What you need to know about tax and work travel allowance in South Africa during Covid-19

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Covid-19 has far-reaching effects for the South African taxpayer and, unbeknown to many, may be silently increasing their tax liability for the 2021 year of assessment. 

There is a causal link between travel allowances (and the same applies to company vehicles) received by employees in the current tax year, and for which business travel was not possible. 

In this article Thamsanqa Msiza, head of individual tax returns, and Taritha Oosthuizen, tax consultant, revisit the general taxing principles of a travel allowance and reimbursement of travel expenses claims, as well as consider how Covid-19 may increase the tax burden of an employee. 

The general taxing principles of a travel allowance and a reimbursive travel allowance 

Travel allowance 

The travel allowance “deduction” operates on the premise that an allowance is included in a person’s taxable income (see section 8(1)(a)(i) of the Income Tax Act), to the extent that the allowance has not actually been expended on business travel (see section 8(1)(a)(i)(aa)). 

In summary, private travel is taxable and business travel is not taxable. Interestingly, the term “travel”, whether for business or private, refers to travel by “an engine powered road going vehicle”, as contained in SARS Interpretation Note 14. 

The SARS External Guide for Employers in respect of allowances specifically states that: 

“A travel allowance is any allowance paid or advance given to an employee in respect of travelling expenses for business purposes. Any allowance or advance in respect of travelling expenses not to have been expended on business travelling … shall be deemed not to have been actually expended on travelling on business. 

Where the employer is satisfied that at least 80% of the travel appertains to business mileage then only 20% of the allowance is subject to the deduction of employees’ tax. Should this not be the case then the allowance should be taxed at 80% on the payroll.” 

There are currently only two inclusion percentages that should be applied on the payroll, namely the 80% or 20%. Since the release of the 2019 SARS BRS Change – Patch Phase 3, it should be noted that the 100% inclusion rate is no longer applicable and should therefore not be implemented on payroll. 

To explain this by way of a practical illustration: 

Should an employee incur 80% or more on business mileage per annum, the allowance should be taxed at 20%, i.e., where it is proven that 20% or less of total mileage will be attributed to private use.
Should an employee incur less than 80% business mileage per annum, irrespective of what that amount is, the allowance should be taxed at 80%, i.e., where it is proven that more than 20% of total mileage is attributed to private use. 

Reimbursive travel allowance 

An alternative to providing an employee with a monthly travel allowance amount is to provide the employee with a reimbursive travel allowance. A reimbursive travel allowance is an allowance paid to an employee for actual business kilometres travelled, according to either the SARS determined rate – which is R 3.98 per kilometre from 1 March 2020 – or as determined by the employer. 

The taxing of the reimbursive allowance has fundamentally changed from 1 March 2018. Where an employee is reimbursed using a rate higher than the SARS prescribed rate, the differential between the SARS prescribed rate and the rate utilised by the employer will be subject to employees’ tax (PAYE), regardless of the number of business-related kilometres travelled. 

It is advisable that employers prudently consider their reimbursement rates against the prescribed rate. An unintended consequence of reimbursing an employee on a higher rate will increase the employee’s PAYE liability and may result in lower employee take-home pay. 

An alternative to avoid this possible occurrence would be for the employer to reimburse the employee at a rate below the prescribed rate of R 3.98 per kilometre. The reimbursement will not attract PAYE and will also not be taxable on the employee’s personal tax return. 

In our practice we have a golden rule when it comes to employee travel debates, i.e. company car vs. travel allowance vs. reimbursive structure: an apples-with-apples computation must always be done. This means your opinion is only valid once you have done the actual computation on what gives the tax optimal outcome. 

Although the reimbursive changes have not altered an employee’s ability to claim against a travel allowance, they have introduced an additional record-keeping requirement. This especially becomes complex where travel reimbursive rates have changed during the tax year. 

On 5 May 2020, the Commissioner for SARS gave taxpayers a valuable insight in what can be expected in the coming months in light of Covid-19. Although not stated expressly, with a grim outlook on the decrease in revenue collection, SARS will look to extract every cent possible from the tax base. 

Building on their 2019 tax season approach, SARS will most likely enhance their robust stance on verifications and audits of tax returns. It is now, more than ever, particularly important to maintain an accurate and detailed travel logbook and to adopt good tax filing and compliance strategies. 

To reiterate: private travel is taxable and business travel is not taxable. 

Similarly, the Covid-19 restrictions will have a direct impact on the business claim lodged against the fringe benefit. This may very well create an employee’s tax exposure for those employers who apply the 20% rule or otherwise will cause an unwelcome surprise tax liability…. 

Could the current context of Covid-19 restrictions introduce an added interpretation problem on what constitutes business travel? Where an employee falling under the essential services category has travelled for business purposes during the lockdown periods, one would not anticipate any dilemma in claiming against a travel allowance. 

Considering that the restrictions announced by Government were legally binding, it will be interesting to see whether a claim for business kilometres travelled by a non-essential service employee, during the same period, will also be considered as valid business kilometres. 

This may very well become an added SARS audit requirement…. 

Covid-19 and travel allowances 

The travel allowance will become a contentious item where employees are receiving a travel allowance for business travel and such business travel is not possible, under the levels of restriction. Consequently, employees will be required to take extra care in preparing their logbooks. 

In determining the taxing rate of the travel allowance – that is whether taxes should be withheld on 80% or 20% of the travel allowance – the employer and employee would have adopted a rate based on the actual travel performed in previous years, and on which much anticipation has been placed for the 2021 year of assessment. 

Regardless of the rate adopted by the employer, the sudden impact of Covid-19 and the limitations placed on the employee’s business travel may translate into a 2021 tax liability for the employee on submission of the related return. 

Employers that have resolved to taxing 20% of a travel allowance paid to an employee who is not an essential services employee should perhaps consider adopting the 80% rate. This will likely assist the employee to “prepay” the pending tax liability resulting from an expected reduced travel allowance claim. 

In case of a reimbursive travel allowance, the above dilemma appears to be conveniently avoided, even where a tax liability arises. 

reimbursive allowance is paid to an employee at a rate multiplied by business kilometres travelled. This thus creates a relationship between the allowance and the business kilometres travelled. 

Employees will find that the risk of a deferred 2021 tax liability is eliminated, as their business travel claim will be directly aimed at the reimbursive allowance. The importance of a well-maintained travel logbook, for such employees, must be emphasised. 

In addition, it is best practice that the employer’s resolution to tax more of the allowance should be performed on a case-by-case basis and based on the factual circumstances of the employee, as opposed to a blanket approach. 

The change in withholding taxes will reduce take-home pay and will be felt immediately in the employee’s pocket, although preventing a cash flow burden in the long run. 

For full article follow this link 

https://businesstech.co.za/news/business-opinion/421568/what-you-need-to-know-about-tax-and-work-travel-allowance-in-south-africa-during-covid-19/ 

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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Viewpoint: Deemed disposal at death

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Section 9HA of the Income Tax Act is a deemed disposal rule for deceased persons is effective from 1 March 2016 and is applicable in respect of a person who dies on or after that date 

Section 9HA of the Income Tax Act and the rewritten section 25 relocate some of the capital gains tax implications in the Eighth Schedule to the main body of the Act. Section 9HA deals with the deceased person, while section 25 deals with the deceased estate and heirs or legatees, including a surviving spouse. 

In terms of section 9HA, a person is deemed to have disposed of all assets at market value at date of death, except: 

  • Assets left to the surviving resident spouse 
  • Long-term (SA policies) of the deceased, or 
  • Deceased interest in retirement funds (SA and non-SA funds) 

When a person disposes an allowance asset, this triggers a possible recoupment or scrapping loss and capital gains tax under the Eighth Schedule. Prior to 1 March 2016, an allowance asset was deemed to be disposed of at market value under paragraph 40(1) on the date of death, but this disposal applied only for purposes of the Eighth Schedule. Under this rule, only the capital gain or loss was therefore taken into account 

From 1 March 2016, the deemed disposal takes place under section 9HA. This triggers a possible recoupment or scrapping loss, and capital gains tax under the Eighth Schedule.
The Eighth Schedule applies to both capital assets and trading stock but prevents double deductions and taxation. Trading stock is accounted for under the main body of the Income Tax Act, and it therefore holds no further capital gains tax implications at the date of sale. Prior to 1 March 2016 the market value of trading stock held and not disposed of on the date of death which exceeded its closing stock value was dealt with as a capital gain/loss. Trading stock was regarded as held by the deceased on the date of death for the purposes of section 22(1), whereas for capital gains tax purposes it was disposed. From 1 March 2016, section 9HA deems trading stock to be disposed of at market value on the date of death. The deemed disposal is included under gross income and holds no further capital gains tax implications. 

The inter-spouse roll-over relief under paragraph 67 of the Eighth Schedule continues under section 9HA for the deceased person and under section 25 for the surviving spouse, but now includes trading stock. 

Special Advice

When a person, donates an asset during his/her lifetime, subject to the exemptions, this triggers donations tax at 20% plus capital gains tax as a donation is a disposal for the purposes of the Eighth Schedule. Should a person hold onto the asset until the date of death, at the date of death, subject to the deductions and abatement, estate duty is levied at 20% plus capital gains tax as a person is deemed to have disposed of all his/her assets at the date of death. Therefore, both events result in potentially 20% donations tax or estate duty plus capital gains tax. 

Muneer Hassan CA(SA) is a Tax Consultant, Senior Lecturer in Taxation at UJ and lecturer on the Gauteng Board Course 

https://www.accountancysa.org.za/deemed-disposal-at-death/ 

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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Caring for your loved ones by caring for their future

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We’ve all seen it in movies and novels: A young unsuspecting person wakes up one day to find out that they had been left an extraordinarily large estate from a distant relative that they hardly knew existed. We chalk it up to an absurdity. Something like that would never happen in real life, would it?

Although it may seem farfetched, intestate succession happens far more often than one might realise. Statistics from the Master of the High Court in September 2019 showed that 70% of working South Africans do not have a will (or by extension, estate plan). Apart from the emotional distress caused by the death of a beloved, the families of these South Africans are in for a tough time should they pass away.

When somebody over 16 years of age dies, their property will be distributed according to a will or estate plan. If there is no will to speak of, the estate of the deceased is distributed in accordance with the Intestate Succession Act 81 of 1987.

In many respects, intestate succession is a complex and unnecessary complication in the distribution of an estate after death. Although somewhat clear cut regarding who is included in the distribution of the estate, the Intestate Succession Act leaves much of the how of the distribution and transfer of the estate to the inheriting parties.

In the case of intestate succession, the estate of the deceased will be distributed in accordance with a predetermined line of succession, which usually includes their spouse, children and/or parents. Intestate succession can lead to procedures that take time, money and energy, which are luxuries for those who are mourning and settling the estate.

One should keep in mind that the largest part of any estate is often real and private property. Without a plan for the distribution of one’s estate, it means that the physical property of the deceased also becomes part of a plan for distribution, which can take extremely long to settle (since assigning a monetary value to physical assets depends on valuation).

As for the how of the distribution of the estate, it ends up falling on the shoulders of the heirs to the estate to nominate someone to act as executor, failing which an executor is appointed by the Master of the High Court. For this reason, family disputes are a commonplace in intestate succession as the fair distribution of the estate is brought into question.

More often than not, there is very little liquidity in the estate to cover debts and taxes related to the property to be inherited. Since most of the real and private property does not have an immediate monetary value, any possible liquidity in these assets are locked up until the executor makes a decision on how the property is to be managed.

Having a will is one thing, but estate planning goes further than a mere will, in that it gives direction for the management of the estate in preparation for when you die. Where a will only gives an indication of how assets should be distributed, a complete estate plan will give guidance as to how money is made immediately available to those who need it and how investments and financial assets are to be managed.

Issues of custody, settling of debt, the continuation of school fees, and management of digital assets, among many other urgent matters, can also be simplified through a well-developed estate plan.

The purpose of an estate plan, then, is to guide the management of your assets in a way that a will cannot. Good estate planning can speed up the processes that take so long when executing a will and comprises a holistic strategy to ensure that your loved ones are cared for after you die.
In the case of estate planning, the adage holds true: Failure to plan is planning to fail. Don’t leave your dependents in a vulnerable position while they mourn. Instead, give them the best chance to live the life you’ve always hoped for them.

References:

  • Wills Act 7 of 1953
  • Intestate Succession Act 81 of 1987
  • https://www.moneyweb.co.za/financial-advisor-views/no-will-in-place-it-will-have-consequences/

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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What to expect this tax season as an individual taxpayer

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The tax season is swiftly approaching. For many people, it’s a time of the year that they dread. When it comes down to it, tax can become complicated mess that involves a lot of maths and calculations that just doesn’t come naturally to most. For those of us who don’t have PhDs in accounting or mathematics, crunching the numbers and factoring in a variety of different income sources can be tough.

In 2020, the tax season looks quite a bit different from previous years where taxpayers could start filing electronically in July. One of the main reasons for the delayed tax season is the emergence of COVID-19 and the desire to keep as many people as possible from having to submit a tax-return in person, which means that SARS has taken measures to increase electronic means of filing tax-returns. This year, the tax filing season starts on the 1st of September and ends on the 31st of October (for those filing manually in-branch) or the 16th of November (for those using e-filing).

Because of the often-complicated nature of tax, there are a few measures that SARS takes to ease the burden on tax-payers, although some of these measures are not necessarily accurate or act in the best interest of the taxpayer.

This year, for instance, SARS is sending out a large number of auto-assessments, where they assess your tax-data for you and give you the simple option of accepting their assessment or going ahead and filing your tax-return as usual. Notifications of auto-assessments will be sent via SMS, and individuals can then use eFiling or SARS MobiApp to view, edit, or accept the proposed assessment.

For these auto-assessments, SARS only base their evaluation on the data that they have received. This means that if there are outstanding tax certificates or third-party data related to your taxable income, you need to make sure to get all your documents in order as incorrectly reported or undeclared income could make you liable to penalties and interest on outstanding tax amounts. If this is the case you will need to submit your tax-return as per usual.

Conversely, if the assessment does not take into account outstanding documents or other factors that preclude some of your income from being taxable, you should not accept the auto-assessment as you will be losing out. The bottom line here is that before you accept SARS’s auto-assessment you need to make sure the assessment reflects any and all of the aspects that have an impact on your taxable income.

Another measure comes in the form of Pay-As-You-Earn (PAYE), which is the monthly amount that your employer pays as a tax deduction on your behalf, based on your income-tax bracket. It’s nice because it means that you as an individual are covered for the most common tax that comes from earning a salary. The not-so-nice thing about PAYE is that it is a crude calculation and does not factor in the parts of your income that are not taxable, or the different parts of your income that are subject to different tax-levels.

For this reason, some young employed people, earning from only one stream of monthly income are exempt from submitting a tax return, but are losing out in actuality. Most of the time this option will not work in their best interest as they will be freely giving tax on non-taxable income to SARS.

For other taxpaying individuals, they will need to take into account a variety of income streams (including taxable interest, rental income, capital gains, medical aid schemes, retirement annuities, allowances, tax-deductible donations, to name but a few). If you are subject to many of these tax-variables, doing your own tax-return becomes a hassle.

While you could go ahead and piece together the puzzle of your annual individual tax-return on your own, it is advisable to make use of a registered tax practitioner. A tax practitioner will be able to do the complex calculations on your behalf so that you come out of the tax season with your sanity intact. This means you’ll likely have more money in your pocket than if you had blindly accepted an auto-assessment or neglected certain aspects of your tax-calculations.

Reference

  • https://www.sars.gov.za/TaxTypes/PIT/Tax-Season/Pages/default.aspx

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 death of a shareholder: what happens next?

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A shareholder can be defined as a person, whether natural or juristic, who owns shares or stock in a company. A person can be a sole proprietor or owner of 100% of the shares, or a part shareholder where for example they own 30% of the shares. 

But what happens when a shareholder dies? Our attorneys explain the legal process.

Shares are an asset that forms part of an estate

A share is regarded as an asset, and thus forms part of the deceased estate of a shareholder after their death as part of the assets owned by them. The shares owned by the deceased will thus either be administered by the executor of the will in accordance with the Wills Act 7 of 1953 and the deceased’s wishes, or will be administered by the administrator of their deceased estate in accordance with the Intestate Succession Act 81 of 1987 where they have died without leaving a will behind.

Shares can thus be transferred from the deceased estate of a shareholder to their heirs or nearest survivors.

Shareholders can buy out the shares

It is also common practice that the remaining shareholders of a company would buy out the shares of a shareholder after their death by pooling together their resources and acquiring the shares of the deceased amongst themselves equally. The entire share portfolio of the deceased may also be bought out by a single shareholder or person.

The importance of a shareholders agreement

Another option is for the shareholders of a company to enter into a shareholders agreement during their lifetime. A shareholders agreement can be defined as an agreement that is entered into by the shareholders of a company in order to govern the relationship between the respective shareholders and to determine what is to occur with their respective shares in the event of their death or retirement.

This agreement may thus determine what is to happen to the shares of the respective shareholders in the event of their deaths, whether they be transferred to the remaining shareholders or sold to an outside party. Failure to make provision for a shareholders agreement would result in the shares becoming part of the deceased estate of the shareholder.

Shares still exist after the death of a shareholder

Shares therefore continue to exist after the death of a shareholder, and what is to happen to them after the death of a shareholder will be determined either by the shareholder during the subsistence of their life by means of a will or shareholders agreement, or by the administrator of their intestate estate should they die without having a valid will. 

https://www.bizcommunity.com/Article/196/547/205482.html 

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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Managing finances during Covid-19

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Covid-19 walks into the room and leaves many of us breathless, a terrible reality that we cannot simply wish away. One thing is clear, the pandemic has exposed the many cracks within the system and our lives that we believed were working well. 

The phased stages of lockdown and the surge in infections that we are seeing are bringing us closer to realising that things will not return to normal any time soon. As we begin to look for ways to rebuild our economy and try to find ways to repair our finances, planning for the unknown future that awaits us has become pivotal.

Dealing with a moving target

The recent speech that was given by the finance minister Tito Mboweni revealed that we are in for a bumpy ride and we will all have to tighten our seatbelts. At the start of the fiscal year (February), Minister Tito Mboweni announced that they expected the economy to grow by 3.3% in 2020. However, due to the coronavirus pandemic, the global market is now expected to reverse its growth, contracting by 5.2% this year with South Africa expected to feel the pinch at 7.2%.

The unemployment rate has increased to 30.1%, which has resulted in the Unemployment Insurance Fund (UIF) providing R23bn in Covid-19 relief to cover 4.7 million workers that have been affected by the pandemic.

“As the pandemic unfolds it introduces new variables that impact society in extremely interesting ways. As a result, we observe people at either end of the spectrum in terms of their particular feeling on lives vs livelihoods but whatever your stance is, families are currently faced with a tough balancing act of protecting their financial future while at the same time ensuring the health of their family. This, of course, means that many people are dealing with the anxiety of having to take on some personal risk just to ensure that they secure an income during this time,” comments CEO of MiWayLife Craig Baker.

The pandemic has exposed our lack of preparedness to deal with the influx of patients in hospitals, but it also revealed how exposed many people and businesses were to the loss of one or two months of income. For many, the impact of the period will be catastrophic, however, this might not be a once off event and we must adapt based on the lessons that Covid-19 has taught us.

Managing our debt to avoid derailing

The government has moved towards joining forces with the private sector to provide a Covid-19 relief fund within the billions and help keep the economy afloat. Banks have also helped ease the financial strain by providing payment holidays and loans to take care of various expenses.

While these are measures that have been created to ease the financial pinch that many South Africans are feeling, it can easily spiral into unmanageable debt, which is a recurring issue among us. “Being strategic with your finances can see you avoiding unnecessary debt. Much like our country’s budget, many of us spend large portions of our disposable income on settling debt.

“You may have access to lower interest rates, payment holidays and loans to help with various expenses, but it is crucial to consider the financial implications this will have. You must carefully consider what you take on under these conditions and whether you be able to meet the repayments along with the interest or will it create a spiral of debt that will be hard to climb out of,” adds Baker.

How to prepare your finances for the future

Taking care of your finances today can protect your financial future tomorrow. Use some of the lockdown experience to change your spending habits. Carefully assess your needs versus your wants. We may be in the eye of the storm, but it matters now more than ever to work with what we have to make it out on the other side. As many South Africans tighten their belts to focus their spending on necessities, it is important to remain prudent with your finances and to limit your options to those that are financially viable for you.

When it comes to planning for the financial future Baker points out that “constantly adjusting our budgets, personally or in business, to keep up with the current situation is a given. In these uncertain times, cutting back on unnecessary expenses can free up money for products that provide protection our financial futures. You also have the option of speaking to a financial advisor who will be able to assess your situation and give you practical solutions to adapt your finances. But, most importantly, the pandemic has revealed that being adaptable matters more than ever. Assess the situation, see what can be changed and adapt.” 

https://www.bizcommunity.com/Article/196/861/206153.html 

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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Can Sars deduct tax debts from your bank account?

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Section 179 of the Tax Administration Act, 2011 allows the South African Revenue Service (Sars) to issue a notice to a person who holds or owes money, including a pension, salary, wage or other remuneration, for or to a taxpayer, requiring the person to pay the money to Sars in satisfaction of the taxpayer’s outstanding tax debt. 

One of the most effective tax collection tools available to Sars is a third-party payment notice to a taxpayer’s bank. A taxpayer’s bank account is an easy target for a third-party payment as Sars is provided with a taxpayer’s bank details when registering for tax.

In SIP Project Managers (Pty) Ltd v CSARS, the taxpayer brought an application to set aside a third-party notice and further sought an order that it should be refunded the money paid over to Sars by its bank.

An additional assessment was issued to the taxpayer for R1.2 million on 30 September 2019. It was uploaded onto the taxpayers e-filing profile but through no fault of Sars, did not come to the taxpayer’s attention. The taxpayer only became aware of the additional assessment in February 2020 when Sars served a notice on Standard Bank to pay over R1.2 million held in the taxpayer’s account.

Section 179 was amended in 2015 requiring delivery of a final demand to the taxpayer at least 10 business days before the issue of the third-party notice to the bank. The demand must set out the recovery steps that Sars may take if the tax debt is not paid, as well as the available debt relief mechanisms under the Act.

When the taxpayer contacted Sars, they were advised that three letters of demand were sent, on 7 and 11 November 2019 and 22 January 2020, before the notice was issued to the bank. The taxpayer could not find any of these letters on their e-filing profile.

Sars abandoned relying on the letters of 11 November 2019 and 22 January 2020 as one was only a payment reminder and the other was not issued within 10 business days before the bank notice. That left the letter of 7 November 2019 which the taxpayer denied receiving and annexed to its court papers a screenshot of its e-filing profile showing no letter of demand had been issued.

The Court held that it was not enough for Sars to prove the existence of the letters, they must also show they had been delivered. Delivery through the e-filing system was acceptable, but Sars failed to provide any proof of delivery. The Court thus found that there had not been compliance with section 179.

In addition to failing to prove delivery, the demand of 7 November 2019 was premature as the date for payment on the additional assessment was 30 November 2019. The letter was issued before the payment due date and before Sars could demand payment. Therefore, the Court declared the third party notice null and void and ordered Sars to repay the R1.2 million with interest. 

https://www.bizcommunity.com/Article/196/710/205344.html 

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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Estate planning: The role of your executor

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You need to appoint someone with the right set of skills to ensure that the process runs as smoothly as possible. 

Executorship is an onerous position and, given that an estate can take anywhere between six months and several years to wind up, it can also be a time-consuming and laborious job. Understanding the duties and responsibilities of your executor will help you to appoint someone with the right set of skills to ensure that the process runs as smoothly as possible. 

In the event of your passing, your deceased estate automatically comes into existence regardless of whether you die testate or intestate. The winding-up process begins immediately and whoever you have appointed as an executor needs to begin the task of applying for letters of executorship. It is important to bear in mind that if you have nominated a spouse or loved one as your executor, assuming the role of executor while also mourning your passing may be very traumatic. As such, it makes sense to consider appointing an independent person or entity who has experience in deceased estates and who can remain impartial and unemotional through the process. 

The length of the winding-up process largely depends on the size and structure of the deceased estate, but can also be delayed in instances where the deceased died of unnatural causes, where the will is contested, where there are liquidity issues in the estate, or where a surviving spouse or children lodge claims against the estate. The process can also be held up by turnaround times in the Master’s Office, Sars, banks and financial institutions, or where heirs reside overseas. 

The executor’s first job is to meet with the family of the deceased to obtain all necessary information in order to report the estate to the Master’s Office, and this needs to be done within 14 days from the date of death. The death notice must be completed and forwarded to the Master’s Office in the jurisdiction where the deceased lived 12 months prior to his death. Together with the death notice, the executor should include a rough inventory of the deceased’s assets, a copy of the will and an application for a Letter of Executorship. 

If the Master is satisfied with the skill and expertise of the nominated executor, he will issue a Letter of Executorship which effectively gives the executor authority in respect of all matters pertaining to the winding up on the estate which includes opening bank accounts, placing advertisements, paying creditors and selling or transferring assets belonging to the deceased. Any powers of attorney existing at the date of death will automatically fall away. This entire process can take up to three months to complete, and any delays in the appointment of the executor can cause frustration for the family. 

Once appointed, the executor is required to open an estate late bank account and place a Section 29 advert in the local paper and Government Gazette which should appear on the same day. The purpose of this advert is to notify debtors and creditors of the deceased estate, granting them a 30-day period to submit any claims against the estate. 

After the 30-day period has elapsed and all claims have been lodged, it is the executor’s job to prepare a Liquidation and Distribution Account (L&D Account). The L&D Account reflects all the assets and liabilities of the estate and determines its solvency. If there is a will, the executor will use this document to determine how the assets will be distributed. In the absence of a will, the assets will be distributed in accordance with the Intestate Succession Act. Complications can arise, however, where the deceased did not include a clause in his will dealing with the residue of his estate. In such circumstances, the executor will need to distribute any residue of the estate in terms of the laws of intestate succession. 

In addition, complications and delays can also arise where the deceased did not make provision for his surviving spouse or for his minor children to whom he has a duty of support. In these instances, the surviving spouse and/or children will need to lodge a claim against the deceased estate. Further, if the deceased had a maintenance obligation to an ex-spouse that he did not make provision for in his will, this can result in further delays. Such claims can affect the liquidity in the deceased estate which, in turn, can mean that the executor has to realise certain assets in the estate in order to meet its claims and other liabilities. In general, the executor will only realise assets where it is necessary to meet the liabilities in the estate, or where it is more practical – such as where the deceased bequeathed his vehicle to three heirs. 

Any liquidity problems in the estate can result in delays and possibly financial difficulties for the heirs and beneficiaries. The deceased estate is liable for income tax assessment until the date of death, and the executor is required to settle any tax obligations with Sars. In addition, he is required to settle any CGT liabilities and pay over estate duty where applicable. As remuneration for his services, the executor is entitled to 3.5% of the value of the estate, excluding Vat, plus 6% collection commission of any income received by the estate after the death of the deceased. Any complications and/or contestation can also result in prolonged and expensive litigation which can reduce the residue in the estate. 

Once finalised, the L&D Account is lodged with the Master where it is required to lie for 15 days so as to allow for queries. Anything pertaining to the L&D Account can be queried via a query sheet and the executor is obliged to provide answers to the Master. If there are no objections, the Master will grant permission for the account to be advertised. 

At this point, the executor is required to place a Section 35 advert in the local newspaper and the Government Gazette, and the account will lie open for inspection at the Magistrate’s Court for a period of 21 days. This process provides the opportunity for any objections, together with reasons, to be lodged with the Master. If no objections are lodged, the court will issue a ‘certificate of no objection’ and this certificate must then be lodged at the Master’s Office in order to grant the executor the authority to distribute the assets. 

Once he has authority, the executor can begin to distribute the assets in accordance with the L&D Account. Assets such as immoveable property will be transferred into the heirs’ names or, where the property has been realised, the proceeds paid out in accordance with the will. Before any inheritance can be remitted to heirs living abroad, the executor will need to obtain permission from Sars. 

As a final step, the executor is required to provide the Master with proof that the estate has been liquidated in accordance with the will and, as such, must provide the Master with copies of the acquittances, proof that creditors were paid, and that property was duly transferred. Once he is satisfied, the Master will issue a filing slip and formally close the estate. 

https://www.moneyweb.co.za/financial-advisor-views/estate-planning-the-role-of-your-executor/ 

9 June 2020 06:35   /  By  Craig Torr – Crue Invest (Pty) Ltd 

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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Managing your finances after a pay cut

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Strategies to somehow stay afloat facing a dire financial future: Interview with John Manyike from Old Mutual.

NOMPU SIZIBA: The Covid-19 pandemic and associated lockdowns have seen economies the world over suffer great economic hardship, with businesses losing revenue and some staff losing their jobs or having to take a pay cut. This is a nightmare scenario for any household, but the advice being given in the case of having to take a pay cut is that one should not panic. It will be difficult, but it may be possible to adjust if finances are managed properly.

Well, to share some tips with us, I’m joined on the line by John Manyike, the head of financial education at Old Mutual. Thanks very much, John, for joining us. What’s not entirely clear is the sort of quantitative impact that’s been wrought by the Covid-19 lockdown here in South Africa in terms of job losses, and our main topic of discussion today [June 7, 2020] – that of pay cuts. But for breadwinners, who’ve been advised that they’re likely to have to take a 20% or 30% cut in salary, for example, your first piece of advice is that they need to keep calm and not panic. Please explain.

JOHN MANYIKE: I think it’s devastating news – a salary cut. It’s as scary as retrenchment itself. So one can appreciate the fact that we have a lot of working class people, who are literally living from hand to mouth. You can tell because, if they were not paid for one month, for many South Africans it can take months if not years to actually recover from this. So that’s why it’s important, firstly, to do the work on your mindset if something like that were happen. There are certainly a couple things that can be done. And I think there’s [some comfort] one can take from the fact that government has made some announcements about having introduced the Temporary Employer/Employee Relief Scheme.

So then, because you have the Unemployment Insurance Fund, you are encouraged to file your claim against the UIF directly with your employer. You don’t have to go straight to the Department of Labour. You actually sign a claim directly with your employer. In fact, the Department of Labour has encouraged employers to pay their workers, and then claim back against UIF to offset what they have actually paid employees. So that financial relief is the first thing.

NOMPU SIZIBA: Yes.

JOHN MANYIKE: And then of course there’s the issue of having to deal with creditors. But I must say there are different banks, different credit providers, and different terms and conditions that relate to Covid life insurance. There are those that do cover their customers if there is a salary cut, to the extent that they cover that shortfall.

Then others might say well, there is a total loss, but it’s worth trying to enquire what the terms and conditions of your credit life insurance are with your credit provider. This is very, very important because, if you’ve don’t negotiate with your creditors, having enquired if you do have credit life insurance – those are two things to definitely consider, among other things.

NOMPU SIZIBA: I suppose one of the first things that one needs to do – instead of ducking and diving, like you say – is to go directly to the bank and communicate with them and see where [you] can get assistance.

JOHN MANYIKE: Absolutely. The ostrich syndrome is the worst thing that anybody can adopt – just burying your head in the sand, hoping that the trouble will just simply go away. No, you have to proactively speak to your credit provider to explain what the situation is, and possibly even show them the letter from your employer so that some arrangements can be made for you.

But, unfortunately, it will have to come with some uncomfortable decisions to be made, because you have to also appreciate that you may not be able to maintain the same lifestyle, standard of living you had before your salary cut.

And that’s why having a conversation with your family is also important, especially for those who know that they are taking care of their immediate family, as well as their extended family. We do have a lot of that in our country. So it’s important to take your family into your confidence to the extent that you manage their expectations. If there are certain things that you could do before, when you know that you are not going to be able to be going forward, it’s a great way to do that, I must also hasten to add that speaking to your financial advisor is equally important, so look at how you restructure your policies in terms of the covers that you have, including your short-term insurance. These are among other things that I believe would be very, very necessary.

One of my favourite tips that I encourage people to do, because I know people get devastated when they hear they are going lose their job or have a salary cut. But the issue is, [you could] really think long and hard about the possibility of identifying alternative streams of income. I mean, some of us have hobbies, and haven’t even thought of how we can monetise some of those hobbies. But being married to a certain income is not necessarily the solution. It might not work for everyone, but for those who are able to identify alternative streams of income it is definitely worth pursuing.

NOMPU SIZIBA: I suppose what you’re saying is it’s fair enough, but in these days of lockdown, John, it’s quite tough. But then I suppose there is the digital avenue as well.

JOHN MANYIKE:

Absolutely. Every crisis comes with its own opportunities. There are people who never used to manufacture the masks, or what we call PPE today. Now all of a sudden we have lots of people having to produce stuff around what is needed. It’s about identifying a gap, and then actually going for it.

But I don’t think we would have done justice to this topic without mentioning the need to re-prioritise your budget, because it all starts with a budget. You need to make some tough decisions around what stays and what goes. And I think that’s where the game-changer is going to come from.

NOMPU SIZIBA: Give us some ideas. Sometimes it’s difficult to think out of the box.

JOHN MANYIKE: I do believe, depending on the severity of the salary cut, in some instances it might even mean having to downscale, perhaps even the house that you live in. If you’re lucky enough, you might even make a profit out of that house because, with the low interest rates, it might be much easier to find a buyer and rather find something much cheaper – just for you to recover. You will rebuild your life to get back to your glory days. That’s definitely something to look at.

I think the same with a car, if you have to. But even having to change schools for your children. If your children are in a private school and if the conditions dictate that you make some drastic decisions to the extent that you have to move into a public school, so be it.

Those are some of the tough decisions that people have to make. I know that it’s very difficult. I cannot imagine myself living a different lifestyle. But unfortunately we have to respond to what’s happening.

NOMPU SIZIBA: We’ve discussed this before, but it’s also a mindset thing. No one can really afford in these days to be trying to keep up with the Joneses or with the Ndlovus.

JOHN MANYIKE: Absolutely. I think you just have to make peace with it.

You don’t owe anybody an expensive car or an expensive house. You make a decision that suits you and your family for the sake of your wellbeing.

NOMPU SIZIBA: Super. John, we’re going to leave it there. We’ve run out of time, but thank you so much for your insights.

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 rules around returns and refunds during South Africa’s lockdown

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The Consumer Goods and Services Ombudsman (CGSO) says it has received several complaints relating to returns and refunds during the level 4 lockdown.

The ombudsman said that the majority of complaints have centred around clothing, and that some clothing suppliers are not allowing fittings or returns.

“Lockdown-related returns policies must be judged against the very real health concerns regarding the spread of the virus and measures to mitigate this,” said CGSO ombudsman Magauta Mphahlele.

“The CGSO fully understands why suppliers would want to limit the fitting and return of clothing because of the potential of the virus to be spread.

“However, a balance must be struck between the very necessary measures required to minimise the spread of the virus and compliance with the Consumer Protection Act (CPA).”

Mphahlele said that in terms of the CPA, suppliers of goods and services have the right to implement their own returns and refunds policies as long as these do not breach the general right to choose and examine goods provided for in section 18 of the CPA, and the right to return goods provided for in sections 20 and 56 of the CPA.

“At the same time, the pandemic and the resulting lockdown restrictions to curb its spread presents new challenges that are not necessarily fully provided for in current laws,” she said.

“In the absence of clear legal directives, we must find a middle ground that will allow for the management of the spread of the virus and taking care of consumers’ rights.”

Returns and refunds under the lockdown

Mphahlele said that section 20 of the CPA states that if a consumer walks into a clothing store and buys clothing without fitting them, the store is under no legal obligation to accept the return of the clothing as long as the clothing or any other goods are not defective.

“In this instance, the consumer was allowed to exercise the discretion whether to fit or not so the suppliers cannot be held liable if the clothes do not fit or the consumer changes their mind for any other reason,” she said.

“However, where the supplier specifically prohibits fitting then there would be a possible contravention of the CPA as section 18 of the CPA accords the consumer the right to choose and examine goods displayed for sale to ensure that they are fit for purpose.”

Where the consumer was accorded the right to choose and examine goods and the goods are not defective, suppliers can set their own refunds and returns policies, she said,

“Currently for change of mind returns – eg clothes not fitting etc – some suppliers would require that clothing be returned within a specific number of days, with the price tag attached and a receipt. Some will have a no returns and refunds policy.

“These types of policies fall outside the ambit of the CPA and are entirely up to suppliers.”

Mphahlele noted that fitting, returns and refunds are not allowed for some items where public regulation prohibits such.

In terms of section 20(3)(a) of the CPA, the consumer has no right of return if, for reasons of public health, a public regulation prohibits the return of those goods, she said.

“While there are valid public health concerns regarding the spread of the virus, the CGSO is of the view that it may be possible to mitigate this risk by allowing fitting and returns under strict health conditions to accord the consumer the right to ensure that the clothes are fit for purpose and minimise the need for clothes to be returned.

“Without allowing consumers to fit, it is difficult to see how a no-return policy can be justified, even under lockdown.”

Online purchases

When purchasing through online platforms, Mphahlele said that it is important to note that the provisions of the CPA and the Electronic Communications and Transactions Act (ECT).

Section 44 of the ECT, as well as section 18(3) of the CPA, require goods that are bought on the basis of a sample or a description to fit the sample and description when delivered.

If not, the consumer has a right of return and refund,Mphahlele said.

“At the same time, section 44 of the ECT Act allows the right to return goods without reason within 7 days of receipt of the goods. To minimise disputes, it is important that consumers are well informed about any new lockdown return and refund policies.

“The FAQs on websites and other online platforms should be updated to cover these new policies.

“The new policies should also be prominently displayed in-store and on other platforms so that consumers can make informed decisions prior to purchasing.”

Mphahlele said that clear directives on the safe handling of goods to minimise the spread of the virus should be communicated including any measures that the suppliers will implement to disinfect returned clothing.

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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