Know your digital copyright from wrong

In February 2018, Google made a distinctive change to their image search engine. Where previously you were able to open an image file directly from a search result, that option was removed. Naturally, this frustrated a lot of users as there was now an additional step to saving images found through the engine.

Google wasn’t out to troll search users, however. The reasoning behind the change was singular: to add a layer of protection to the copyright holders of the images in Google’s database. Many people had simply been saving image files from the search engine and were using them quite liberally without concern for the copyrights they held.

For those holding the image rights, the illegal use of their intellectual property is a commonplace issue. According to a study done by Copytrack, there are about 3 billion images uploaded to the internet daily, of which about 85% are copyright infringements. Most of these infringements are written off as inconsequential. Although an unfortunate reality, these infringements are often too trivial to prosecute because of the tedious and costly processes that it involves. However, as soon as copyrighted images are used for anything that can collect revenue (directly or indirectly), the terrain becomes a lot rockier. Copyright holders can sue for damages or losses derived from illegal use of their intellectual property.

The danger of legal action against unlicensed use of copyrighted images should be taken seriously as damages can escalate rapidly. Say for instance you own a linen shop and use a copyrighted image to print on a duvet cover without permission or licensing. Each item sold is a further infringement on the rights of the original owner and increases your liability.

Even if you aren’t using the image for something you can sell or profit directly from, damages and losses could also be derived from web-traffic to a news article or for the advertising revenue from the webpage that holds the copyrighted image. The problem with copyright lawsuits is that putting a price on creativity is an extremely difficult task. However, considering that stock image giant Getty asks $499 for a single large image, it becomes clear that intellectual property can demand very high prices.

It may seem a bit exorbitant to charge such high prices for image rights, but there are a wide range of considerations that go into the creation of images. This can include equipment, editing, travel and access costs, and model agency fees. The rarity and uniqueness of an image can also increase its exclusivity and value.

For businesses and companies that do not have the budget to pay for images, a lawsuit over copyright infringement can be crippling. The reality, unfortunately, is that high-quality, unique images are expensive. However, this doesn’t mean that you need to break the bank to buy a camera and hire a photographer. There are many images on the internet that can be used freely without the stress of copyright infringement. Many of these licenses are part of the Creative Commons (CC). Images under CC licenses are less restrictive than those gleaned from a stock image provider or images that rely on royalties.

Of all the Creative Commons licenses, the CC0 license is given to images where the creator has relinquished their rights to the image and has submitted it to the public domain. Images in the public domain are free to use for all kinds of purposes and can be altered as seen fit. The same copyright principles apply to music and video. To combat infringements of this kind, YouTube has implemented Content ID on its platform. YouTube’s Content ID database houses a myriad of visuals and audio recordings against which all newly posted videos are tested for copyright infringements. When a similarity is found, YouTube alerts the copyright holder to the infringement. And images, music, and video are but a few instances where copyright should be respected. The range of works covered under copyright law in South Africa includes literary works, musical works, artistic works, cinematograph films, sound recordings, broadcasts, programme-carrying signals, published editions, and computer programs.

Therefore, if you are in an industry that relies on the use and distribution of intellectual property, it may be a good idea to seek professional advice from an expert in Copyright and Intellectual Property Law. With legal expertise, you can chart the safest way forward as you navigate around the landmines of the digital world.

Reference list:

  • Copytrack Global Infringement Report, 2019.
  • https://www.gettyimages.com/plans-and-pricing
  • https://creativecommons.org/about/cclicenses/
  • Copyright Act No. 98 of 1978

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Sectional title schemes: A developer’s obligations

A developer who wishes to establish a sectional title scheme on a piece of land where there is an existing building, has certain statutory obligations should the building be wholly or partially let for residential purposes. This is not applicable to commercial leases. The Sectional Titles Act 95 of 1986, (the Act), as amended, requires the developer to submit a draft sectional plan to the Surveyor-General for approval. However, before the plans can be submitted, the developer has to comply with Section 4(3) of the Act.

This section imposes a duty of notification on the developer. Every lessee of the proposed sectional title scheme building has to receive a notice, in writing, by way of a letter delivered either personally or by registered post. This letter has to give notice of a meeting to be held at least 14 days after the delivery or dispatch of the letter, at the building or at a location within a reasonable distance of the building. It should convey the fact that the developer intends to be available to provide such particulars of the relevant scheme as they may reasonably require, and furthermore provide information regarding the lessees’ rights as contemplated in Section 10 of the Act. The developer is also required to provide a certificate of prescribed particulars relating to the scheme with the letter. The particulars are peremptory and briefly-stated, include the following:

  • The name of the scheme.
  • The description and extent of the land upon which the building is situated.
  • The full names and address of the developer.
  • The title deed number of the land.
  • The number and description of units in the scheme.
  • The number of garages and parking places provided for.
  • A land surveyor or engineer’s report in respect of the general physical condition of the building, specifically if there are any defects in the building.
  • A specified estimate of the annual expenditure in respect of the repair, upkeep, control, management and administration of the common property, payment of rates and taxes and other local authority charges, the charges for the supply of electricity, water, sanitation and other services, insurance premiums, all other costs recovered in respect of the common property which are normally recovered from the owners of units.

The developer has to confirm that the meeting has been held as provided for unless all the lessees have, in writing, stated that they are aware of their rights and they do not wish to purchase the proposed units which they occupy. Section 10 of the Act essentially provides a lessee with a right of pre-emption, restricting the developer to first offer the occupied unit to the lessee who was entitled to receive the notice letter. Should the developer act to the contrary and offer the lease to another party, that contract will be void.

The lessee has 90 days from the receipt of the offer to purchase in which to accept or refuse the offer. Should the offer be refused, the developer may not within a period of 180 days from the refusal by the lessee sell the unit to any other person for a lower price without first offering it to the lessee. The lessee then has 60 days in which to accept or refuse the new offer. During these periods (i.e. from the date of the notification letter and subsequent offers to purchase), the developer may not, subject to the lessee occupying the unit and complying with the conditions of the lease, require the lessee to vacate the premises or increase the rent payable (unless the lease agreement makes provision for such an increase during these periods).

The Act provides that a developer, or any person who has performed partially or fully in terms of a void contract, shall have a claim against the other party to the extent of such performances. The developer can, in addition, claim reasonable compensation for the use of the unit and claim compensation for any damages caused by the person thereto. The other party may claim interest on any payment made from date of payment, as well as reasonable compensation for any expenses incurred by him or any improvements subject to conditions and compensation for damages or loss which he would have been entitled to claim from the developer on the grounds of breach of contract, had the contract not been void.

Finally, the Act imposes criminal sanctions on a non-compliant developer, imposing either a fine of R2,000.00 or imprisonment not exceeding 12 months or to both.

It is clear that the legislature intends to protect and secure a lessee’s rights by imposing an obligation of notice of the proposed development and by granting an obligatory statutory right of pre-emption in favour of the lessee by the developer. The intention to protect a lessee’s common law rights, as found in the maxim “huur gaat voor koop”, is thus clear.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Keep your business and brand safe on the road

The delivery industry is currently booming. After a period of dormancy, when the nationwide lockdown first came into effect, companies were allowed to start trading all goods again (apart from cigarettes and alcohol) from the 15th of May 2020. And since then the restriction on the sale of alcohol has been lifted as well.

Apart from the police vehicles on every stretch of road, courier vehicles have been one of the perpetual presences on South African roads since the lockdown started. Delivery drivers have often been seen working until late to complete their delivery quota.

For the health-wary, delivery is one of the safest ways to purchase a variety of goods while decreasing exposure to the general public. However, with increased demand for delivered goods, a new strain has been placed on courier services, delivery services and local businesses alike.

With this increased strain, there might be a temptation to renege on necessary protocols and road traffic laws in order to get more done and reach more customers. From exceeding the speed limit to skipping routine vehicle inspections, failure to comply with the National Road Traffic Act or the National Road Traffic Regulations could lead to a series of problems that go beyond legal prosecution.

Currently, South Africa finds itself in a tricky situation regarding traffic laws and the prosecution of offences since the Administrative Adjudication of Road Traffic Offences (AARTO) Amendment Bill was approved by President Cyril Ramaphosa in September 2019 but is yet to be implemented. At the end of 2019, Transport minister Fikile Mbalula expressed the intention to implement the Bill by June 2020, although it seems that due to the COVID-19 pandemic, the timeline for implementation has been extended.

Once implemented, however, AARTO will introduce a demerit system for drivers, with some drastic consequences for violating traffic laws. Multiple slip-ups can easily tally up and result in a suspension of driver’s licenses, and shedding demerit points is a long process.
It is advisable to educate drivers with regard to how violations of traffic law could be penalised once AARTO comes into full effect in the second half of the year. Until then, some general rules must apply to delivery services during the phased exit from lockdown measures.

More deliveries often means less time to complete deliveries on any single day. For this reason, one might consider increasing speed and neglecting some road laws to get it all done in time. However, it begs no repeating to say that for a delivery vehicle on the road for extended periods of the day, continuous transgressions of the speed limit are a bad idea. Speeding fines range from R250 to R 1500 and may lead to a court summoning, depending on the degree of violation. These kinds of fines will mean that the profitability of your delivery service decreases drastically.

Furthermore, courier and delivery services carry their brand image with them wherever they go. This means that observable traffic law violations can cause harm to an entire brand’s image, even if they are not legally prosecuted or penalised.

Making sure that your vehicles are roadworthy at all times and maintaining your vehicles can also mean saving a lot of trouble down the line. The maintenance costs involved in keeping vehicles in top condition may seem like a compromisable expenditure in the short-term. However, the opportunity costs should a vehicle become unavailable for any amount of time might seriously endanger your company or business.

Any breakdown in the process of delivering goods to customers can also lead to dissatisfaction and harm to a company’s image. Delays and miscommunications regarding delivery times can come across as unprofessional and give customers reason to make use of another business for their delivery needs instead.

Increased police activity on the roads during the COVID-19 lockdown also means that your documents and papers have to be in order and always ready for inspection. Failure to show documents permitting travel, in a worst-case-scenario, might even lead to arrest.

While delivery services and the delivery of goods are resulting in great economic returns during this time, the delivery industry is coming under increased scrutiny by those enforcing traffic and transport laws. Compliance with traffic regulations, as well as transport/travel restrictions during the COVID-19 pandemic is essential in making sure you stay strong as a business during this turbulent economic time.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Reference list

  • Government Gazette, Vol. 659, No. 43321, 14 May 2020.
  • National Road Traffic Act, 1996.
  • National Road Traffic Regulations, 1999.
  • AARTO Regulations, 2008.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Let the legacy live on

The desire of being an entrepreneur naturally comes with you wanting your business to be successful and remain that way. When transferring business power through succession from your generation to the next poses some risk but it can be successful if done properly.

Creating a successful succession allows a business to continuously thrive despite who steers the management or owns it. Older employees will expect the same loyalty, security and stability they have been receiving, and newer employees will expect growth opportunities, equity and transparency pertaining to their roles. If conditions decrease following succession, a decrease in the workforce would follow suit.

  1. Just as with any department in the company, a succession management team must be in place to train the next leader and structure the management that will follow. This team should also include people who know the company’s objectives and goals so that they are continued, despite who is in power.
  2. The transfer of power must be timed so that the transition is smoother, and the successor is welcomed by the responsibility that will follow. This could be a few months before the owner retires, or, in the case where the prospective successor already has a key role in the company, years.
  3. Although the existing roles may be clear among management, an ownership structure will ensure that these roles are not neglected or changed for the sole benefit of a successor. This structure will outline how each owner will benefit, be compensated and how much ownership they have in the company.

Before transferring the power of your company, make sure you feel confident about your chosen successor, that the company is financially stable to ensure a smooth transition, whether you will continue to be involved in the company in any way, and whether a contingency plan is in place should hiccups occur.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Understanding the full community of property

In the case of CM v EM it was held in the Supreme Court of Appeal of South Africa (“SCA”), case number 10861/2018, that:

“The value of the Respondent’s right to future annuity payments in respect of Personal Portfolio Living Annuities (“the living annuities”) from Glacier Financial Solutions (Pty) Ltd, a member of the Sanlam Group, is an asset in his estate for purposes of calculating the accrual of his estate”.

Prior to the judgement, a party to a divorce held no claim in regard to the other party’s living annuities.

The court, in reaching its decision, referred to the case of De Kock v Jackson and another 1999 (4) SA 346, where it was concluded that there was no logical or legal reason why both the cash component and the accrued right to the pension should not form part of the community of property existing between the parties prior to the divorce.

The court’s reasoning behind the decision was that the Respondent in this matter had a clear right to the investment returns yielded by his capital reinvestment with Sanlam, in the form of future annuity income which he draws from the agreement. The court, therefore, found that such annuity income is an asset which can be calculated for purposes of determining the accrual.

The brief background to the matter was the following: The parties married in December 1999, out of community of property and subject to the accrual system as defined in the Matrimonial Property Act 88 of 1984. In July 2008, the Respondent used a portion of his pension benefit, which arose from his employment, to purchase a Personal Living Portfolio Living Annuity from Glacier Financial Solutions. In March 2017, he used the remainder of the proceeds of his pension benefit to make another purchase with Glacier.

In all future divorce proceedings, in the absence of an agreement between the parties, an expert will have to be appointed to determine the value of a party’s right to receive future payments in respect of the living annuities. The SCA has not provided a guideline as to how the calculation should be done and this could lead to further litigation, as currently, an annuitant may elect to drawdown at any rate between 2.5 or 17.5 per cent per annum.

Should there not be a history of contested percentages drawdown over a period of time, I am of the opinion that an average percentage of plus-minus 8 per cent will be used to determine the value of future payments.

Reference List:

  • CM v EM (1086/2018) [2020] ZASCA 48.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

How doubt can be an invaluable business asset

Before the digital age, information used to be scarce and came at a cost as print was the best way of sharing information non-verbally. With the rise of digital technology, sharing information came more easily and has become inexpensive (when there is a cost at all), meaning anyone can take advantage of digital media. Because of the ease by which information can be shared online, we now find ourselves bombarded by emails, notifications, pop-ups, links, and attachments wherever we go.

Within organisations, this bombardment of information can pose some security threats. The fast pace at which we receive information limits our ability to judge the quality and trustworthiness of the things we encounter online. Nowhere is this clearer than in the way that fake news can spread like wildfire. And the ones taking the greatest advantage of this inability to effectively judge information are cybercriminals.
Cybercriminals thrive on the urgency and threat that may be evoked through tinkered language choices. These criminals take advantage of fear and greed and depend on their victims to act before they have a chance to properly evaluate the validity and trustworthiness of digital information.

A good anti-virus program and email service provider will be able to filter out most cyberattacks as it analyses patterns and does a lot of the hard work for us. Unfortunately, though, cybercriminals are extremely inventive and regularly come up with new ways to bypass existing systems, leading to a constant back-and-forth between cybercriminals and cybersecurity companies.

Moreover, targeted attacks mostly go undetected by security software as they do not follow formulaic and general cyber-attack patterns. Because of the fluid nature of these attacks, gearing management and employees for every individual one is impossible. Therefore, some general practices are required to minimise susceptibility to cyberattacks.

The best common practice is applying a willingness to doubt all digital information. A willingness to doubt can serve to increase your cybersecurity and protects against targeted cyberattacks that pose as immediate threats.  In the digital economy, cybercrimes are often initiated through a false threat or promise that demands immediate action. The best safeguard against cyberattacks is to test information no matter the level of urgency it might demand.

For organisations, this means to be willing to doubt the information you and your employees encounter in the digital realm. A willingness to doubt serves to counteract the instinct to resolve issues immediately without complete information and helps guard against cyberattacks that may hurt your organisation.

Malicious attacks in the form of notifications, pop-ups, links, and emails abound in the online world. And while many of these attacks are done on mass-scale as a hit-and-miss approach, organisations are more vulnerable as they are just as susceptible to these attacks with the added threat of targeted attacks. This means that organisations need to be geared and informed about how these attacks appear in reality.

Cyberattacks rely on the sending and receiving of information and demand action on the part of the potential victim. Naturally, there are many instances that will not require a test of information. A simple thank you message on a running email thread by a colleague probably doesn’t require careful attention (although a quick “You’re welcome” would be a nice gesture). But urgent communication that asks you to download/execute a file, asks for sensitive information, asks for a transfer of funds, provides a strange link/prompt, must be placed under scrutiny at some level.

Cyberattacks also usually come up as unexpected events. If a request seems out of the ordinary, it should trigger an element of doubt. Common unexpected prompts relate to things like the discovery of a virus, the compromisation of an account, a request for immediate fund transfers with little explanation, exclusive and lucrative offers, or a ‘routine’ request to update personal information.

Cybercriminals are smart, and targeted cyberattacks are done with meticulous research and often contain personal information that can fool the unsuspecting victim into believing that the prompt is trustworthy. Therefore, it is always important to check and cross-reference sources.
For email, the first thing that should be investigated is the sender. Phishing attacks often appear as legitimate and use familiar-looking addresses and visual imagery such as logos to deceive users into thinking that it is legitimate. Inspect the sender addresses for misspellings and unusual symbols. Cross-checking the unusual emails with previous correspondence to see if the addresses match, is also a good idea. The same applies to other messaging services.

For pop-ups and notifications, see if the message originates from the expected place. For instance, a message saying a virus has been detected on your computer that originates from anywhere other than your anti-virus software probably contains malicious software or is an attempt to trick you into sharing sensitive information.

Always be suspicious of any shortened link or links with unverifiable/unknown origin. If unsure, rather try entering a trusted URL manually or contact the relevant party directly via a known and trusted channel to verify the information, links or emails you have received. Clicking on the wrong links, pop-ups or notifications, can easily lead to malware and virus intrusions.

Treat any pop-up or notification that originates from unknown sources with distrust, and always choose to reject rather than accept these alerts. Also, reject any prompts to allow access to system components (like your mic or webcam) or that asks for remote access to any of your applications unless you clearly and knowingly initiated the action that led to the prompt.

Treating all these kinds of digital prompts with suspicion can help you dodge a range of bullets (such as phishing, malware, virus, and spam attacks) that protect you and your organisation. Training your staff on some basic principles of the verification of information can only serve to increase your corporate security framework.

Reference list:

  • https://digitalguardian.com/blog/phishing-attack-prevention-how-identify-avoid-phishing-scams
  • https://www.forbes.com/sites/forbestechcouncil/2019/01/07/phishing-why-we-should-teach-employees-to-be-skeptics/

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Fringe benefits and retirement funds

Binding Class Rulings (BCR) are issued in response to applications by a specific class of taxpayers (usually persons that will have the same tax consequences apply to them from a transaction) and clarifies how the Commissioner for SARS would interpret and apply the provisions of the tax laws relating to a specific proposed transaction.

BCR 068 determines the very technical consequences of transferring surplus retirement fund assets between funds and allocating assets from employer surplus accounts to retirement fund member accounts of members. Employers that are part of retirement funds should take note of the ruling and consult where necessary.

The ruling considers sections 1(1) (specific definitions in the “gross income” definition), 11F and paragraph 2(l) of the Seventh Schedule of the Income Tax Act (dealing with taxable fringe benefits).

The Parties to the ruling

  • The Applicants are resident companies who are participating employers to the Co-applicants.
  • Co-applicant 1 is a defined benefit pension fund.
  • Co-applicant 2 is a defined contribution pension fund.
  • Co-applicant 3 is a defined contribution provident fund.
  • The class members are all qualifying members of the co-applicants, former employees or dependents of deceased employees.

Transactions which the members of the class propose to enter into

Since the class members are entitled to, and the applicants are liable to fund their post-retirement medical aid benefits, the applicants, with agreement by the class, wish to eliminate this liability towards members by:

  • Allocating assets in the employer surplus account of co-applicant 1, to the retirement accounts of the class members of co-applicant 1.
  • Transferring a portion of the assets of the employer surplus account of 1 to those of co-applicants 2 and 3.
  • Allocating assets in the employer surplus account of co-applicants 2 and 3 to class member retirement accounts of these co-applicants.

Essentially, the applicants aimed to move surplus assets between the different funds without incurring tax costs, to the benefit of employees.

The Ruling

Contributions by the applicant to the co-applicant will constitute a fringe benefit and will be deducted by the class members in determining their taxable incomes. This would have been the case in any event and is not a contentious finding.

However, when the application transfer assets from the employer surplus accounts of co-applicant 1, to co-applicant 2 and 3, and lump sum allocations from the co-applicants to the member’s respective retirement accounts, no tax costs will arise, and specifically:

  • Not constitute a taxable fringe benefit for the class members.
  • Constitute an amount received by or accrued to class members subject to tax.
  • Be deductible by class members when determining taxable income.

Class members will still be taxed on payments to them by co-applicants which constitute gross income, income or taxable income, irrespective of whether these are payments as a result of regular contributions, or surplus amounts allocated to class members.

This ruling is a very pragmatic approach to the re-distribution of surplus assets within retirement funds.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Managing your startup capital

Becoming an entrepreneur is not as easy as waking up with an idea and having money thrown at you to turn it into a reality. Most successful entrepreneurs share the same sentiments – it takes many rejections and disappointments, and plenty of restarts. There are two things this article will explore; how to get startup capital, and how to manage it.

  1. How to get the startup capital
    Your drive to become an entrepreneur should not be derived from wanting to have exactly what another entrepreneur has achieved. By virtue of your business idea being different, an opportunity to succeed already exists. Think carefully and seriously about your creative ideas to assess which ones present the most viable options. When you know what will work, approach investors.

    Investors are willing to consider investing startup capital to get your idea into the already competitive market and growing your customer base as quickly as possible. They want to see that their investment is going into the practical ways of making things happen.

  2. How to manage it
    Now that the capital for your business is available to you, your return on your idea’s marketing budget should now be approximated. Think realistically when it comes to overheads, advertising and personnel as these areas should not be where all your capital goes. The two important things that ensure that you appear more credible are the idea development and the launch thereof.
  • Ensure that you are able to track your expenditure so that your capital does not collapse.
  • Let your startup capital be for business purposes and don’t let personal problems dip into it
  • Learn to use a cloud accounting system to avoid possible accounting errors, and to balance your books

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Capital gains tax on death

Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.

This deeming provision does not apply to the following circumstances:

  • Assets of, or for the benefit of the deceased’s surviving spouse.
  • An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
  • In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

  • The deceased person is to file a return covering taxes up until the date of death.
  • Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
  • Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

Putting your saved money to good use during a recession

On the 5th of March, South Africa confirmed its first coronavirus case and less than a month later, the country had already completed a full week under lockdown. In this month, consumer spending took a big knock as by the first few days of the lockdown, consumer spending fell to a low of 28% for the same period in 2019.

The drop in consumer spending came as the coronavirus pandemic closed entire sectors of the economy, caused widespread panic, and led to an increase in unemployment unlike the country had ever seen before. From these indicators, it is clear that consumer spending will stay unstable for quite some time. And since the start of the lockdown, consumer spending has remained low. At the start of May, the World Economic Forum predicted that for the first two weeks of the month, consumer spending would still decrease on all economic fronts apart from essential groceries and home entertainment.

Furthermore, estimates from the IMF in April’s World Economic Outlook projected South Africa’s GDP growth for 2020 to be -5.8%, with many other countries also showing a negative GDP projection. However, all attempts to predict what might happen to the economy by the end of the year will seem like wild guesses until the economy stabilises somewhat.

This worrisome GDP projection for South Africa followed on what was already a recession, as the last two quarters of 2019 showed negative growth. The continued recession means that consumer spending will be down for a long time. However, it does not necessarily mean that everyone is equally affected by the weak economy.

Those who have not been as adversely affected, are finding themselves in positions where previous expenses no longer exist. This means that some even find themselves saving money during the pandemic. This is not the norm, at least not in South Africa. Other countries, although showing similar trends in the decline of consumer spending, have put their saved money to good use. Households in the UK, for instance, have repaid a collective £7,4 billion in credit debt during the month of April.

It should be kept in mind, however, that consumer spending is only a reflection of the wider economy. It does not directly impact consumers as much as the factors that cause it. Yet for those who have been able to retain their jobs, salaries, and assets, it does mean fewer opportunities for spending and provides an opportunity to make good use of the money saved.

For instance, with repo rates being cut to aid the economy, it means that you save money with your monthly bond repayments to your bank over the same period. Even though it may be tempting to spend the money saved, it may very well be put to good use in continuing to repay the instalments as if no change occurred. In this way, you pay off your debts quicker in the long run.

Repo rate cuts are meant to lead to increased borrowing and to encourage consumer spending, which is especially necessary for the economy in a time such as the pandemic and helps keep the economy from crashing beyond reasonable repair. But if there is no need to borrow money or spend, it is better to hold on to the money saved. If you are working from home, the money you save from your daily commute could also make a big difference to your financial outlook in the long run. The same goes for money saved on entertainment and dining costs, leisure activities, and vacations. If you save money while the economy is struggling, it is best put to use by repaying debts with a variable interest rate.

If you have no debts that require attention, instead of spending the money saved on things that will depreciate in value, or ordering from Uber Eats every other day, it may be a lot better to invest in the long-term. This is because long-term investments will also pay a lot more dividends once the economy starts returning to normal levels of growth and interest rates inevitably go up again.  So even though the effects of COVID-19 have caused the economy to shrink, for those who are not directly impacted, it does present an opportunity for personal financial flourishing. Swimming upstream against consumer spending trends means that every cent saved is an investment to be made.

Reference list

  • https://www.bankservafrica.com/blog/post/what-our-data-tells-us-about-consumer-spend-during-the-coronavirus-era1
  • https://www.weforum.org/agenda/2020/05/coronavirus-covid19-consumers-shopping-goods-economics-industry
  • World Economic Outlook, IMF, April 2020
    https://www.bankofengland.co.uk/statistics/money-and-credit/2020/april-2020

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 adviser for specific and detailed advice. Errors and omissions excepted (E&OE).