Nwanda internal news (August)

1. Nwanda Incorporated’s Facebook Page. Go and have a look!

To all readers, like our Facebook page and once we’ve reached the 100 mark, YOU might be the lucky winner of R250 in a random draw!

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2. Staff Achievements – Congratulations to the following employees:

BCompt(Acc):

  1. Sarvesh Chinappa
  2. Odette Oosthuizen
  3. Tanya de Beer

CA(SA) Board 1:

  1. Erika van Eck

Completion of articles:

  1. Sibusiso Nhlapo
  2. Sarvesh Chinappa

3. New faces:

We are delighted to announce the appointment of the following new staff:

4. The following staff has moved on:

We wish Malyssa Hattingh the best with her future endeavors.

Usufruct and Capital Gains Tax

What is a usufruct?

“A usufruct provides to the usufructuary a right of use of property or assets, lifelong or for a specific period, but the usufructuary does not acquire ownership of the relevant property or assets.”

Usufruct is often applied as part of estate planning in order to save on Estate duty, as the calculated value of the usufruct qualifies as deduction for Estate duty, should the usufructuary be the surviving spouse. E.g. a woman may bequeath her property to her son provided that her spouse has lifelong usufruct from it.

Obviously this kind of bequest may create problems, as the son is not able to utilise the property for personal use or rent it out as long as his father is still alive. If we talk about agricultural property the problems escalate and the practical administration of the usufruct can result in many a headache.

These issues are, however, of a personal nature and our opinion is that the root of the problem is actually the accountability of Capital Gains Tax which will revert to the owner when the property is eventually sold.

The value of the usufruct when it is created is recovered from the market value of the property in order to determine the bare property value. This calculated value will then represent the base cost of the property when it is eventually sold.

Example:

I, TOUGH TINA, bequeath my immovable property to my son, LITTLE JOHN, subject to the lifelong usufruct of my spouse, BIG JOHN. BIG JOHN is thus the usufructuary and LITTLE JOHN the bare owner.

Suppose the value of the property for the purpose of this example is R1 million. The usufruct value is calculated by capitalising R1 million allowing for BIG JOHN’s life expectancy (according to tables) and multiplying it by 12% (or a % as approved by SARS), in other words R1 million x 6,74206 x 12% = R809 047.

The bare property value at the death of TOUGH TINA is thus R1 million minus R809 047 = R190 953. Should LITTLE JOHN sell the property at R1.5 million after BIG JOHN’s death, taxable Capital Gains will potentially amount to R1 309 047 on which tax is payable.

We are not in principle against usufruct, but it is clear that costs and the influence of Capital Gains Tax on usufruct should be studied thoroughly before considering such a stipulation in your will.

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.

Donations

Whether you are thinking of helping your son financially to enable him to purchase his first property or donating money towards a worthy cause, there are some things to keep in mind. A donation is defined in the Income Tax Act No 58 of 1962 as “any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.” The donor may therefore not receive anything in return from the donee, as this will constitute an exchange agreement.

There are two types of donation, viz. donatio inter vivos (donation between two persons who are both alive) and donatio mortis causa (a donation where the donee will only receive the donation on the death of the donor).

The requirements for both an inter vivos and a mortis causa donation are:

  1. The donor must make an offer to donate, which offer must be accepted by the donee;
  2. The donor must have the necessary legal capacity to make the donation and the donee must have the necessary legal capacity to accept the donation;
  3. Anything that a person can trade (in commercio), can be donated;
  4. A donation must be legal and feasible; and
  5. A donation must be identified or identifiable.

Donations can also be withdrawn. In the case of an inter vivos donation, the donor can at any time before the donee accepts the donation, withdraw such donation. After acceptance of the donation by the donee, a valid contract has been formed and the donor will only be able to withdraw the donation in the case of gross ingratitude on the part of the donee, e.g. if the donee threatens the donor’s life. A mortis causa donation can be repealed at any time before the donor’s death, as the donation will only be ratified on the death of the donor.

Finally, and probably of the most importance to some people, is the matter of donations tax payable to the Receiver of Revenue. Currently donations tax is calculated at 20% of the fair market value of the property donated.

In terms of article 59 of the Income Tax Act, the donor is liable for payment of donations tax within three months after the donation was made. If the donor fails to pay the tax timeously, the donor and the donee will be jointly and severally liable for the payment thereof. An individual can make a donation of R100 000 per annum, free of donations tax.

There are also a few exemptions in terms of section 56 of the Income Tax Act, which should be noted. They include the following:

  1. A donation in terms of a duly registered prenuptial or postnuptial contract to the spouse of the donor;
  2. A donation between spouses who are still married to each other;
  3. A donation in the form of donatio mortis causa (this donation occurs in terms of the donor’s will and is therefore not subject to donations tax);
  4. A donation that was cancelled within six months after it was made; and
  5. Donations to certain public benefit organisations.

If spouses are married in community of property they should pay attention to section 57A of the Income Tax Act. If any property, which forms part of the joint estate of both spouses, is donated by one of the spouses, such donation shall be deemed to have been made in equal shares by each spouse. However, if property that has been donated by one of the spouses belongs to only that spouse (the donor), the donation shall be deemed to have been made solely by the spouse who made the donation.

There are several factors to keep in mind when making a donation and it is therefore advisable to consult with an expert to discuss the tax and legal implications before a decision is made.

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 ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

Provisional Tax: Did you know?

Provisional tax payments is not a separate tax but pre-payments of income tax for a specific tax year. These pre-payments ensure that the tax load is spread over the tax year and can avoid a nasty surprise when SARS calculates (assesses) the final income tax liability for that specific tax year.

1. There are three provisional tax deadlines:

  • Submission of the first provisional tax return (IRP6) is compulsory for provisional taxpayers even if no provisional tax is payable. Submission of the first IRP6 and payment of provisional tax (if applicable) is due within 6 months of the start of the tax year.
  • Submission of the second provisional tax return (IRP6) is also compulsory for provisional taxpayers even if no provisional tax is due. Submission of the second IRP6 and payment of provisional tax (if applicable) is due within 12 months after the start of the tax year.
  • Submission and payment (if applicable) for the third provisional tax return (IRP6) is voluntary. The due date for the third IRP6 depends on the date on which the tax year ends.

2.  SARS provides guidelines to assist taxpayers in estimating the amount of provisional tax due.

3. If provisional tax was overpaid, the excess amount will be refunded to the taxpayer with interest. However, SARS will do the refund only after the final income tax liability for that tax year has been calculated (assessed) by SARS and the amount of the final income tax liability is less than the sum of the provisional tax payments for the relevant tax year.

4. Underpayment of provisional tax will result in the imposition of (avoidable) penalties and interest by SARS.

If you need professional assistance with the calculations, submission or payment of any of the above returns or would like more information on the penalties and interest that can be imposed if you miss one or more of the above deadlines, please do not hesitate to contact any SARS office.

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 ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

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