How technology is influencing the financial world


Accounting has moved from pen and paper to the cloud, monthly payments can be done through online banking apps, and big purchases like houses and other property can be completed using cryptocurrency. For a business to be successful, it is important that it keeps up with the tech and digital world, which has shown financial and time efficiency. The added advantage it that bulky computers, heavy stacks of coffee-stained documents and long queues are a thing of the past.

Clouds now manage your information

Personal information, including security, is no longer stored on the ground where everyone else would have been able to access it. As businesses have transferred everything to the cloud. If systems have evolved accordingly to manage and keep abreast of current trends.

There is always opportunity to make the cloud system faster, to become more innovative and to add features that enable efficiency in a competitive marketplace. Information is readily available and up-to-date, and the improves financial decision-making speed.

You can be everywhere by being right where you are

Tech efficiency has evolved so much just by providing a solution to what people don’t have time to do. Business owners no longer have the time to rush out of the office to make it to the bank on time, and as such, tech has provided apps for services that were time sensitive.

With this comes safety. Deposits of large sums can now be cashless, through streamlined payments. Other advantages of conducting online payments are integrated billing and mobile payments, right from where you are.

Coffee won’t mess on your files

The need to print documents has decreased significantly due to the ease of storing them on internal and other tech software. Tax submissions are also catered for electronically because they can be calculated and completed by cloud accounting systems and submitted online. You can also make payments through faster online invoicing.

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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The Importance of Ethical Behaviour


For citizens, even for those of us with no aspirations in a career in law enforcement, morality and integrity are important characteristics to demonstrate. We instinctively know that it is good to be moral and act with integrity, but by coming to an understanding of the reasons for morality and integrity, we will be motivated to champion such behaviour. Among the reasons to be moral and integral, regardless of occupation are to:

  • Make society better. When we help make society better, we are rewarded with also making better own lives and the lives of our families and friends. Without moral conduct, society would be a miserable place.
  • Treat everyone equally. Equality is a cornerstone of most Western democracies, where all individuals are afforded the same rights. This is not possible without the majority of citizens behaving in a moral manner.
  • Secure meaningful employment. Often employers will look at a person’ past behaviour as a predictor of future behaviour. Someone who has a history of immoral behaviour will have difficulty securing employment in a meaningful job, as that person may not be trusted.
  • Succeed at business. If you are employed in an occupation in which there you must rely on others, your moral conduct will determine the degree of goodwill that you receive from others. Businesses that have a checkered moral history are typically viewed with caution and are unlikely to attract new customers through word of mouth, and therefore are unlikely to prosper. This is especially the case where social media ­­makes customer reviews readily accessible.
  • Lessen stress. When we make immoral decisions, we tend to feel  uncomfortable and concerned about our decision making. Making the right moral decision, or taking a principled perspective on an issue, reduces stress.

Ultimately, ethics is important not so that “we can understand” philosophically, but rather so we can “improve how we live” (Lafollette, 2007). By being moral, we enrich our lives and the lives of those around us. It’s especially important to live a moral life when we are young, as it is helpful to exercise and practise these concepts before being confronted with more complex issues. Lafollette (2007) theorizes that ethics is like most everything else that we strive to be good at; it requires practice and effort. Practising and making an effort to make moral decisions throughout life will pay dividends when we are faced with serious moral dilemmas. Furthermore, having insight into “…historical, political, economic, sociological and psychological insights…” (Lafollette, 2007, p.7) allows us, as decision makers, to make more informed decisions, which will likely result in moral decisions. In sum, the practice of being moral, allows us to work on these skills, so when we are faced with real situations that impact others, we are ready

Lafollette (2007) also emphasizes the need to understand and develop our virtues. Knowing that we ought to behave in a certain way, yet missing an opportunity to exercise moral behaviour, is an indication of the need to “sharpen moral vision.” For example we know that we ought to stay in good physical shape but often do not. This illustrates the need to be mindful of a virtue (in this case perseverance) that is important and must be developed. If, as people aspiring to become law enforcement officers, we develop the virtue of perseverance by staying in shape, we are more likely to hone that skill when we are working in law enforcement. We will be able to draw on that virtue when needed for even more serious situations, not only in law enforcement, but in other challenges that we may face in life.

Ethics is also important for those citizens who do not aspire to work in law enforcement. Successful business leaders often say that treating people morally is a very important aspect in obtaining success. A person’s reputation is of key importance for a business leader, and if a person’s reputation is damaged by poor ethical conduct, the business will also suffer. The same is true in all walks of life. Where ethics are taken seriously, and people strive to make ethical decisions and actions, personal and professional success follows.

Critics may argue that this attitude is self-serving and that some individuals act ethically only for their own self-interest to be successful or happy. Critics would add that this is not the right reason to be ethical, and therefore is not being truly ethical. A counter argument may be that the action itself can be regarded as ethical, regardless of the reason for taking the action. This perspective focuses more on the end result rather than the means to the end.

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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Everything you’ll ever need to know about death and taxes in South Africa


In South Africa, like in most countries, death and taxes go together in the form of inheritance taxes. These are taxes that the deceased estate has to pay, in addition to the personal tax of the deceased person for their final tax year.

The personal tax is levied on the income the deceased person received before their death, during the course of the tax year, whereas the inheritance taxes are levied on what they leave behind in their Will.

Capital Legacy’s CEO, Alex Simeonides, answers 8 questions that delve into the intricacies of the two inheritance taxes we face: estate duty and capital gains tax.

  1. Which taxes apply when someone dies?

Two separate taxes are levied on a deceased estate: one is Estate Duty and the other is Capital Gains Tax. Estate Duty taxes the transfer of wealth (assets) from the deceased’s estate to the beneficiaries. Capital Gains Tax is levied on any capital gain (profit) on the sale or transfer of an asset (which a deceased individual is considered to have done upon their death).

  1. What is Estate Duty?

Estate Duty is a tax paid on the ‘dutiable estate’ of a deceased individual. It is charged at a rate of 20% on the first R30 million of the dutiable estate, and 25% on anything above R30 million.

The dutiable estate comprises all the deceased individual’s property (assets and liabilities), after the allowable deductions have been made (more about that later).

  1. When is Estate Duty levied on an estate?

Estate duty is levied on the assets of deceased individuals who resided in South Africa at the time of their death (irrespective of their citizenship), and on the South African assets of deceased individuals who lived abroad.

Foreign property is considered in the calculation of the dutiable estate of an individual who resided in South Africa at the time of their death.

  1. What deductions are allowed?

Allowable deductions which influence Estate Duty calculations include debts, funeral and death-bed expenses, administration costs, property transferred to a surviving spouse, and the first R3.5 million of the value of the estate.

The first R3.5 million of the value of an estate is not subject to Estate Duty. This allowance may be added to the allowance granted to the surviving spouse of a deceased person which amounts to a total of R7 million which is not subject to Estate Duty, upon the death of the second spouse.

Deductions are also allowed for liabilities, bequests made to qualifying public benefit organisations, and assets that are inherited by the surviving spouse.

  1. What about Estate Duty on retirement planning?

If an individual died on or after 1 January 2009, any retirement annuity and pension or provident fund benefits (including lump-sums) are not considered as “property” and are therefore not subject to estate duty.

  1. Explain how life insurance impacts Estate Duty.

When a life insurance policy is paid out, the value of the pay-out is included in the value of the deceased’s estate and it could therefore impact the amount on which the estate duty is levied.

There are certain exemptions, such as:

  • When the policy falls outside of the estate in terms of an antenuptial contract.
  • When the policy had been implemented and paid for by a business partner and the proceeds are then paid to the business partner on the death of the individual whose life had been insured.
  • When the policy was not taken out by the deceased individual and will not be used to benefit a family member or business associate of the deceased.

The life insurance policies referred to above include policies where a spouse or child is nominated as a beneficiary, buy-and-sell policies, and key-person policies that conform to the conditions as set out in the Act. It is important to note that endowment policies (local and offshore) that do not pay out on the death of a life assured, but that are owned or part-owned by a deceased policyholder, will be subject to estate duty.

The surrender value of the policy must be included as property in the deceased estate.

  1. What is Capital Gains Tax (CGT) and who has to pay it?

South African residents (living or deceased) have to pay CGT on the profit (capital gains) that is made when disposing of an asset. Non-residents are subject to CGT on capital gains arising from the disposal of immovable property or an interest in immovable property in South Africa.

The Income Tax Act declares that a deceased individual will be deemed to have disposed of their assets for an amount equal to the market value of the assets, on their date of death.

However, CGT is not a separate tax but forms part of Income Tax. The inclusion rate for CGT is 40% for individuals and deceased estates, and therefore the maximum effective rate of 18% would be levied.

  1. Is any profit excluded from Capital Gains Tax?

There are some exclusions which apply to CGT. Any assets that go to the surviving spouse are exempt from CGT.

Furthermore, an exclusion of R300,000 is also applicable for the year in which the individual passed away.

Other basic exclusions include:

  • The first R2 million profit on the disposal of a primary residence (such as your house).
  • Most personal use assets (such as vehicles).
  • Retirement benefits and payments from original long-term insurance policies.
  • A small business exclusion of R1.8 million, when a small business with a market value not exceeding R10 million is disposed of (subject to certain qualifying criteria).

Staff Writer 1 June 2019

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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The difference between having your annual financial statements reviewed as opposed to audited


JOHANNESBURG – With the current state of the national and global economy, companies are trying to better manage their expenses. Audit fees tend to make up a significant portion of a company’s annual expenses and therefore some businesses specifically focus on audit fees when they need to tighten their belts.

However, if a company does decide to cut its spend on audit fees, directors and shareholders should make a cost vs. benefit assessment to determine the value that an audit may add, compared to possible alternatives.

Depending on a company’s public interest score (PIS) and who the compiler of the annual financial statements (AFS) are, the Companies Act of South Africa allows a company to either have its AFS audited or independently reviewed.

The directors of a company can decide if they want to internally compile their AFS or have them independently compiled. However, companies with a PIS of between 100 and 350 need to bear in mind that this decision will also influence the type of assurance required, in accordance with the Companies Act.

The PIS of a company is calculated by taking a number of factors into consideration, such as the number of individuals with beneficial interests (i.e. shareholders), turnover for the financial year, third party liability at the end of the financial year and the average number of employees.

Should a company have a PIS of more than 350, the AFS will need to be audited in terms of the Companies Act. If a company has a PIS of below 350 and its AFS are compiled independently, the directors of that company may elect to have the AFS undergo an independent review as opposed to an audit. With that said, if a company has a PIS of above 100 and the directors prefer to internally compile its AFS, the company is required to have its AFS audited.

Certain businesses can also be exempt from having their AFS audited or independently reviewed according to Section 30(2A) of Companies Act. For this exemption to apply, the company must have a PIS lower than 350 and all of the shareholders must be directors of the company. In certain instances a company’s memorandum of incorporation (MOI) may also require it to be audited, irrespective of its PIS.

There is a number of differences between an audit and an independent review. The most significant of these include the level of assurance that one obtains, and the procedures performed by the persons conducting the audit or independent review. By comparing an audit report opinion and an independent review conclusion the significant difference is that an audit opinion provides reasonable assurance on the AFS while an independent review conclusion provides limited assurance.

An audit report states that reasonable assurance has been obtained that the AFS as a whole is free from material misstatement, while an independent review states that (based on the work performed) nothing has come to the reviewers’ attention that causes them to believe that the AFS are not fairly presented.

An independent review primarily consists of making inquiries of management and others within the company, applying analytical procedures and evaluating the evidence obtained. An audit is a much more in-depth investigation where various techniques are used to obtain the assurance required to enable the auditor to issue an audit opinion. For an independent review engagement, more experienced staff are usually made use of due to the higher complexity of the interpretations and evaluations of the results. An audit engagement uses a variety of staff with different experience due to the nature of the work. The amount of work to be performed by the auditor or independent reviewer, as well as the experience of the staff used for the engagements, will therefore have a direct impact on the fees applicable to the different assurance engagements and therefore making a review engagement less expensive compared to that of an audit.

Should the directors decide to have the company’s AFS independently reviewed, several factors need to be considered. Firstly, they need to ensure that there are no requirements from either the shareholders or any third party requiring the AFS to be audited. After that, they must ensure that the legal requirements of the MOI and the Companies Act are being adhered to.

The directors also need to be aware that they cannot move from an audit to an independent review and back to an audit in subsequent years without repercussions. When an auditor issues an opinion on a set of AFS, the opinion is applicable to balances and transactions included in the current year, the comparative balances and transactions of the previous year, as well as the closing retained earnings of the year before the previous year. If any of these prior years’ balances and transactions were not subject to an audit (i.e. an independent review), it will result in a qualification of the audit report as the auditor is unable to issue an opinion on these unaudited balances and transactions due to only limited assurance having been obtained.

It should also be noted that these types of qualifications to the audit report will also be carried forward for two consecutive years.

This qualification can be avoided if an audit is completed on the previous years’ AFS (which was initially only subject to an independent review). However, this would be inefficient and costly – seeing as it would result in the previous year’s AFS being both audited and independently reviewed.

In light of the above, it is vital that the shareholders and directors consult with their companies’ auditors to ensure that all of the current and future implications are understood before decisions regarding a change in the type of assurance engagement is made.

7 JANUARY 2020/ WIEHANN OLIVIER– Wiehann Olivier is a partner at Mazars.

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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The importance of having a well-structured Will


And why it needs to be updated every year or at least with every life event that occurs.

People often neglect to give proper attention to their Will because it forces them to face their own mortality. Yet this is one of the most important documents necessary for estate planning.

Having a well-structured Will means you are taking care of your responsibilities and ensuring that your assets are distributed in terms of your wishes when you are no longer there, says Tony Hakime, senior manager of sales and distribution at Standard Trust.

Be practical

A Will must be practical to the degree that it can be implemented. People often place restrictions on what a beneficiary is allowed to do with an asset, but in many instances, it can be quite difficult to carry out these instructions.

“One must ensure that the instructions are legally binding on the individual,” says Hakime. “You have to consider whether the beneficiaries can actually deal with the assets.”

People should also remember that the contract between the testator and a life insurance company takes precedence over a Will.

If a testator names their child as the beneficiary of a policy and leaves their estate to their spouse, the spouse may be in trouble if the estate does not have sufficient liquidity to cover the debt.

Getting it right

Hakime emphasises the importance of obtaining the services of a professional person who specialises in the drafting of Wills.

The wording is critical and getting it wrong can lead to hardship and even financial distress for the people left behind. Once you are dead, there is no opportunity to correct or amend something that is not clear.

“All too often people appoint a family friend or a family member as the executor of the estate. In many instances the master of the high court will insist on a professional person assisting the individual in winding up the estate.

“It is important that the person winding up the estate has kept abreast with changes in the relevant legislation and understands the tax implications,” says Hakime.

He points out that people with assets outside of South Africa might have a Will in the country where those assets are located. “It just makes it easier for someone on that side – a person well-versed in estate matters in that jurisdiction – to quickly attend to the administration of the estate.”

Keeping it safe

Many people choose to nominate the institution that drafted the Will as executor of the estate, and to keep the original document. If this is done, it is important that they inform their family where the document is.

If a person dies without a Will, the estate will be administered in terms of the Intestate Succession Act – and the assets will be distributed in a manner that was not of their choosing, says Hakime.

A valid Will has to be signed by the testator as well as two witnesses, and they must sign in each other’s presence. Witnesses must be at least 14 years old and may not be a beneficiary of the Will.

“The most common error is having the witnesses sign without being in each other’s presence,” says Hakime. “The act is quite specific that the witnesses must all be present at the same time when signing the Will.

“It can be difficult to prove at times, but again we encourage clients to ensure that they follow the correct sequence to eliminate any doubt about the process.”

Another error that can render a Will invalid is when amendments to the Will are not properly initialled by both the testator and the witnesses.

Review often

In South Africa there is freedom of testation and people are allowed to change their Wills as often as they please. It is good practice to review a Will at least once a year, but there are also some ‘life events’ that make a review necessary.

These include asset accumulation (a new property, valuable paintings or jewellery), getting married, having children or getting divorced.

If a testator dies within three months of the date of divorce it will be assumed that the testator intended to change the Will and any bequest to testator’s former spouse would be deemed to have lapsed. However, after three months of the date of divorce any bequest to the testator’s former spouse would take effect if the testator does not change the will.

“It only takes a few minutes to run through your Will to make sure it still contains the right information but it can make a lifetime of difference to your loved ones,” says Hakime.

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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Too many South Africans are slaves to debt


The country has 25m active credit consumers – and more than 10m are behind on their payments.

If you want to know the frustrations associated with being in debt, ask 27-year-old Muzi Mehlala (not his real name). He is over-indebted, despite the fact that he has been working for a financial administrator for the past seven years.

His salary has increased a couple of times, but he says it still doesn’t allow him to live a comfortable life.

“My salary is not enough,” he says. “I do not have the extra money lying around to buy most of my necessities.”

Clothing, furniture and cellphone accounts and a credit card are what he is a slave to.

With the interest he’s paying on the credit he has taken out, it’s no wonder he doesn’t have ‘extra money’ lying around.

He says that as a result he lives hand-to-mouth. By the end of the first week of the month most of his income is finished. He then depends on his credit card to pull him through the month.

Mehlala says he regrets the day he allowed himself to fall into the trap of credit providers.

“When I started taking credit I did not know much about credit and the impact it could have in the long term,” he says.

Credit regulator findings

Mehlala is not alone. According to the National Credit Regulator (NCR), South Africans are over-indebted – and still clamouring for more credit.

Statistics released on Friday show the total value of new credit granted in 2019’s first quarter (Q1), increased by more than 5% to over R134 billion in Q2, says the NCR’s Ngoako Mabeba.

Mabeba says one million applications for new credit were made, with 55.44% turned down.

He adds that there are 25 million active credit consumers, and 10.23 million (40%) are behind on their payments.

“There is impairment on at least one of their accounts,” he says, adding that on average a consumer has three-and-a-half accounts.

“There are 80 million accounts in South Africa, with 21 million in arrears by three months or more.”

Mabeba adds that 12.7% have adverse listings against their names, while 5.1% of consumers have judgments and administration orders against them.


So why do consumers keep adding to their debt?

According to Dr Azar Jammine, chief economist at Econometrix, credit providers lure consumers into taking credit.

“Credit providers try and entice people who are not able to buy things to do so,” he says, adding that many South Africans feel pressured to ‘keep up with the Joneses’.

“In South Africa, there are advertisements for expenditure on all sorts of items such as durable goods and electronics. A large amount is being spent on cellphones and data, which was previously not an expenditure item in people’s lives. Somehow this is treated as a priority in people’s lives, even though they realise they can’t afford it,” says Jammine.

He adds that many find themselves in debt because they lack financial education.

“Unfortunately, many in South Africa are [financially] illiterate. They are enticed into these things because they think it is a way of uplifting their wellbeing – and they are not fully aware of the consequences because they are not spelled out to them.”

Stagnant economy

The slow economy is also contributing to consumer appetite for debt, says Jammine.

“The main problem is that the economy is not growing rapidly. People are becoming unemployed and are under a lot of pressure, yet they are trying to sustain their living standards, and they must borrow money to sustain those living standards.”

He says an over-indebted country eventually harms its economy.

“The consequence of indebted citizens on the economy is that eventually you have less buying power in the economy, and ultimately that results in declining economic growth generally.”

In short, you don’t get the economic recovery you need to return to the levels that existed before the downturn.

Failure-to-launch syndrome

A 2019 financial reality survey by DebtSafe indicated that many of the 1 020 participants were indebted due to:

  • Tough economic times, so they can’t afford basic necessities (67%)
  • Education and school expenses for themselves, children and other relatives (38%)
  • Unforeseen circumstances (29%)

DebtSafe debt advisor Carla Oberholzer says 70% of the participants were females from metro cities, aged between 25 and 27.

“Most were single parents affected by the ‘failure to launch’ syndrome,” she says, explaining that they live with their parents and must look after their parents or grandparents as well, instead of focusing on their own responsibilities.

Oberholzer says the other big worries for the respondents is their income not keeping up with inflation, and not being able to save.

Stress, rage, anxiety

She says many of her clients find themselves stressed as a result of living above their means.

“What we have noticed with our clients is that they have rage and anxiety,” says Oberholzer.

She advises over-indebted consumers to start paying off their largest debt first. “It is very important that they clear their debt bit by bit, starting with the credit card with the highest instalment.

“Consumers also need to realise that paying off all their debt is not going to happen in one or two months. They need to be realistic.”

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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Expat tax exemptions: No double taxation


On 1 March 2020, an amendment to the foreign employment income exemption comes into operation. There have been misperceptions about those expatriates that will be affected by this change to the tax law.

Currently the exemption applies to South African tax residents who provide services outside South Africa on behalf of an employer for longer than 183 days during a 12 month period. In addition to this, the exemption only applies if, during the same 12 month period, a person rendered services outside South Africa for a continuous period of at least 60 days. If this criterion is met the resident is exempt from income tax on such foreign income in South Africa. The amendment now provides that a person who meets these requirements will only be exempt from income tax in South Africa up to the first R1-million of their employment income earned abroad.

It is important for expatriates to understand that the exemption only applies to South African tax residents working abroad. These are persons who are still ordinarily resident in South Africa or have been physically present in South Africa for a statutory specified number of days each year over a five year period. Expatriates who have been living abroad for many years or who have emigrated are unlikely to be affected by this law. They will only pay tax in the country where they now live and are employed.

No double taxation

South African tax residents who are affected by the new law will not now become liable for double taxation. If there is a tax treaty between the respective countries, it will eliminate double taxation. If there is no tax treaty, there are provisions in the Income Tax Act, 1962 that will allow the person to apply for a credit for the tax paid in the foreign country.

SARS will only have the right to tax income to the extent that it was not taxed in the country where the employment services were performed. For example, if a South African resident employed in Botswana earns more than R1 million per annum, that person will be taxed in Botswana at 25% on such income. If that person falls within the highest tax bracket in South Africa (i.e. 45%), to the extent that such income exceeds R1-million, that person will be taxed in South Africa on such amount at 20%. (i.e., 45% – 25% = 20%).


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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Complexities of loans between related parties


Loans between related parties are a common occurrence in the SME business environment. These loans arise due to various reasons, such as assets being sold on loan account; money being drawn out, trust distributions made or dividends declared on loan account; funding provided by stakeholders, or even loans arising in a similar way to a trading account. Loans that may initially seem simple in principle, could lead to some unforeseen tax and legal consequences.

In this article we will provide a brief overview of the most common scenarios resulting in loans between related parties that we tend to encounter and look at what the key tax and legal considerations are. It is not our intention to provide a fully comprehensive list of all the forms that loans between related parties can take, neither do we propose the tax and legal considerations listed to be all inclusive. It is intended to provide a helpful summary of some key considerations to loans commonly found in the accounting records of SMEs.

Loans by companies

In instances where companies make loans to shareholders, who are not companies, bearing interest at a rate lower than the SARS official rate of interest (currently 7.75% p.a.), a deemed dividend exists in terms of the Income Tax Act. The value of the deemed dividend is the difference between the interest charged and what interest would have been charged at the SARS official rate of interest. Where the loan is made to an individual, dividend tax at 20% of the calculated value of the deemed dividend is to be declared and paid to SARS.

Section 45 of the Companies Act permits financial assistance provided by a company (for example through providing a loan) to directors, or related parties to the directors, only if it is pre-approved by the shareholders (by means of a special resolution), and by the directors after ensuring that immediately after providing the financial assistance the company is both liquid and solvent, that the company’s Memorandum of Incorporation has been complied with, and the financial assistance is at terms that are fair and reasonable to the company. If Section 45 of the Companies Act is not complied with, the loan is considered void and the directors could be held liable for losses incurred as a result.

Loans to trusts

Loans to trusts often exist due to assets being sold to trusts on loan account. Historically most trusts charged no interest on these loans.

Section 7C of the Income Tax Act introduced legislation whereby a deemed donation exists on loans to trusts if no interest is charged, or if interest is charged at a rate lower than the SARS official rate of interest. The value of the deemed donation is the difference in interest between the amount charged on the loan account (if any) and what the interest would have been at the SARS official rate of interest.

The donation is taxed at 20% in the hands of the donor (in this case the party making the loan). Natural persons are allowed to utilise their annual donations tax exemption (first R100,000 of amount donated) against the deemed donation.

Loans between individuals

A common pitfall of loans between individuals is that the terms of the loan are not clearly agreed in writing between the parties, especially in the case of loans between family members. It is well advised to ensure that a proper loan agreement is drafted and signed between the parties, inclusive of key terms to the loan such as repayment terms, security offered and interest charged.

Some important considerations are:

  • If it is the intention of the parties that the loan would never be called or settled, the full value of the loan should be treated as a donation by the party giving the loan. This would attract donations tax at 20%. Natural persons are allowed to utilise their annual donations tax exemption against the donation.
  • If it is the intention that the loan will be repaid, it remains part of the estate of the person providing the loan in the event of his/her death. It will attract estate duty at 20%.
  • If it is agreed that interest would be charged, the requirement to register as a credit provider in terms of the National Credit Act should be considered.

Loans to employees

A loan to an employee bearing no interest, or bearing interest at a rate lower than the SARS official rate of interest leads to a taxable benefit in the hands of the employee. The value of the taxable benefit is the difference in the amount of interest charged compared to what interest would have been charged at the SARS official rate. The 7th Schedule to the Income Tax Act further requires that this taxable benefit be taken into account when calculating the employee tax (PAYE) to be deducted from the employee’s salary.

In the event of interest being charged on loans to employees, the requirement to register as a credit provider in terms of the National Credit Act should be considered.

Charging interest

Where interest has been charged on loan accounts, the general principle is that the interest is taxable in the hands of the party receiving the interest (note that natural persons currently have an interest exemption of R23,800 if aged below 65 years and R34,500 if older). The interest is not always deductible by the party paying the interest.

In addition to the tax treatment of charging interest, there are other legal complexities to consider. Section 40(1) of the National Credit Act requires that a person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements exceed the prescribed threshold which has been R nil since 11 May 2016. Failure to register as a credit provider could result in the credit agreement being declared void. There are exceptions to the application of the National Credit Act which should be considered.

When loans become irrecoverable

The legal and tax consequences of loans becoming irrecoverable as well as the requirements and implications of the prescription of debt are complex and could vary significantly from case to case. It is worth obtaining professional advice when considering writing off or waiving significant loans with related parties.

Donations tax and estate duty

Throughout this article we have referred to donations tax being levied at 20%. This only applies to the first R30 million after which it increases to 25%. The same applies for estate duty where applicable. Donations tax must be paid to SARS by the end of the month, following the month in which the donation was made. Deemed donations due to interest being charged at a rate lower than the SARS official rate of interest are deemed to have been made on the last day of the relevant year of assessment.


Loans between related parties often lead to legal and tax consequences not fully considered at the inception. It is well advised to properly consider all tax and legal aspects, and if necessary, obtain professional advice before entering into a loan agreement with a related party.

BY: HANNO LE ROUX – Audit and Accounting Manager at Meredith Harington

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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Tax free investment savings accounts


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

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

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

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

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

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

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

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A brief overview of parole in South Africa


Bob Hewitt a former South African tennis star, has recently made headlines again after his failed bid to be released on parole. Hewitt was initially granted parole, but Justice Minister Ronald Ramola ordered that the parole board’s decision be reviewed. Hewitt’s parole was subsequently set aside. Hewitt’s parole fiasco has put parole back into the public spotlight and this article will thus briefly discuss what parole is, when an incarcerated person can potentially qualify for parole, and which factors must be considered during a parole application.

Section 73(4) of the Correctional Services Act 111 of 1998 makes provision for prisoners to be “placed under correctional supervision or on day parole or on parole before the expiration of his or her term of imprisonment.” Such an early release will be subject to conditions of community corrections as set out by either the parole board or a court. The objective of setting such conditions “are to enable persons subject to community corrections to lead a socially responsible and crime-free life during the period of their sentence and in future”.[1]

Prisoners with determined sentences can be divided into two groups for the purposes of a parole discussion. The first group are those who have been sentenced for a determinate period and where the court has stipulated during sentencing proceedings that a certain part of the sentence will be a non-parole period. An example is when a convicted person is sentenced to 15 years imprisonment and may only qualify for parole after having served 5 years of the imprisonment period. The second group of prisoners with determined sentences are those where no non-parole period has been stipulated. Section 73(6)(a) states that these prisoners may only be considered for parole after having served at least half of the sentence as imposed by the court. It must also be noted that any prisoner who has served 25 years of imprisonment must be considered for parole, regardless of how long the sentence period is.[2]

There is no standard set of factors which are considered by a parole board when considering whether or not to release a prisoner on parole. These factors may include the following:

  • seriousness of the offence for which the prisoner was convicted;
  • length of the sentence;
  • behaviour whilst in prison;
  • whether or not the person has a support structure outside of the prison;
  • whether or not the person will be able to live independently;
  • whether or not the convicted person has been rehabilitated; and
  • any other factor deemed to be relevant by the board.

The board may also consider the opinion of those who were the victims of the convicted person’s crimes.

The decision of a parole board can also be taken on review. Section 76 of the Correctional Services Act makes provision for a Correctional Supervision and Parole Review Board. This board has the power to either confirm the decision of the parole board or to substitute it with any decision which the parole board should have made. The Correctional Supervision and Parole Review Board must give reasons for its decision. It is also important to note here that a court can intervene in instances where an imprisoned person has met all the requirements to be placed on parole but has not been so placed.[3]

Reference List:

  • Correctional Services Act 111 of 1998
  • Motsemme v Minister of Correctional Services and Others 2006 (2) SACR 277 (W)
  • [1] Section 50 of Act 111 of 1998.
  • [2] Note that there are certain other limitations on when parole may be considered for people serving periodical sentences, people convicted as habitual criminals, people imprisoned for corrective training and people imprisoned for the prevention of crime. See sections 6(b) and (c) in this regard. A detailed discussion of these provisions falls outside of the scope of this article.
  • [3] See Motsemme v Minister of Correctional Services and Others 2006 (2) SACR 277 (W) in which the Court intervened in such an instance.
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