Why the POPI Act matters

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The right to privacy is enshrined in Section 14 of South Africa’s Constitution and we understand it to be a vital human right. It states:

“Everyone has the right to privacy, which includes the right not to have –

(a) their person or home searched;

(b) their property searched;

(c) their possessions seized;

(d) the privacy of their communications infringed.”

It’s the last part of the abovementioned list that is becoming a growing concern. All around the world more and more focus is being placed on protecting private information as countries and governments are setting new laws to ensure the safety of their citizen’s information online.

In an age where information is growing at an exponential rate, no digital exchange of information can be left unprotected. For this reason, the Protection of Personal Information (POPI) Act comes into full effect from the 1st of July 2021.

Non-compliance could carry hefty fines, but as with most regulatory pieces of legislation, compliance is more than just a box to tick. Let’s consider why personal information should be protected:

  1. It builds confidentiality

Protection of data is very much a protection of the information that people hold as important. By capturing, storing, and processing personal information, you are essentially guaranteeing the confidentiality of your transactions with the other party.

Confidentiality is built upon when you can guarantee that none other than you yourself are able to access and process the information you store. Having a secure database stored with good encryption on your servers is a good way to keep to the promise of security you give to your customers/clients.

  1. It ensures the integrity of information

In a similar vein, data protection ensures that data remains accurate and integrous. Your customers/clients need to be sure that all their data is current and accurate, and that no manipulation of the data can take place.

Furthermore, to ensure the integrity of information, the data needs to be frequently backed up while remaining synchronous (i.e. whenever a change is made that change must reflect in the backup in as little time as possible).

Safeguards can also be put in place to ensure that no data is duplicated or stolen.

  1. It leads to trust

With regard to information storage and access, trust is built when your data subjects know that their data will always be available when and where they need it. Readily available data and the ability to request changes to the data with little to no delay are ways to build trust and assure data subjects that you are handling their data ethically.

At the end of the day, how you handle information is a question of ethics. What the POPI Act brings is a sense of relief in a modern age that there will be repercussions for the mismanagement of data and that there is greater regulation of data management.

Soon the everyday consumer will have a lot more protection against unwanted marketing and unethical data practices — practices that have been allowed to go on for too long. For those who are still lagging behind, the time is ticking and failure to become fully POPI Act compliant could hold serious consequences. Make sure to get your matters in order before 1 July 2021.

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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Professional accountants’ responsibility to act in the public interest during Covid-19

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5 March 2020 was a momentous day in that it marked the day where the first Covid-19 case was reported in South Africa. The year that followed was arguably one of the most difficult in our lifetime, with South Africa and the rest of the world facing numerous challenges across all facets of life, writes Jeanne Viljoen, Saica project director for ethics and practice.

Covid-19 might be synonymous with a respiratory disease but for the financial world, Covid-19 is marked by unprecedented financial challenges including disruption in the usual control environment, disruption in and even lost production, financial distress and loss of personnel. These challenges result in elevated risk; be it business risk, audit risk or even risk of ethical compliance.

A distinguishing mark of the accounting profession is its acceptance of the responsibility to act in the public interest; a responsibility that is heightened during these challenging times. Being honest, competent and objective are virtues a professional accountant is expected to demonstrate. Saica has prescribed the Code of Professional Conduct (the Saica Code) to guide its members in carrying out their responsibility to act in the public interest in a professional manner.

The Saica Code is founded on a set of fundamental principles, reflecting the profession’s recognition of its public interest responsibility. These principles establish the standard of behaviour expected of a professional accountant. The fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behavior and are expanded on below:

  • Integrity, being straightforward and honest in all professional and business relationships.
  • Objectivity, not to compromise professional or business judgements because of bias, conflict, or undue influences.
  • Professional competence and due care, by maintaining professional knowledge and skill at the level to ensure professional service, based on technical and professional standards and relevant legislation.
  • Confidentiality, required because of professional and business relationships; and
  • Professional behavior, by complying with laws and regulations and by avoiding any conduct that might discredit the profession.

Not only does the Saica Code establish the five fundamental principles but it also establishes a conceptual framework to identify, evaluate and address threats to ensure compliance with the fundamental principles. Depending on the role and professional activities of a professional accountant, the global pandemic could have created new threats to compliance with the fundamental principles or impact on previous threats identified. Professional accountants must thus be flexible, alert, sceptical and apply professional judgement to ensure continued compliance with the fundamental principles is achieved.

The Saica Code is aligned to the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) (the IESBA Code). To support professional accountants to act in the public interest and navigate the challenging playing field Covid-19 has created, the IESBA and other international professional bodies have issued support guidance papers to assist. This includes the IESBA Staff Questions and Answers – Covid-19: Ethics and Independence Considerations, issued at the start of the global pandemic aimed at guiding professional accountants navigate ethical dilemmas that they encounter during the pandemic.

No doubt, Covid-19 necessitated rapid expansion of government’s financial interventions. These actions involved important choices in pursuit of policies combining public health, economic and social goals. Key guidance addressing ethical and auditing implications arising from government-backed Covid-19 business support schemes was issued jointly by the IESBA, the Financial Reporting Council (FRC) and the International Federation of Accountants (IFAC) in the paper titled Ethical and auditing implications arising from government backed Covid-19 business support schemes.

Covid-19 heightened the risk of fraud and illicit activities, creating opportunities for money laundering, terrorist financing and cybercrimes. In response to this, the Independent Regulatory Board for Auditors (the IRBA), IESBA and the International Auditing and Assurance Standards Board (the IAASB) issued a staff alert titled Navigating the heightened risks of fraud and other illicit activities during the Covid-19 environment, which highlights the heightened risk of fraud arising from the disruptive and uncertain Covid-19 environment. The staff of Chartered Professional Accountants of Canada (CPA Canada) also partnered with the IESBA in jointly releasing a staff alert titled Covid-19 and evolving risks for money laundering, terrorist financing and cybercrime aimed at creating awareness among professional accountants of the changing risks beyond the obvious health and economic challenges of Covid-19.

Other guidance that is available includes Applying the Code’s Conceptual Framework in Covid-19 circumstances: Scenarios in taxation and valuation services and Using specialists in the Covid-19 environment.

What the next 12 months hold is unknown, with uncertainty around if and/or when a ‘third wave’ will hit and the impact that the vaccine will have. The only certainty is that the challenging times will continue in 2021. Professional accountants whether serving as a member of a board, member of an audit committee, organisational leader, preparer of financial information or financial statements or an auditor play a critical role in the financial reporting ecosystem. It is a professional accountant’s responsibility to play their part in ensuring that fair and reliable financial reporting and disclosures are issued to the public.

With this, it is important to remember that as professional accountants we have a responsibility to act in the public interest, with the Saica Code as the ultimate guide in helping us to navigate these uncertain times.

About Saica

The South African Institute of Chartered Accountants (Saica), South Africa’s pre-eminent accountancy body, is widely recognised as one of the world’s leading accounting institutes. The Institute provides a wide range of support services to more than 50 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

Chartered accountants are highly valued for their versatile skill set and creative lateral thinking, that’s why all of the top 100 global brands employ chartered accountants.

https://www.bizcommunity.com/Article/196/511/213957.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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Get organised by putting these essential documents in place

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It is never too late to become better organised.

One of the best ways to become better organised is to put life’s most essential documents in place. No one really wants to think about serious illness or death. While you may not want to think about these things at the start of a new year, going without planning can be problematic on many levels. If you want to make sure that your loved ones and your assets are secure, it is time to get better prepared by having those essential documents in place.

Consider having these three documents prepared and signed:

Last Will and Testament

You really meant to get around to updating your Will after your wedding… the birth of your child… your divorce… your big move…but you just haven’t found the time. The right time is now!

A Will is the only method by which you can ensure that your assets, including items of monetary and/or sentimental value, are properly protected and distributed in accordance with your wishes. A Will can have a great influence on the well-being of the persons that you care about, and when you draft a Will you ensure that they will be looked after when you are no longer there for them.

Ensure that your Last Will and Testament leaves a legacy of love and not a deluge of destruction. Your Will should be a practical document in simple language which records your intentions and is easy to understand and execute.

Living Will

A Living Will is a document regarding healthcare at the end of your life. It states that any treatment that would otherwise lengthen your life should be withheld in specific circumstances, such as being in a permanent vegetative state, irreversibly unconscious or terminally ill.

Through a Living Will, you express the desire to die a natural death, free from having your life extended artificially using life support in any form such as a life support machine, tube feeding, or medication. In other words, by way of a Living Will, you tell your family and your doctor that you do not consent to being kept alive artificially.

A Living Will provides peace of mind as it enables you to express your choice of medical care should you be unable to communicate. A Living Will can also assist in settling disagreements amongst family members and medical professionals regarding appropriate treatment.

Power of Attorney

Power of attorney is one of those phrases that you hear quite often, and there can be some very real implications for a person that signs it over. Understanding exactly what a Power of Attorney is, and how it can affect you after certain life events, is very important.

A Power of attorney is essentially a notice by way of which one person, known as a Principal, appoints and authorises another person, known as an Agent, to act on their behalf and make decisions for them. This can be for specific matters (Special Power of Attorney) or for all matters (General Power of Attorney).

A Power of Attorney is a valuable tool when you are absent or become too frail to physically sign documents.

These are a few suggestions to help you get administratively organised. It is all about peace of mind and knowing that your loved ones are cared for and aren’t put in a position to make difficult decisions. Having these documents in place might be one of the final acts of love you show your family.

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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Auditing your tax compliance profile

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Taxpayers who make use of the South African Revenue Service’s (SARS) electronic filing system (or as it is generally known, eFiling) will know that, in addition to containing a history of income returns, value-added tax, pay-as-you-earn, etc., a significant amount of personal and company data is stored on the platform. This includes information such as banking details, a person’s physical address, email addresses, and relevant contact persons for companies. Although the system can reportedly handle up to 150 000 returns per day during individual tax filing season, electronic filing usage is far below other countries such as the United States, where more than 90% of returns are filed electronically.

The purpose of SARS’s access to personal and company information is predominantly to ensure that they can adequately discharge their role and responsibility in administering the tax system. In fact, the Tax Administration Act goes so far as to criminalise taxpayer failure to update their information with SARS when it has changed.

Ensuring that your details are up to date with SARS is also in your best interest. For example, when a taxpayer enters into a dispute process with SARS, eFiling is an important channel through which official communication can be delivered to a taxpayer in terms of the dispute resolution rules. If the information captured on eFiling is incorrect (such as an incorrect email address), SARS would have good grounds to argue in court that they have discharged their duties and acted within the ambit of the law when delivering documents to addresses as available on eFiling. Taxpayers could, therefore, find themselves in a situation where they were supposed to receive information, but based on incorrect details, in fact, never did, and thus forgo a potential remedy to their dilemma in the process.

In a proper review of your eFiling status, one also often finds that there are small, historical matters that have not been attended to, such as small amounts of interest accrued on overdue taxes and returns that have been filed at a branch office, which shows as “not submitted” on eFiling. These small matters result in taxpayers carrying a “non-compliant” tax status with SARS. It is, therefore, good practice to appeal to your tax practitioner to request a tax compliance status profile annually to ensure that all administrative matters have been dealt with, and to request that your tax practitioner ensure that all relevant contact details are captured accurately on the system – especially if they at some stage have taken over your tax filing from either yourself or another tax practitioner.

“Auditing” your own tax and eFiling profile with SARS is one of those matters that should be attended to as part of your annual tax filing commitments and could potentially save much frustration on costs down the line.

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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How the VAT Act affects employee cost recoveries

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Companies are often faced with the dilemma where employees are employed in one group entity, but another group entity pays the salaries of those employees. This is often a challenge brought on by practical reasons, amongst others, only managing one payroll system group-wide, instead of a separate payroll system for each company. The payor company then re-charges the salary costs of those employees to the relevant group company. One is often confronted with the question of what the value-added tax (VAT) consequences of the fee recovery are.

The Value-added Tax Act (VAT Act) imposes VAT on the supply of goods and services by any vendor made in the course or furtherance of the vendor’s VAT enterprise. Therefore, if a company supplies services in the form of employee-related recoveries, it would be liable to account for output VAT in respect of the supply of those services, if those services form part of its enterprise.

“Supply” includes performance in terms of a sale, rental agreement, instalment credit agreement, and all other forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where the supply is affected. The broad construction of this expression means that most transactions subject to VAT will fall within the scope of this particular provision. “Services” are considered anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage.

The VAT Act furthermore determines that where any vendor makes a taxable supply of goods or services to an agent who is acting on behalf of another person who is the principal for the purposes of the supply, the supply is deemed to be made to the principal.

The relevant issue to consider in these circumstances is the employment relationship. Does a company incur the employee costs as principal and then “on-charge” the costs to other group entities? Or, in the alternative, can the company be said to be an administrator, or so-called paymaster, for purposes of the payroll function? Therefore, how is the employment relationship defined? What is the substance of the employment relationship?

Suppose the employees are employed by company X (i.e. the contracts of employment are between the employees and company X). In that case, company X will be regarded as the principal recipient of the services supplied by the employees. Any recovery or on-charge of costs relating to such employees to another company will, under these circumstances, represent a charge for the supply of taxable services (the supply of the services of the employees) and will accordingly be subject to VAT.

On the other hand, where company X merely acts as the paymaster for the group, the respective employees will supply the services to the other group company as the principal recipient of the services. Under these circumstances, company X will be acting in the capacity of a paymaster Compare this, for example, to a situation where a company does not have a bank account and cannot practically pay its employees – an administrative arrangement will have to be made for that company’s employees to be paid.

Importantly, any additional fee charged to a company, by company X, for payroll administration services (i.e. not a mere recovery of the employment costs) will constitute consideration for a taxable supply and be subject to VAT (which we understand is sot currently the case).

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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Is a voucher still the perfect gift?

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On 12 January 2021, the Gauteng High Court delivered judgement in the matter of MTN (Pty) Ltd v CSARS (79960/2019) [2021], in respect of a declaratory order that MTN sought to confirm their interpretation of the VAT treatment of certain airtime vouchers. The VAT Act distinguishes between two types of vouchers – those that can be used for unknown goods and services at the time of issue (consider, for example, a retail shopping voucher); and those vouchers that can be spent on specific goods and services (in other words, not able to be used for goods and services other than those specified).

Although the VAT consequences of the issue of the vouchers ultimately are the same, the matter becomes relevant for the time at which output tax should be paid in respect of the transaction. Section 10(18) of the VAT Act deals with general vouchers, whilst section 10(19) deals with vouchers for specified goods or services. In the case of general vouchers, the VAT output liability is delayed until such a time that the voucher has been exchanged or redeemed for goods or services – this is the case since, at the time of issue of the voucher, it is unsure what those goods or services might entail. For example, a grocery voucher that could be spent on either standard-rated items or zero-rated fresh produce. In the case of vouchers for specified goods or services, the types of goods or services are already known at the point in time when the voucher is issued, and at which time the output tax is levied. In both instances, output tax is levied on the value of the voucher – but in the former situation, the timing can be significantly delayed, depending on how long the voucher is valid for.

MTN requested the court to confirm their treatment of “airtime vouchers” which can be spent on SMSs, data, or cell phone calls; and indeed, that it constituted a general voucher as opposed to a specified voucher. The court did not agree with MTN’s interpretation and indicated that the vouchers are indeed specified since it related to “airtime”. MTN would therefore accordingly be liable for output tax at the point in time when such vouchers are issued. Unfortunately, the court did not provide sufficient insights into their reasoning and the judgement has received substantial criticism from those in the industry.

 We expect this judgement to go on appeal in 2021 as it could have a significant impact on any vendors who issue vouchers to the general public.

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 legislative amendments: How does it work?

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As we approach the (expected) 24 February 2021 Budget Address by Finance Minister, Tito Mboweni, it is useful to consider how the proposed tax amendments raised during the Budget Speech eventually become law. As a starting point, it is important to remember that the South African Revenue Service (SARS) does not make tax law. In South Africa, Parliament is responsible for the law-making process and promulgation of acts by the President. Of course, SARS has a role to play in the legislative process since they are ultimately the tax law administrators. Still, the prerogative and responsibility of those laws remain that of Parliament.

Over the last several years, the annual tax legislative amendment cycle takes approximately ten months – this is rather frustrating for taxpayers as it essentially only provides two months’ worth of transactional certainty before the next amendment cycle starts. Not all those tax amendments are delivered as part of the Minister’s Budget Speech – the more detailed tax amendments are included in Annexure C to the budget. This document outlines the board issue/problem faced by the fiscus and usually indicates that an amendment of some sort can be expected, in respect of that particular matter.

At this stage, taxpayers merely expect that provisions of the Act might be amended. During June/July, following the Budget Speech, the draft taxation amendment bill and draft explanatory memorandum on that bill is released by National Treasury. Thereafter, the public is afforded approximately four to six weeks to make representations to National Treasury, providing their inputs and commentary on the proposed amendments. A series of workshops are held in Parliament to address the draft amendments, as well as the public comment that has been received. These consultations are followed by a discussion document where the outcomes and suggestions from the public are either incorporated in the draft bill, or reasons are provided for not accepting the inputs of the public.

The aforementioned process plays out over several months, and the “final” bills are usually released toward the end of November or early in December of a particular calendar year. This does not mean that the amendments are law yet – the amendments only become law once the President has promulgated the bill which, lately, has occurred late in January the following year – only about four to six weeks before the next Budget Speech – at which stage we would have come full circle.

Because the process is so inclusive and participation from the public and practitioners alike are necessary, one understands the lengthy process. That notwithstanding, the short window of transactional certainty is a stumbling block in activity.

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 lies ahead for SA’s budget?

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On 24 February 2021, Finance Minister Tito Mboweni will deliver the annual budget address shortly on the heels of the State of the Nation Address a week earlier by President Cyril Ramaphosa. Given the expected R700 billion budget shortfall for the current cycle, Minister Mboweni will be forced to make some drastic decisions around taxation. We consider some of the potential areas that he might look to below.

Wealth Taxes

For many years, there have been discussions around imposing a wealth tax in South Africa on a certain income bracket. Commentators have recently indicated that should such a wealth tax be imposed on persons with a net asset value higher than R3.2 million, the fiscus could expect as much as R56 billion to be recovered. Many people consider wealth taxes to be a double tax since South African tax residents are already subject to capital gains tax on the disposal of assets, as well as estate duty. Accordingly, there will be severe push-back from the already over-taxed higher income bracket. The imposition of such a wealth tax might also be premature, since the basis on which it is done as well as the collection mechanisms have not been considered in detail, which could lead to an administrative nightmare. Therefore, our view is that wealth taxes are currently not on the cards for 2021.

Increasing the VAT Rate

VAT is a consumption tax. With a subdued economy and many sectors of the said economy currently unable to fully operate, an increase in the VAT rate is unlikely to contribute significantly to the fiscus in the current year. There will also be considerable push-back from Unions and the general public should there be an increase in VAT rates, and we do not see this as a source of government revenue for 2021.

Limitation of Losses and Interest Deduction Restrictions

Both these matters were already highlighted during the previous Budget and Legislative Amendment Cycle. Presumably, since National Treasury had many other complex issues to deal with during 2020 (including COVID-19 relief mechanisms), these items did not receive the attention they should have during 2020. In our view, both these matters will result in legislative amendments in 2021.

Increase in CGT Rate

It is unlikely that an increase in the inclusion rate of capital gains tax (CGT) will contribute significantly to the fiscus — as such, we do not foresee any increases in this regard.

Solidarity Levy/Tax

In 1994, South African taxpayers were subject to a once-off transitional levy to accommodate for the increased expenditure from the changeover to a democratic country. Not since 1994 have we had another single event that has led to such a substantial outflow from the fiscus as has been the case with COVID-19. Although the implementation mechanisms and expected revenues from such a solidarity tax or once-off levy is uncertain, we would not be surprised at all come 24 February 2021 to see such a levy to accommodate for the budget shortfall.

The 2021 Budget Address will likely be the most challenging in South Africa’s recorded history, given the considerable budget shortfall that we face and the current subdued global economy. We wish Minister Mboweni and his colleagues at National Treasury all the best in their preparation for a very difficult task.

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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Taxpayers: Know your rights!

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Since the introduction of the Tax Administration Act in 2011, which aimed to consolidate most of the administrative matters in tax acts, taxpayers have become ever more aware of their rights in dealing with the South African Revenue Service (SARS). There has also been a significant increase in the number of cases in the Tax Court (as well as in our High Courts) that relate not to substantive tax matters, but rather to the exercise of taxpayers’ rights. We briefly highlight below some of the rights that taxpayers have in terms of the Tax Administration Act, and which they may wish to enforce at some stage.

  • You are entitled to receive reasons for any assessment that SARS raises and any taxes it imposes. Therefore, SARS is not allowed to simply raise assessments without giving you (when called on in terms of the dispute resolution rules) a full understanding of their justification and their interpretation of the law, which underlies the specific matter.
  • SARS is not allowed to appoint a third party to deduct money from your account (for example, a bank) without providing you with the proper notice at least ten days in advance, as well as providing you with remedies to address the matter.
  • SARS is not entitled to divulge your information (except as required by law) to any third parties.
  • Provided that your returns were free of material deficiencies, SARS must pay interest on delayed VAT refunds. This is a matter that is often overlooked in practice since taxpayers are all too happy to receive the actual VAT amount – do not forget about your interest!
  • SARS must provide you with a tax clearance certificate within 21 business days after the submission of an application. More and more institutions require the issuance of tax clearance certificates for general business purposes.

Although taxpayers have many rights afforded to them, one often finds a practical challenge in exercising those rights. The legislation provides for relief in certain circumstances but does not prescribe a form and manner in which taxpayers must utilise that relief (for example, an application for a reduced assessment where there has been an undisputed factual error). Although the law provides for relief, the Act does not prescribe how that relief must be exercised.

This is one of the clear shortcomings within our system of tax administration and one hopes that in due course, National Treasury and the Minister of Finance will identify these fallibilities as a systemic issue within the administration of our tax system, in order to approach the Tax Ombud to make recommendations on how taxpayers can exercise their rights afforded to them daily.

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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Emigrated and selling your house? Beware of withholding taxes

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Many South Africans who simultaneously emigrate and cease to be South African tax residents are faced with a situation where the sale of a fixed property has not been finalised by the time they cease to be tax residents. This may result in the unintended consequence of them becoming a non-resident seller of immovable property in South Africa.

In terms of South African tax laws, any purchaser who must pay any amount exceeding R2 million to any other person who is not a resident (or to any other person for, or on behalf of, that seller), is required to withhold an amount equal to 7,5% of the amount payable if the seller is a natural person (known as a withholding tax). This is mandated in respect of the disposal by the seller of any immovable property in the Republic. The withholding mechanism essentially acts as pre-payment in respect of any capital gains tax exposure in South Africa. A purchaser is personally liable if they know or should reasonably have known that the seller is a non-resident, which is often the case in scenarios such as described above. If the amount is in fact withheld, the purchaser must pay the amount to SARS before or on the date on which payment would have been made.

If an estate agent or conveyancer has assisted in the disposal of property, a purchaser will not be held personally liable if they were not notified of the seller’s non-resident status by that estate agent or conveyancer. If an estate agent or conveyancer should reasonably have known that the seller is a non-resident and fails to notify the purchaser, the failing estate agent or conveyancer is jointly and severally liable for the payment of the amount which the purchaser is required to withhold and pay to the Commissioner. Yet, this amount is limited to the sum of remuneration or other payment in respect of the services rendered in connection with the disposal of immovable property by the seller, or the registration of transfer, whichever applies.

An application may, however, be made for a directive that no amount be reduced or withheld by the purchaser if the actual liability of the seller in respect of tax, at the time of the disposal of the immovable property, is less than the amount arrived at by applying the percentage of 7,5%. To request a tax directive for a lower or zero rate of tax to be withheld, the seller must complete an NR03 form and submit it together with the offer to purchase, tax calculation and supporting documentation to nres@sars.gov.za or use one of the other submission methods described on the form.

South African taxpayers who plan on emigrating should actively manage this process to ensure that properties are disposed of before ceasing tax residency or ensure that they adhere to the requirements of withholding taxes.

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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