/114) R     nil
Less: Input VAT on purchases to make zero-rated supplies (R7 000 x 14/114) (R   860)
Net VAT due to/(refundable by) SARS (R   860)

Exempt supplies

Exempt supplies are not subject to VAT. No output VAT, either at 14% or at 0%, is levied on exempt supplies. Input VAT incurred on expenses to make exempt supplies cannot be claimed against output VAT due to SARS.

Example 3:

  1. XYZ Manufacturers manufactured inventories at a cost of R7 000 (VAT included).
  2. The inventories were sold for R10 000.
  3. All inventory sales are exempt supplies for VAT purposes.

Net VAT due to/(refundable by) SARS will be calculated as follows:

Output VAT levied on exempt supplies R nil
Less: Input VAT on expenses incurred to make exempt supplies (R nil)
Net VAT due to/(refundable by) SARS R nil

Combination of standard-rated, zero-rated and exempt supplies

Where a VAT vendor makes standard-rated supplies and/or zero-rated supplies and/or exempt supplies, input VAT must be apportioned in the same ratio as the three different types of supplies stand to each other.

Example 4:

  1. ABC Distributors made the following supplies for VAT purposes (VAT included where applicable):
Standard-rated supplies R  60 000   60%
Zero-rated supplies R  10 000   10%
Exempt supplies R  30 000   30%
Total supplies R100 000 100%
  1. Expenses incurred in the making of total supplies amounted to R85 000 (VAT included).

Net VAT due to/(refundable by) SARS will be calculated as follows:

Prorata Output VAT levied on standard-rated and zero-rated supplies[(60 000 x 14/114) + (R10 000 x 0/114)]

Output VAT on exempt supplies

  R7 368 

R      nil

Less: Apportioned input VAT on expenses to make standard-rated andzero-rated supplies [(R85 000 x 60% x 14/114) + (R85 000 x 10% x 14/114)]

Less: Apportioned Input VAT on exempt supplies

(R7 307) 

R      nil

Net VAT due to/(refundable by) SARS  R       61

Accounting software can be set up so that VAT is automatically recorded correctly for standard transactions. However, a computer programme will not be able to classify unique transactions for VAT purposes. Therefore it is still important that accounting staff is trained to handle VAT correctly, especially where grey areas exist.

If you would like more information about this topic, feel free to contact us for professional assistance and advice. 

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 financial adviser for specific and detailed advice. 

Reference List:

  • VAT 404 – SARS Guide for Vendors

Provisional tax: Did you know?

A1Provisional tax payments is not a separate tax but pre-payments of income tax for a specific tax year. These pre-payments ensure that the tax load is spread over the tax year and can avoid a nasty surprise when SARS calculates (assesses) the final income tax liability for that specific tax year.

  • There are three provisional tax deadlines:
    –  Submission of the first provisional tax return (IRP6) is compulsory for provisional taxpayers even if no provisional tax is payable. Submission of the first IRP6 and payment of provisional tax (if applicable) is due within 6 months of the start of the tax year.
    –  Submission of the second provisional tax return (IRP6) is also compulsory for provisional taxpayers even if no provisional tax is due. Submission of the second IRP6 and payment of provisional tax (if applicable) is due within 12 months after the start of the tax year.
    –  Submission and payment (if applicable) for the third provisional tax return (IRP6) is voluntary. The due date for the third IRP6 depends on the date on which the tax year ends.
  • SARS provides guidelines to assist taxpayers in estimating the amount of provisional tax due.
  • If provisional tax was overpaid, the excess amount will be refunded to the taxpayer with interest. However, SARS will do the refund only after the final income tax liability for that tax year has been calculated (assessed) by SARS and the amount of the final income tax liability is less than the sum of the provisional tax payments for the relevant tax year.
  • Underpayment of provisional tax will result in the imposition of (avoidable) penalties and interest by SARS.

If you need professional assistance with the calculations, submission or payment of any of the above returns or would like more information on the penalties and interest that can be imposed if you miss one or more of the above deadlines, please do not hesitate to contact any SARS office.

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 financial adviser for specific and detailed advice. 

References:

SARS: Procedure to change banking details for Personal Income Tax (Individuals)

A1SARS is responsible for protecting taxpayers against unauthorised changes to their personal details. Taxpayers wishing to register or change their banking details must visit a SARS branch in person and present the documentation required for verification before SARS will process any changes to their banking details. 

Requirements for different types of bank accounts

  • Own bank account:
    –  The account holder must visit a SARS branch in person with the documentation set out in point 1, 2 and 3 below.
  • Joint bank account:
    –  Both account holders must visit a SARS branch and each of them must take with them the documentation set out in point 1, 2 and 3 below.
    –  SARS will verify both account holders’ details before registering or changing banking details.
  • Third party bank account:
    –  The main account holder must visit a SARS branch in person and take with him/her the documentation set out in point 1, 2 and 3 below.
    –  If a refund is due to the taxpayer who is the third party, he/she will have to open their own bank account. SARS will not pay the refund into the account of the main account holder.

Can I send someone else to  the SARS branch on my behalf if I give them power of attorney?

No. The taxpayer must still visit a SARS branch in person to register or verify his/her banking details except for certain exceptional circumstances set out in the following paragraph.

The exceptional circumstances where SARS will allow registration and verification of banking details by someone else than the taxpayer, provided that the other person has power of attorney, are when the taxpayer is:

  • An estate due to death or sequestration
  • Incapacitated or terminally ill
  • A non-resident (emigrant/expatriate/foreigner/temporarily outside South Africa)
  • In jail
  • Under 18 years of age 

Documentation required for verification of banking details

  1. Proof of identity:

Original and valid ID document/Passport/Driver’s Licence/Asylum Seeker’s Permit plus one certified copy thereof

  1. Proof of banking details:

2.1  Copy of bank statement with original bank stamp or ABSA eStamped statement

  • Not more than three months old
  • Must confirm account holder’s details:
    –  Legal name of account holder
    –  Account number
    –  Account type
    –  Branch code

or

2.2  Taxpayer opened a new bank account but have not received a bank statement yet

  • Original letter stamped by bank on bank’s letterhead confirming:
    – Legal name of account holder
    – Account number
    – Account type
    – Branch code
    – Date on which bank account was opened
  1. Proof of residential address:

Copy of any one of the documents listed below.

3.1  Document not older than three months:

  • Municipal account
  • Student fee account
  • Co-op statement (farmers)
  • Medical aid statement
  • Telephone account
  • Court order
  • Subpoena
  • Traffic fine
  • Documents relating to UIF or pension payout

3.2  Document not older than six months:

  • Mortgage statement from mortgage lender

3.3  Document not older than 12 months:

  • Motor vehicle licence documents
  • Life assurance document
  • Short-term insurance document
  • Health insurance document
  • Funeral policy document
  • Statement from share, portfolio or unit trust investment
  • Current and valid lease/franchise agreement

3.4  If none of the above documentation is applicable/available, the taxpayer must complete and submit Form CRA01.

  • If proof of residence is in the name of a third party, the taxpayer must submit together with CRA01 a certified copy of the ID document/temporary ID/passport/driver’s licence of the third party. 

Tips

  • Make sure you have all the required documentation when you go to SARS otherwise SARS will not update your banking details. You will need to get all the documentation together and go to a  SARS branch again.
  • Make sure that the following stamps appear on all certified copies of documents:
    –  “True Copy”
    –  Commissioner of Oaths
  • Ensure that copies are certified by a person authorised to do so, for example SAPS/SAPO/attorneys.
  • SARS does not permit credit card/mortgage/foreign bank accounts for refund purposes.

SARS is taking their responsibility to protect taxpayers’ banking details seriously. Despite the inconvenience, it is to the taxpayer’s benefit to confirm their banking details with SARS to ensure that the taxpayer entitled to the refund will actually be the person to receive the refund. 

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 ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. 

References:

  • IT-ACM-06-G01 – Change of Banking Details for Personal Income Tax – External Guide
  • GEN-BR002 – Changing Your Banking Details – External Brochure

10 Wenke hoe om uitgawes dop te hou

A4Hou jy behoorlik boek van jou klein onderneming se besigheidsuitgawes (operasionele koste)? Dit sal onnodige koste besnoei en jou meer voorbereid vir belastingtyd maak as jy jou uitgawes gereeld aanteken en aanpassings maak.

Probeer hierdie wenke om jou besigheidsuitgawes beter te bestuur:

  1. Gebruik sagteware. Rekeningkundige sagteware soos Quickbooks en sigblaaie van MS Office maak bestuur van uitgawes makliker. Kies dieselfde program as jou boekhouer of ‘n versoenbare een; sodoende kan jy inligting direk na jou belastingopgawe oordra.
  1. Wees gereed vir belastingtyd. Wees noukeurig wanneer jy aftrekbare uitgawes soos voertuiggebruik vir besigheidsdoeleindes, reis- en onthaalkoste, voorraad en toerusting, en bydraes aan verenigings en liefdadigheidsorganisasies aanteken. Die SAID-webtuiste voorsien  details oor hierdie uitgawes.
  1. Hou persoonlike en besigheidsrekeninge apart. Moenie persoonlike kontant, kredietkaarte of tjeks vir besigheidsuitgawes aanwend nie. Maak seker jy debiteer die korrekte rekening wanneer jy jouself of werknemers vergoed, om verwarring en navrae van SAID te vermy.
  1. Stadig met die kontant. Betalings uit die kleinkas moet beperk word – skep eerder ‘n kleinkas-rekening in jou boekhouding om effektief hiervan boek te hou.
  1. Bewaar alle kwitansies. In geval van ‘n oudit gaan jy alle kwitansies benodig om jou eise te staaf. Skryf dus die doel van die uitgawe op elke kwitansie, en neem foto’s daarvan of skandeer dit in die rekenaar in om bergplek te spaar en moeite te verminder.
  1. Teken inligting dadelik aan. Teken uitgawes dadelik aan sodat dit nie ophoop nie en jy in beheer van die boekhouding bly.
  1. Gee jouself krediet. Kredietkaarte maak dit makliker om tred te hou met jou besigheidsuitgawes, aangesien die state besonderhede van jou uitgawes volledig uiteensit. Kredietkaarte is ook veiliger en geriefliker om te gebruik as kontant.
  1. Gebruik tegnologie. Sekere draagbare toepassings stel jou in staat om jou uitgawes dop te hou en na die korrekte kliënt of rekening te allokeer. Kry produkte wat versoenbaar is met jou bestaande rekeningkundige sagteware.
  1. Monitor resultate. Skep weeklikse en maandelikse terugvoering met jou rekeningkundige sagteware om jou inkomste en uitgawe te monitor. Gebruik ‘n maandelikse, kwartaallikse en jaarlikse begroting gebaseer op spandering in die verlede om jou uitgawes met jou begroting te laat klop.
  1. Sny oortollige uitgawes. Spandeer jy meer as wat jou begroting toelaat? Wil jy ‘n groter wins maak? Analiseer jou uitgawes en begin deur die onnodige uitgawes te sny.

Hierdie artikel is ‘n algemene inligtingstuk en moet nie gebruik of staatgemaak word op as professionele advies nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of vir enige verlies of skade wat voortspruit uit vertroue op enige inligting hierin nie. Kontak altyd jou finansiële adviseur vir spesifieke en gedetailleerde advies.

The validity of tax invoices: It is your responsibility

A2The audits of Value-Added Tax (VAT) returns by the South African Revenue Service (SARS), have increased the focus on the validity of tax invoices for the purposes of VAT.

A VAT vendor submitting VAT returns is responsible for ensuring that all invoices included in the returns comply with the relevant legislation. If valid tax invoices cannot be provided at the time of a VAT audit, the vendor may lose up to 100% of the input tax being claimed on the invoice, even if an amended valid invoice can be provided subsequent to the audit. Furthermore, serious penalties, interest and other consequences may be imposed on the VAT vendor for errors, intentional omissions and fraud.

Section 20 of the Value-Added Tax Act, No 89 of 1991, together with the VAT404 Guide for Vendors as updated in Dec 2012, sets out the requirements for a valid tax invoice.

A VAT vendor must issue a tax invoice within 21 days of the supply having been made where the consideration for the supply exceeds R50, whether the purchaser has requested this or not. If the consideration for the supply is R50 or less, a tax invoice is not required. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier, will be required to verify the input tax.

The requirements for tax invoices of which the consideration or taxable supply is more than R5 000 are:

  • the words “tax invoice” in a prominent place;
  • name, physical address and VAT registration number of the supplier name, physical address and VAT registration number of the recipient;
  • original serial number of the tax invoice;
  • the date of issue of the tax invoice;
  • full and proper description of the goods sold and / or services rendered;
  • quantity or volume of goods and / or services supplied;
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies).

The requirements for tax invoices of less than R5 000 are:

  • the words “tax invoice” in a prominent place;
  • name, physical address and VAT registration number of the supplier;
  • original serial number of the tax invoice;
  • the date of issue of the tax invoice;
  • full and proper description of the goods sold and / or services rendered;
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies).

In the case of second-hand goods purchased from a non-vendor, the purchaser has to record the following information:

  • name, address and identity number of the supplier, confirmed by the person’s identity document or passport. (If the value of the supply is equal to or greater than R1 000, a copy of this document must be retained by the purchaser. If the non-vendor is a juristic person, a letterhead or similar document stating the name and registration number of the juristic person is required);
  • date of acquisition;
  • quantity or volume of goods;
  • description of the goods;
  • total consideration paid for the supply;
  • declaration by the supplier stating that the supply is not a taxable supply.

If a vendor fails to deduct an input tax in respect of a particular tax period, that input tax may be deducted in a later tax period, but limited to a period of five years from the date that the particular supply was made. However, when a vendor becomes aware of an output tax not declared in the relevant period, a corrected VAT return for that specific period should be submitted.  It is not acceptable to declare the output tax in the next period and SARS may impose penalties and interest on the output VAT omitted.

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 financial adviser for specific and detailed advice.

Types of marriage and estate planning

A4It is important to understand the legal implications of the marital property regime, especially when drafting a Last Will and Testament and also when entering into a marriage, as the regime chosen by the estate planner is going to affect his/her assets.

The most important forms of marriage are: marriage in community of property, marriage out of community of property (without accrual), and marriage out of community of property (with accrual).

Marriage in community of property

  1. There is no prior contractual arrangement, apart from getting married;
  2. Spouses do not have two distinct estates;
  3. There is a joint estate, with each spouse having a 50% share in each and every asset in the estate (no matter in whose name it is registered);
  4.  Applies to assets acquired before the marriage and during the marriage;
  5. Should one spouse incur debts in his own name it will automatically bind his/her spouse, who will also become liable for the debt;
  6. If a sequestration takes place (in the case of insolvency), the joint estate is sequestrated.

Marriage out of community of property without the accrual system

  1. An antenuptial contract (ANC) is drawn up by an attorney (who is registered as a notary), before the marriage;
  2. Where there is no contract, the marriage is automatically in community of property;
  3. The values of each spouse’s estate on going into the marriage are stipulated in the contract;
  4.  A marriage by ANC means that all property owned by spouses before the date of the marriage will remain the sole property of each spouse;
  5. Each spouse controls his/her own estate exclusively without interference from the other spouse, although each has a duty to contribute to the household expenses according to his/her means;
  6. To allow for assets acquired by spouses during the marriage to remain the sole property of each spouse, the accrual system must be specifically excluded in the ANC.

Marriage out of community of property with the accrual system

  1. The accrual system automatically applies unless expressly excluded in the antenuptial contract;
  2. The accrual system addresses the question of the growth of each spouse’s estate after the date of marriage. 

ESTATE PLANNING

Donations between spouses are exempt from donations tax and estate duty. 

Marriage in community of property

  1. In the event of the death of one spouse, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate).
  2. When drafting a Last Will and Testament, spouses married in community of property need to be aware that it is only half of any asset that he or she is able to bequeath.
  3. Upon the death of one spouse, all banking accounts are frozen (even if they are in the name of one of the spouses), which could affect liquidity.
  4. Donations or bequests to someone married in community of property can be made to exclude the community of property; in other words, if the donor stipulates that the donation must not fall into the joint estate, then the donee can build up a separate estate. However, returns on such separate assets will go back to the joint estate. 

Marriage out of community of property without the accrual system 

Each estate planner (spouse) retains possession of assets owned prior to and after the marriage. 

Marriage out of community of property with the accrual system

A donation from one spouse to the other spouse is excluded from the calculation of each spouse’s accrual; in other words, the recipient does not include it in his growth and the donor’s accrual is automatically reduced by the donation amount.

DIVORCE

In the event of divorce, the marriage will be dissolved by court decree, which will address such aspects as child maintenance, access, guardianship and custody, spousal maintenance, the division of assets, division of pension interests and so on.

COHABITATION AND DEFINITION OF ‘SPOUSE’

Cohabitation is defined as a stable, monogamous relationship where a couple who do not wish to or cannot get married, live together as spouses. The Taxation Laws Amendment Act has extended the definition of ‘spouses’ to include “a same sex or heterosexual union which the Commissioner is satisfied is intended to be permanent”.

Many pieces of legislation, including the Pension Funds Amendment Act and the Taxation Laws Amendment Act, now define spouse to include a partner in a cohabitative relationship, the effects of which are that cohabitees will benefit from the Section 4(q) estate duty deduction in the Estate Duty Act, and the donations tax exemptions of the Income Tax Act.

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 financial adviser for specific and detailed advice.

Just a spoonful of sugar to help the medicine go down

04As from the 2013 tax year contributions to medical aid schemes are no longer allowed as a deduction.  This provision was replaced by the section 6A Medical scheme fees tax credit.  Instead of allowing contributions as a deduction from taxable income, the credit is deducted from taxpayer’s liability for normal tax.  The credit is in the nature of a rebate, rather than a deduction.

For the year of assessment ending 28 February 2014 the amount of the credit is equal to:

R242 per month in respect of benefits to the taxpayer;
R242 per month in respect of benefits to the first dependant;
R162 per month in respect of every additional dependant.

For a family of four the total rebate will be R808 per month.  It is a requirement that the contributions are actually paid and not only payable.  Contributions paid by an employer and taxed as a fringe benefit will be regarded as having been paid by the employee.

For the current year of assessment the deduction of medical expenses in addition to scheme contributions, is dealt with in terms of section 18 of the Act.  With effect from 1 March 2014 this provision is repealed and replaced with the section 6B Additional expenses medical tax credit.  The definition of “qualifying medical expenditure” for purposes of calculating this rebate is identical to the wording of the deleted section 18 and includes amounts paid to registered medical professionals, nursing homes and hospitals, and for prescribed medicines.  Once again it is a requirement that the expenses were actually paid.

Amounts recoverable from the medical scheme are not taken into account.  Expenditure necessarily incurred and paid in consequence of any physical impairment or disability suffered by the taxpayer or any dependant, is also taken into account as qualifying expenditure.  The definition of “disability” remains unchanged.

If the taxpayer or one of his dependants is a person with a disability as defined, or aged 65 years or older, the rebate is calculated as follows: 33.3% of the amount by which the actual medical scheme contributions exceed three times the section 6A medical scheme fees tax credit, as well as 33.3% of the qualifying medical expenses paid by the person.

Example 1

A family of four includes a person with a disability.  The taxpayer’s contributions to the medical scheme for the year of assessment is R48 000.  He also paid qualifying medical expenses of R12 000 and expenditure in consequence of the disability amounted to R24 000.

Section 6A rebate x 3 = R29 088
(R48 000 –R29 088) x 33.3% = R6 298
(R12 000 + R24 000) x 33.3% = R11 988

In addition to his section 6A rebate of R9 696, the taxpayer is allowed a section 6B rebate of R18 286 (R6 298 in respect of contributions and R11 988 in respect of qualifying expenses).

The basis for calculating the rebate in all other cases is completely different and best illustrated by way of an example.

Example 2

The taxpayer has a wife and two children.  He paid medical fund contributions of R48 000 and qualifying medical expenses of R24 000 during the year of assessment.  His taxable income for the year is R240 000.

In calculating the rebate, all qualifying expenditure is taken into account.  The actual contributions to the medical scheme are reduced by an amount equal to four times the section 6A rebate.

Qualifying expenditure:                      R24 000
Contributions:                                     R48 000 – (R9 696 x 4) = R9 216

The rebate is limited to 25% of so much of the aggregate of the two amounts calculated above as exceeds 7.5% of the person’s taxable income.

Rebate = [(R24 000 + R9 216) – (R240 000 x 7.5%)] x 25%
[R33 216 – R18 000] x 25%
R3 804

Thus, in addition to his section 6A rebate of R9 696 the taxpayer is entitled to a section 6B rebate of R3 804.

As the second rebate is calculated with reference to the person’s taxable income, lower income taxpayers benefit more.  Had the person’s taxable income in the above example been R442 880 or higher, he would not have received any rebate at all.

Whether the new system is simpler or more efficient is debatable.  The uniform rebate in respect of contributions will presumably ease SARS’s administrative burden.  From the taxpayer’s perspective however, the requirements regarding record-keeping and proof of expenditure remain the same.  For high income earners it may however not be worth the effort, as they will most likely not qualify for the second rebate.

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 financial adviser for specific and detailed advice.