Nwanda internal news

  • Finder’s Fee Reward
    If you refer a friend and the friend is employed by Nwanda you will receive
    R5 000 after 3 months!
  • Available positions – trainees on all levels & seniors (post articles – limited availability)
    They must supply the following to Zanele (zanelem@nwanda.co.za):

    • CV;
    • Matric certificate;
    • Academic transcripts;
    • ID document.
  • New employees:
    We are delighted to announce the appointment of the following staff:

    • Carmen Risk (Tax Compliance Officer)
    • Nicole Pretorius (Trainee Accountant)
    • Zanele Mathabela (HR Assistance)
  • Maternity leave
    We hereby wish our Office Manager Annelize van Zyl the best as she welcomes a new addition to her family.  She will be on Maternity leave from
    3 June 2013 to 30 September 2013.

    Please contact Zanele with any HR related queries (zanelem@nwanda.co.za).

  • Tax & Legislation Update Seminar | 13 May 2013
    We would like to thank all our clients whom attended our Annual Tax & Legislation Seminar held at St Andrews School for Girls.  To our staff, thank you for all your hard work, without your assistance this would not have been such a success!  Please download the slides from our website.

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Duty to disclose even if you do not claim from your Insurer

image5bInsurance to most people is a grudge purchase. We buy it and pay our monthly premiums and then forget about it until we want to claim. We get sold policies where, if we do not claim, we get a later benefit. Ever wonder about losses that you suffer and do not claim for and what effect it has on your policy?

In the recent unreported judgment of Sherwin Jerrier v Outsurance Insurance Company Limited the Pietermaritzburg High Court was faced with such a question. Mr. Jerrier claimed for damages to his car that he suffered in an accident on 8 January 2010.The insured(Mr. Jerrier) previously took out a policy in December 2008. He did not report a loss that he suffered during April 2009, after inception of his policy, to his insurer. This claim amounted to over R200 000.00 and attracted further third party liability.

The specific policy as most, if not all policies, provided that “you need to….inform us immediately of any changes to your circumstances that may influence whether we give you cover, the conditions of cover or premium we charge….. this includes incidents for which you do not want to claim but which may result in a claim in the future”.

As with most of our household policies, these are monthly policies, and we continuously need to make disclosure of things, such as losses, when we move to a new house etc. and inform the insurer of this. The court in this instance found that the reasonable man would have concluded that the previous losses would be indicative of a change in his circumstances, from a claims history perspective and also from a moral risk perspective. The Court found that the insurer was correct in not accepting liability for the loss suffered in January 2010.

In short, even if you do not claim, let your insurer rather know of a loss or a potential claim. Anything that may be deemed influence the risk or would indicate a change is circumstances, such as moving to a new property, need to be disclosed to the insurer. This is not unreasonable to be expected from us.

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

Administrative non-compliance – and understatement penalties

image1bIn his latest budget speech the minister clearly stated that Treasury is finding itself in a challenging period, with revenues lower than expected by R16,3 billion compared with estimates at the time of the 2012 budget.

From the above it is clear that Treasury will use every endeavour to increase the collection of taxes including administrative- and understatement penalties.

We as taxpayers have felt over the past years the effect of penalties being imposed on almost any non-compliance. For the fiscal year 2012 SARS has collected over R1 billion rand from imposing the abovementioned penalties.

What is this non-compliance penalties?

In a short guide to the Tax Administrative Act, 2011 (“TA Act”) SARS explains the administrative non-compliance penalties as follows.

Introduction and purpose

The principal goal of sanctions in the form of administrative penalties is based on a simple promise – the threat of punishment deters unwanted behavior (i.e. non-compliance and tax evasion).

For sanctions in the form of administrative penalties to be effective the following is fundamental:

  • Administrative penalties must be easily understood by taxpayers
  • Certainty of being penalized must exist in the mind of the taxpayer
  • A discretionary judgment in imposing penalties must only be required where non-compliance is based on negligence or intent.

The non-compliance levies consist of two types of penalties:

  • Fixed amount penalties
    A fixed amount penalty will be imposed when a taxpayer does not comply with an obligation that is legally required from a taxpayer.
    The amount of the penalty will increase automatically for each month that the taxpayer fails to remedy the non-compliance.

Table of fixed amount penalties.table1

Percentage based penalties

The percentage based penalties are imposed if SARS is satisfied that an amount of tax was not paid as and when required under a Tax Act.

Examples when the percentage-based penalty will be imposed

table2

Understatement Penalties:
An understatement penalty may only be imposed if the fiscus is prejudiced by the Taxpayers’ conduct in reporting i.e.:

  • Filed a return
  • Filed a return but omitted an item from the return
  • Filed a return in which an incorrect statement was made

Table for understatement penaltiestable3

Taxpayers be aware of non-compliance, SARS is ready to penalize you.

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

Budget 2013/14 Highlights

image2bMany commentators believed that this year’s Budget presented the Minister of Finance with the toughest conditions and very little space to manoeuvre since the 1997’s.

He was faced with balancing the country’s slowing growth rates and decreasing fiscal revenue with an ever increased demand on public spending.

Not surprisingly, the focus areas in the Budget Speech by our Minister of Finance remained on the protection and enhancement of the tax base, tax incentives for the development of business, and tax avoidance.

We set out below a summary of the most prominent changes:

Personal Taxes

With a sigh of relief for the high-end earners, the widely expected increase in the personal income tax rate from a maximum rate of 40% to the anticipated 42%/43% did not materialize.

The lower to middle- income earners have received relief in the increase of the primary, secondary (applicable to persons 65 years and older) and tertiary (applicable to persons 75 years or older) rebates and the tax thresholds have been adjusted as follows:

Rebates

  • Primary rebate: Increased from R11 440 – R12 080
  • Secondary rebate: Increased from R6 390 – R6 750
  • Tertiary Rebate: Increased from R2 130 – R2 250

Tax Thresholds

  • Below age of 65 years: R63 556 – R67 111
  • Age 65 years to below 75 years: R99 056 – R104 611
  • Age 75 years and over: R110 889 – R117 111

The Capital Gains tax rate was also not affected and remained the same at an inclusion rate of 33.33% for individuals, resulting in a maximum effective rate of 13.33%.

The tax free interest allowance earned from a South African source by any natural person under the age of 65 years, has been increased from R22 800 to R23 800 per annum, and persons 65 years and older, has increased from R33 000 to R34 500 per annum. This will most likely remain constant in the years to come, given the introduction of the savings and investment initiatives.

Monthly tax credits for medical scheme contributions will be increased from R230 to R242 for the first two beneficiaries and from R154 to R162 for each additional beneficiary, with effect from 1 March 2013.

As to retirement, the tax treatment of pension, provident and retirement annuity funds will be simplified and harmonized allowing provident fund members to receive a tax deduction on their own contributions. More competition is promoted by allowing providers other than life officers to sell living annuities.

From an effective date on or after 2015 (called “T-day” in Treasury’s Retirement Reform Proposals for further consultation dated 27 February 2013), employer contributions to retirement funds on behalf of an employee will become a fringe benefit in the hands of the employees for tax purposes, and the overall permissible deductible contribution rate will be pegged at 27.5% of the greater of remuneration and taxable income, to which an annual cap on deductible contributions of R350 000 will apply. This will apply to all individuals regardless of age.

Last year’s budget introduced the idea of savings and investment initiatives for individuals to encourage the nation to save – we can expect these tax preferred savings and investment vehicles to be introduced from April 2015. This savings account will have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, which will be increased regularly in line with inflation.

The estate duty rate has remained unchanged at a rate of 20% on the value of an estate exceeding R3.5 million.

Donations tax has also remained unchanged at a rate of 20% and the exempt amount for donations tax purposes remained R100 000 per annum per individual.

Dividends Withholding tax has remained unchanged at a rate of 15%.

Companies:

The Income tax rate applicable to companies remains unchanged at 28%. The inclusion rate for capital gains tax purposes also remain unchanged at a rate of 66.67%, with an effective rate of 18.66%.

A special dispensation is proposed to ensure uniform tax treatment with regards to employment share schemes, which are in certain circumstances used as a tool to lower overall tax rates for executives and other high- income earners, and schemes that are used for lower income earners but which sometimes result in double-taxation for them.

Trusts:

The comments that the Minister made with regards to trusts, especially the proposals around the so-called new tax regime has created an overnight uproar rooted in uncertainty as to the future of trusts. It is important to note that these are merely proposals at this stage and that the legislation underpinning these proposals and implementation thereof are still to be enacted. The new legislation will be made available for public comment prior to implementation. It is important to bear in mind that the taxation of trusts are to be reviewed, which does not mean that their benefits will be erased in a single action by Treasury.

It is our view that trusts created for legitimate estate planning purposes will remain a powerful estate planning vehicle – the very core of the trust mechanism is and was never the evasion of tax, but the protection of assets.

Exchange Control:

In line with expectations, there was no further relaxation in Exchange Control Regulations for individuals or trusts. This is in light of the previous significant concessions that we have seen in 2010 and 2011.

Voluntary Disclosure Program:

The permanent voluntary disclosure program which came into effect from 1 October 2012 remains intact and taxpayers can still make use of this program to regularise their tax affairs.

VAT:

As expected, VAT rates remained the same.

Transfer Duty:

As anticipated, transfer duty rates remained unchanged.

Sin taxes:

An increase in the excise duties on alcohol products and tobacco products of between 5.7% and 10% was announced.

Gambling taxes:

A national gambling tax was proposed in 2011. The legislation regulating this will be implemented towards the end of 2013 and tax will apply at a rate of 1% on the gross gambling revenue in addition to provincial rates.

PBO’s:

Previously donations made to Section 18A approved charitable institutions were limited to 10% of taxable income in the year of donation and any excess amount could not be carried forward. According to Government this discourages large donations which can be detrimental to the upliftment of the South African social community in need of these donations. It is therefore proposed that donations in excess of 10% of taxable income can now be rolled over as allowable deductions in subsequent years.

Fuel levies:

We will see an overall increase of 23 cents per liter in fuel levies from effect 3 April 2013, which includes 8 cents per liter for the Road Accident Fund Levy.

International

Taxpayers with foreign income:

South African residents are generally subject to worldwide tax, except for income arising from services rendered abroad and where a person spends 183 days or more in any 12 month period outside South Africa. The proposals seem to suggest that income from such services should be brought into the South African worldwide tax net, but subject to appropriate tax credits, especially if a South African employer is involved.

Taxpayers with foreign pensions:

Many South African residents who are working or have worked abroad and foreign residents working in South Africa regularly contribute to local and foreign pension funds, which gives rise to a variety of tax issues. In most instances foreign pensions paid to South African residents are exempt from South African taxation in terms of established legislation, however many issues remain unclear and even the most recent legislation governing foreign pensions are not totally clear.

Given that an overall retirement reform is in place, the fact that cross-border pension issues will also be addressed is welcomed. This will hopefully give more clarity as to whether the source of taxation should be where the services were rendered in relation to the pension income, or where the pension fund making the payment is located. In addition, the reform will also address the existing anomalies in relation to annuity payments and lump sum payments. It is very encouraging that a wide public consultation process will be followed on these issues given its complexity.

Aggressive tax planning, tax avoidance and erosion of the tax base:

Companies that have their base of operations in SA but appear to have shifted a large proportion of their profits to low tax jurisdictions where only a few people are employed, will come under severe scrutiny by SARS. SARS is aggressively pursuing schemes identified under the revised general anti- avoidance rules and have done their homework and now have various tax information sharing and exchange agreements in place to track transactions through multiple jurisdictions and entities.

Base erosion and profit shifting were identified as major problems and South Africa is participating in the Organisation for Economic Cooperation and Development’s (“OECD”) work in this area. South Africa has committed to assist in countering abusive tax avoidance, as well as the abuse of tax treaty benefits, incomplete disclosure and fraudulent claims and will continue with efforts to put a stop to aggressive tax planning, base erosion and profit shifting.

Although comments have been made that anomalies will be removed in the current Controlled Foreign Company regime, the above would seem to indicate that these rules would equally be strengthened or new rules introduced to combat tax leakage where the current rules, especially the use of Foreign Business Establishments, are abused. This seems to be emphasised by the following extract from the Budget Speech:-

“The South African Revenue Services is currently engaging with companies that have their base of operations in SA but appear to have shifted a large proportion of their profits to low tax jurisdictions where only a few people are employed. This is unacceptable!”

Offshore trusts and foundations:

Offshore trusts were also identified in line with local trusts and the comments made regarding the review of the taxation of trusts would equally apply to offshore trusts.

Offshore foundations have received special attention and any distributions made by offshore foundations would be treated as ordinary income in future.

Conclusion:

Although most taxpayers will give a sigh of relief, those who are non-compliant or lurking in the dark, should take note as the shortfall may very well come from your pocket. Now more than ever, specialist advice is no longer a luxury but a necessity!

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

Durban High Court “like” service via Facebook

image3b

Facebook can be described as a social network that provides people with the opportunity to connect and communicate with friends, family, acquaintances, colleagues, and even strangers, around the world.

The success and popularity of this social network is not in question when looking at their  more than 9 billion users, of which 900 million check or update their account at least once a month.

Despite the general criticism against South African courts for being sceptical and sometimes slow to accommodate developments of this kind, widespread controversy occurred when a Durban High Court judge, Judge Ester Steyn, welcomed the service of a court process on the defendant`s Facebook social network page.

This urgent ex parte judgement followed after the defendant’s attorney of record withdrew in the matter of CMC Woodworking machinery (pty) ltd vs Pieter Odendaal kitchens and failed to provide the plaintiff`s attorneys with an alternative address where notice to the counterparties could be served. At this stage of the process, pleadings had already been exchanged on both sides and the parties awaited the allocation of a trial date. Needless to say, the plaintiff`s attorneys were in the position where they had no alternative address to serve the court documents on the defendant. All subsequent attempts to contact the defendant in accordance with the rules of court, proved unsuccessful. Consequently, the plaintiff (applicant) brought an urgent application for substituted service on the defendant`s personal Facebook page.

In view of the application, Judge Steyn placed a great deal of emphasis on the recent amendment to the Uniform Court Rules, and more specifically Rule 4A in which provisions of the Electronic Communication Act 25 of 2005 were incorporated. This rule allows litigants to serve courtdocuments by e-mail or fax and was specifically created to ensure that the court processes are brought to the attention of the relevant party.

Furthermore, these rules make provision for the appropriate procedure to be followed in the event of unsuccessful service in the ordinary course of business. This process is called substituted service. The party who seeks to serve the court document must apply to the court for substituted service and only after the court is satisfied that the particular method of service will be adequate and that the traditional methods of service were not effective , will a court grant leave for this type of service.

The judges in the courts will take the following into consideration:

  • Nature and extent of the claim
  • Grounds upon which the claim is based
  • Grounds upon which the court has jurisdiction
  • Method of service
  • Last known location
  • That the applicant has tried the usual methods and has tried to locate the respondent without success

Although Facebook is primarily used as a social network, according to Judge Steyn it is fair to draw the conclusion that this particular network is used for other useful functions such as tracking individuals as well as to obtain essential information. Judge Steyn emphasized that each application must be decided on its own merits and on the type of document that needs to be served on the party concerned.

Leave was accordingly granted to the applicant for substituted service using a personal Facebook message. In addition, to promote legal certainty, the judge ordered that the notice be published in a local newspaper should the defendant, for some reason, not have access to any electronic communication devices.

Service using a social media website like Facebook has a number of advantages. Many Facebook users probably spend more time on Facebook than reading a newspaper. A notification via Facebook is therefore more targeted and would be more likely to reach a person’s attention than an ad in the legal classifieds.

This order is widely described as a ground-breaking judgement in South-Africa, and Facebook users can click “like” with satisfaction.

NOTE TO ATTORNEYS:
See- CMC Woodworking Machinery (Pty) Ltd v Pieter Odendaal Kitchens (6846/2006) [2012] ZAKZDHC 44; 2012 (5) SA 604 (KZD) (3 August 2012)

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

Family Business Stories

image4bFamily businesses are considered to be among the most important contributors to wealth and employment in virtually every country of the world.

About 98% of businesses in South Africa are small to medium businesses, of which a majority are family businesses.

  1. James and Sarah have been avoiding each other like the plague for more than a week now. Sarah joined her husband James a year ago in his construction business as the accountant. They have been locked in battle since day one: About who must do what, how much time she can take off for home and children, finances, staff etc. There was an incident in front of the staff in which she threw his cell phone at him and he kicked a hole in the door and then disappeared for two days. The business is suffering because they don’t talk, postpone decisions and nobody supervises the staff.
  2. The van der Merwes have a farming family business consisting of a father and two sons. The eldest son joined the business directly after school but the youngest went to college first.  He got married and joined the business a year ago. The father still manages the business and pays the sons the same salary. The eldest brother’s wife is very unhappy with this. She feels her husband slaved for many years while his brother had a ‘jol’ at college. Now he gets the same salary! On top of this the business is paying to renovate the youngest son and his wife’s house on the farm. Daughter-in-law one has been asking for a long time now to have an extra bathroom added to their house. The excuse is every time: ‘There is no money’. Mother has added her bit by dropping a hint that she does not see the need for an extra bathroom- they have coped with one bathroom in their house for more than 30 years. The family did not get together last month for the youngest grandchild’s birthday and the father and sons have held no management meetings in the last two months.
  3. The Smith family business is a third generation engineering works. It was started by the grandfather and continued by his only son. When he died his two sons and daughter inherited the business. The sons are active in the business, following in their grandfather and father’s footsteps. The daughter lives in Canada and quarterly receives her share of the profit. The business is suffering in the current economic climate and struggles to make ends meet. The brothers asked their sister to take a much smaller share as she does not work in the business. She refused and the family is now involved in a legal wrangle at great cost in terms of money, time, and energy spent on the business.

A family business can be defined as a business where a single family owns at least 51% of the equity of the business; where a single family is able to exercise considerable influence in the business; and where at least two family members are concerned with the senior management of the business.

The dilemma is that between two-thirds and three-quarters of family businesses either collapse or are sold during the first generation’s time. Only 5-15% make it to the third generation. Some international research shows that only one out of 10 family businesses make it to the second generation. Other research shows that only one in four family businesses in South Africa survive into the second generation, while only one in 10 make it to the third generation.

Family businesses differ from other types of business. The non-family business is only focussed on the interest of the business. Family businesses are about the interest of the business AND the interest of the family. And this is where difficulties and conflict develop, as seen in the three family business stories at the beginning of this article. Conflict develops in the overlap between the business and the family.

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The goals of a family are generally to nurture, develop, and support family members. In contrast, firms use profits, market share, efficiency, and other economic criteria to measure performance. Research on family firms indicates that family goals and needs often are the deciding factors in many businesses’ decisions and strategies. It is not the business that makes a family business different from other business arrangements; rather, it is the family. Keeping family separate from business is therefore harmful, as it attempts to extract the one thing that gives a family business its advantage over its non-family business rivals. In other words, a family business that is able to extract and separate the family element from the business will lose the one element that makes family businesses unique and allows them to outperform non-family businesses. Family influence is the one thing that is unique to family businesses, and could be regarded as a resource to a business.

Family influence as a resource is referred to as `familiness’. It is the unique bundle of resources a firm has as the result of the interaction of the family, the firm and individual family members with one another. Familinessis regarded as a capability, in the sense that it is firm specific, embedded in the firm and its processes, and is not transferable to other firms.

But family firms also have unique qualities, problems and challenges. They have unique psychological processes fostered in the closed environment of the family business. As one client put it: “At least you don’t have to love your colleagues in a non-family business!” The intertwining of family and business concerns is at the core of the issues and questions that surround family businesses. The Price Waterhouse Coopers Family Business Survey,  Kin in the Game,found that the ability to manage differences of opinion smoothly is now more important than ever, but less than a third of family businesses have introduced procedures for dealing with disputes between family members.

The dynamics in family businesses become more complex and the problems multiply exponentially when more than one family unit becomes involved, with siblings ending up working together. The multi-family ownership requires a unique combination of people skills and attitudes to make it work and special steps to avoid intra-family conflict. Working side by side presents challenges of high intra-familial stress, strain, and conflict, especially when the family lacks skills in communication, problem solving, goal setting, conflict resolution, and strategic planning.

Couple businesses are a unique form of family business with the potential to be highly successful. But they also have the potential to damage or destroy either the marriage (and the family) or the business. (In most cases the business in any case collapses when the marriage collapses). Running a successful business and having a fulfilling marriage requires specific steps and skills.

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

Nwanda internal news: December

1. Annual Office Closure : 21 December to 7 January 2013
Please diarize our annual office closure dates:

Closure: Friday 21 December 2012
Return: Monday 7 January 2013

2. Year End Lunch : 12 December 2012 @ Moyo Zoo Lake

We loaded all the staff onto a bus, transported them to Moyo Zoo Lake and treated them to a finger licking buffet, here under some lovelypictures of the afternoon.

3. 30 January 2013 Deadline : Individual Income Tax Returns

Please note that the deadline date for submission of 2012 income tax returns for compliant provisional taxpayers is 31 January 2013.  If you have not yet provided our tax department with the necessary information to complete your 2012 tax return please urgently contact – Jessica Southgate : jessica@nwanda.co.za / Neels Naude : neels@nwanda.co.zafor further information.