Nwanda Internal news (November)

1. Office closure
We wish to notify our clients that our offices will be closed from 23 December 2013 and will re-open on 6 January 2014.

2Awesome reward
Suzette for her outstanding work on Killarney Engineering.

3. New employee
We would like to welcome Alisha Potgieter (trainee accountant) whom joined our team as from 4 November 2013 from North West University.

Alisha Potgieter

4Annual Christmas Family Party
On Saturday 16 November 2013, Nwanda held an amazing and fun day for their staff and children at Bokkie Park in Boksburg.

We had Sponge Bob, Father “Bob” Christmas (Bob Borrill) and Santa’s Little Helper (Odette Oosthuizen) come visit us and provide us with entertainment and shower the children in gifts.  We had bubble blowing, balloon animals, face painting, magic tricks and a yummy braai, tons of sweets and a kid’s party pack to top it off. The highlight was the giant jumping castle and water slide, which all the kids absolutely loved and which later became a foaming water slide!

Thank you to Francis for organising and Malyssa for providing the salads and scrumptious cupcakes.

We all had a blast!

5Annual Team Building & Year End Function

On the 21st of November we had great fun at the local Belgravia Bowling Club followed by a superb lunch!

Suspensive conditions in a deed of sale: Know your obligations

B4If a deed of sale is made subject to a suspensive condition it will lapse if such condition is not fulfilled in time.  This was confirmed in the case of Marais v Kovacs Investments 724 (Pty) Ltd [2009] 1 All SA 174 (C) (hereinafter referred to as “the Marais case”). There is then no contract for the sale of the property between the two parties and the Seller can sell the property to another purchaser.

Examples of suspensive conditions are obtaining bond approval before a certain date, or the sale of the Purchaser’s current property before a certain date. It is very important for both the Seller and Purchaser to take note of the wording of these conditions and ensure that they understand them.

The following is an example of the wording of a suspensive condition relating to a bond, also sometimes referred to as a “bond condition”:

This Deed of Sale is subject to the Purchaser obtaining bond approval from a financial institution for the amount of R1,500,000 before 2 December 2013, failing which this agreement will lapse.

In the above example, if only R1,400,000 is approved before 2 December 2013, in other words R100,000 less than the required amount, then the condition is not met and the contract will lapse.  Similarly, if a bond is approved for R1,500,000 but only on 5 December 2013, then the condition is not met in time and the contract will lapse, as was decided in the case of Meyer v Barnardo and another 1984 (2) SA 580 (N).

The parties can however agree to extend the time during which the suspensive condition must be fulfilled.  Such extension must be in writing and signed by both the Seller and Purchaser as per the requirements of the Alienation of Land Act 68 of 1981. It must also be done before the time limit of the suspensive condition expires.  In the above “bond condition” clause example, this would mean that the parties would have to sign the extension before 2 December 2013 to prevent the Deed of Sale from lapsing.  In the Marais case the court held that even if the suspensive condition had been inserted in the contract for the exclusive benefit of the Purchaser, the Purchaser would have had to communicate his intention to waive the requirement before it lapsed.

In the Marais case the parties entered into a written agreement of sale with a suspensive condition that a bond in the amount of R10,149,072 needed to be obtained by 15 August 2005.  The Purchaser, however, only obtained a mortgage bond in the amount of R9,650,000, which was granted on 2 August 2005.  The respondent’s attorneys argued that the suspensive condition had been substantially fulfilled because the shortfall was, in their opinion, only a “minor shortfall” and therefore an insignificant amount compared to the purchase price.  The court did not agree with this and found that it could not be said that the parties intended the suspensive condition to be fulfilled in any way other than what was expressly stipulated in the Deed of Sale.  The court found that the contract had therefore lapsed.

If a suspensive condition will not be fulfilled in time, rather take the necessary precautions beforehand to avoid a lapsed Deed of Sale.  We advise that you contact a professional for advice in this regard.

References: Kontraktereg, UNISA 2004
Self Study Conveyancing Course for Attorneys, Gawie le Roux, 201
Alienation of Land Act 68 of 1981
Marais v Kovacs Investments 724 (Pty) Ltd [2009] 1 All SA 174 (C)
Meyer v Barnardo and another 1984 (2) SA 580 (N)

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.

 

Implications of estate duty

B3Estate duty is charged on the dutiable value of the estate in terms of the Estate Duty Act. The general rule is that if the taxpayer is ordinarily resident in South Africa at the time of death, all of his/her assets (including deemed property), wherever they are situated, will be included in the gross value of his/her estate for the determination of duty payable thereon.

The current estate duty rate is 20 % of the dutiable value of the estate. Foreigners/non-residents also pay estate duty on their South African property.

To minimize the effects of estate duty you need to understand the calculation thereof. The following provisions apply in determining your liability:

  1. Which property is to be included.
  2. Which property constitutes “deemed property”.
  3. Allowable deductions: the possible deductions that are allowed when calculating estate duty.

Property includes all property, or any right to property, including immovable or movable, corporeal or incorporeal – registered in the deceased’s name at the time of his/her death. It also includes certain types of annuities, and options to purchase land or shares, goodwill, and intellectual property.

Deemed property
A. Insurance policies

  • Includes proceeds of domestic insurance policies [payable in South Africa in South African currency (ZAR)], taken out on the life of the deceased, irrespective of who the owner (beneficiary) is.
  • The proceeds of such a policy are subject to estate duty, however this can be reduced by the amount of the premiums, plus interest at 6% per annum, to the extent that the premiums were paid by a third person (the beneficiary) entitled to the proceeds of the policy.  Premiums paid by the deceased himself/herself are not deductible from the proceeds for estate duty purposes.
  • If the proceeds of a policy are payable to the surviving spouse or a child of the deceased in terms of a properly registered antenuptial contract (i.e. registered in the Deeds Office) the policy will be totally exempt from estate duty.
  • Where a policy is taken out on each other’s lives by business partners, and certain criteria are met, the proceeds are exempt from estate duty.

B. Benefits payable by pension and other funds by or as a result of the death of the deceased

Payments by such funds (pension, retirement annuity, provident funds) usually consist of two components – a lump sum payment on death and an annuity afterwards. The lump sum component used to be subject to estate duty. However as from 1 January 2009, no amount received from such a fund is included in the estate of the deceased for estate duty purposes.

C. Donations at date of death

Donations where the donee will not benefit until the death of the donor and where the donation only materialises if the donor dies, are not subject to donations tax. These have to be included as an asset in the deceased estate and are subject to estate duty.

D. Claims in terms of the Matrimonial Property Act (accrual claim)

An accrual claim that the estate of a deceased has against the surviving spouse, is property deemed to be property in the deceased estate.

E. Property that the deceased was competent to dispose of immediately prior to his/her death (Section 3(3)(d) of the Estate Duty Act),  like donating an asset to a trust, may be included as deemed property.

Deductions
Some of the most important allowable deductions are:

1. The cost of funeral, tombstone and deathbed expenses.

2. Debts due at date of death to persons who have their ordinary residence in South Africa.

3. The extent to which these debts are to be settled from property included in the estate. This includes the deceased’s income tax liability (which includes capital gains tax) for the period up to the date of death.

4. Foreign assets and rights

  • The general rule is that foreign assets and rights of a South African resident, wherever situated, are included in his/her estate as assets.
  • However, the value thereof can be deducted for estate duty purposes where such foreign property was acquired before the deceased became ordinarily resident in South Africa for the first time, or was acquired by way of donation or inheritance from a non-resident, after the donee became ordinarily resident in South Africa for the first time (provided that the donor or testator was not ordinarily resident in South Africa at the time of the donation or death). The amount of any profits or proceeds of any such property is also deductible.

5. Debts and liabilities due to non-residents

  • Debts and liabilities due to non-residents are deductible but only to the extent that such debts exceed the value of the deceased’s assets situated outside South Africa which have not been included in the dutiable estate.

6. Bequests to certain public benefit organisations

  • Where property is bequeathed to a public benefit organisation or public welfare organisation which is exempt from income tax, or to the State or any local authority within South Africa, the value of such property will be able to be deducted for estate duty purposes.

7. Property accruing to a surviving spouse [Section 4(q)]

  • This includes that much of the value of any property included in the estate that has not already been allowed as a deduction and accrues to a surviving spouse.
  • Note that proceeds of a policy payable to the surviving spouse are required to be included in the estate for estate duty purposes (as deemed property), but that this is deductible in terms of Section 4(q).
  • Section 4(q) deductions will not be granted where the property inherited is subject to a bequest price.
  • Section 4(q) deductions will not be granted where the bequest is to a trust established by the deceased for the benefit of the surviving spouse, if the trustee(s) has/have discretion to allocate such property or any income out of it to any person other than the surviving spouse (a discretionary trust).  Where the trustee(s) has/have no discretion as regards both the income and capital of the trust, the Section 4(q) deduction may be granted (a vested trust).

Portable R3,5 million deduction between spouses

The Act allows for the R3.5 million deduction from estate duty to roll over from the deceased to a surviving spouse so that the surviving spouse can use a R7 million deduction amount on his/her death.  The portability of the deduction will only apply when the entire value of the estate of the first dying spouse is left to the surviving spouse.

Life assurance for estate duty

Estate duty will also normally be liveable on these assurance proceeds.

Recognition to: Moore Stephens’ Estate Planning Guide.

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.

Amended BEE codes of good practice: The salient points

B2After more than 6 years of working with the BEE Codes of Good Practice (“the old Codes”), businesses and verification agencies around the country were finally getting to know what was expected of them when it came to BEE verifications. This will however change with the publishing of the Amended BEE Codes of Good Practice (“the new Codes”) and business will have to take a fresh look at their BEE strategies if they are to maintain their current BEE level or even reach any level at all.

But what are the changes introduced by the new Codes?

On 3 and 4 October 2013 the Department of Trade and Industry together with the Black Economic Empowerment Advisory Council hosted the first ever BEE Summit. The Amended BEE Codes of Good Practice were announced at this summit and were officially published in the Government Gazette on 11 October 2013.

These new Codes have introduced a number of salient points which have been listed below:

  • The new Codes have a 12 month transitional period in which businesses have a choice to report under either the old Codes or the new Codes. Once this period is over, reporting under the new Codes will become mandatory.
  • The new Codes do not, however, replace the sector charters and these will still remain in force.
  • The number of points necessary to qualify for a particular level is adjusted as set out in the table below:
B-BBEE
Status
Qualification under
the new Codes
Qualification under
the old Codes
B-BBEE
recognition level
Level 1 ≥ 100 Points ≥ 100 Points 135%
Level 2 ≥ 95 but < 100 Points ≥ 85 but < 100 Points 125%
Level 3 ≥ 90 but < 95 Points ≥ 75 but < 85 Points 110%
Level 4 ≥ 80 but < 90 Points ≥ 65 but < 75 Points 100%
Level 5 ≥ 75 but < 80 Points ≥ 55 but < 65 Points 80%
Level 6 ≥ 70 but < 75 Points ≥ 45 but < 55 Points 60%
Level 7 ≥ 55 but < 70 Points ≥ 40 but < 45 Points 50%
Level 8 ≥ 40 but < 55 Points ≥ 30 but < 40 Points 10%
Non-Compliant < 40 Points < 30 Points 0%
  • The annual turnover thresholds have been adjusted as follows:
    1. EMEs have a turnover of less than R10 million;
    2. QSEs have a turnover of between R10 million and R50 million;
    3. Generic Entities have a turnover of more than R50 million.
  • The 7 elements under the old Codes have been reduced to 5 elements with Procurement element now forming part of Enterprise and Supplier Development element and the Employment Equity element being integrated to form part of the Management element.
  • EMEs and QSEs which have 100% Black ownership will automatically qualify as level 1 contributors to BEE and EMEs and QSEs which have 51% or more Black ownership will automatically qualify as level 2 contributors to BEE. These entities will only have to provide an affidavit confirming that their turnover is under the relevant threshold and the percentage of Black ownership is above the required level.
  • EMEs with Black ownership of less than 51% will automatically qualify as level 4 contributors to BEE while QSEs with less than 51% Black ownership will have to report under all 5 of the elements.
  • 3 priority elements have been introduced, namely Ownership, Enterprise and Supplier Development and Skills Development.
  • QSEs will have to meet a subminimum of 40% of the target for Ownership and one of the other priority elements or they will lose a level, while Generic Entities will have to meet the subminimum for all three priority elements or risk losing a level.
  • The target for Skills Development has been increased to 6% of the Leviable Amount (roughly equal to the Company’s annual payroll), meaning that businesses will have to spend an amount equal to 2.4% of its Leviable Amount just to meet the subminimum requirement under Skills Development.

The changes mentioned above are only a few of the many changes which will be brought about by the new Codes. These will have a major effect on current BEE scores, with the Ownership element becoming essential for businesses that wish to achieve a BEE contributor status better than a Level 8.

There are currently a number of errors and uncertainties in the new Codes and it may take some time before these are corrected or clarified and until we reach this point it will be difficult to determine how the Codes will be implemented practically.

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.

The validity of tax invoices – It is your responsibility!

B1A VAT vendor submitting VAT returns is responsible for ensuring that all invoices included in the returns comply with the relevant legislation. If valid tax invoices cannot be provided at the time of a VAT audit, the vendor may lose up to 100% of the input tax being claimed on the invoice, even if an amended valid invoice can be provided subsequent to the audit. Furthermore, serious penalties, interest and other consequences may be imposed on the VAT vendor for errors, intentional omissions and fraud.
 
Section 20 of the Value-Added Tax Act, No 89 of 1991, together with the VAT404 Guide for Vendors as updated in Dec 2012, sets out the requirements for a valid tax invoice.
 
A VAT vendor must issue a tax invoice within 21 days of the supply having been made where the consideration for the supply exceeds R50, whether the purchaser has requested this or not. If the consideration for the supply is R50 or less, a tax invoice is not required. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier, will be required to verify the input tax.
 
The requirements for tax invoices of which the consideration or taxable supply is more than R5 000 are:

  • the words “tax invoice” in a prominent place
  • name, physical address and VAT registration number of the supplier name, physical address and VAT registration number of the recipient
  • original serial number of the tax invoice
  • the date of issue of the tax invoice
  • full and proper description of the goods sold and / or services rendered
  • quantity or volume of goods and / or services supplied
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies)

The requirements for tax invoices of less than R5 000 are:

  • the words “tax invoice” in a prominent place
  • name, physical address and VAT registration number of the supplier
  • original serial number of the tax invoice
  • the date of issue of the tax invoice
  • full and proper description of the goods sold and / or services rendered
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies)

In the case of second-hand goods purchased from a non-vendor, the purchaser has to record the following information:

  • name, address and identity number of the supplier, confirmed by the person’s identity document or passport. (If the value of the supply is equal to or greater than R1 000, a copy of this document must be retained by the purchaser. If the non-vendor is a juristic person, a letterhead or similar document stating the name and registration number of the juristic person is required)
  • date of acquisition
  • quantity or volume of goods
  • description of the goods
  • total consideration paid for the supply
  • declaration by the supplier stating that the supply is not a taxable supply

If a vendor fails to deduct an input tax in respect of a particular tax period, that input tax may be deducted in a later tax period, but limited to a period of five years from the date that the particular supply was made. However, when a vendor becomes aware of an output tax not declared in the relevant period, a corrected VAT return for that specific period should be submitted.  It is not acceptable to declare the output tax in the next period and SARS may impose penalties and interest on the output VAT omitted.

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.