Nwanda Internal News
(July 2017)

DAYS

Awesome Rewards were awarded to the following staff this month:

Dean Elson for an excellent job done on Peterbill Group
Keisha Sibiya for an excellent job done on Peterbill group
Talita Roux for a job well done on her last two files

Farewell to staff member:

We bid farewell to Carmen Maroun and Roald van der Heiden, we wish them the best in their future endeavours.

Announcement:

Sumita’s boyfriend, Michlin, proposed on the stage at The Barnyard on the night that we were there for the Sports & Social event. We wish the beautiful couple many happy years together.

Proposal

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Charity:

Thank you to everyone for their generous donations to St Francis Care Centre in celebration of Mandela Day.

mandaba

 

 

 

Gone are the days of tax-free salaries abroad

Many South African taxpayers earning a salary abroad have for many years been able to benefit from so-called “double non-taxation”. This would be the case where salaries are earned in countries where the employer country would not tax salaries earned in that country, and where a domestic South African income tax exemption would also be available to such South African employees. The UAE for example is renowned therefore that it levies very little, if any, taxes on non-resident employees employed in that jurisdiction. This regime interacts quite well with the South African exemption from income tax provided to South African employees working abroad and in terms of which South Africa would in many cases also not levy income tax on salaries so earned abroad. In other words, a salary earned abroad may potentially not be taxed in either the country of source or residence (i.e. South Africa).

In terms of section 10(1)(o)(ii) of the Income Tax Act[1] salaries earned abroad would be exempt from South African income tax if the salary is earned for services rendered outside of South Africa, and the employee would be absent from South Africa for at least 183 days in a tax year, of which at least 60 are consecutive.

In the annual national budget speech earlier this year, Government warned of its intention to withdraw relief for South African individuals working abroad and effectively achieving double “non-taxation” on salaries so earned. This threat has now been borne out by the proposed withdrawal of the exemption in section 10(1)(o)(ii) of the Income Tax Act, proposed in terms of the draft Taxation Laws Amendment Bill published on 19 July 2017. As is explained by the draft Explanatory Memorandum to the Bill,

“It has come to Government’s attention that the current exemption creates opportunities for double non-taxation in cases where the foreign host country does not impose income tax on the employment income or taxes on employment income are imposed at a significantly reduced rate.”

The draft Bill proposes that section 10(1)(o)(ii) be deleted effectively for tax years commencing on or after 1 March 2019. This would effectively mean that South African residents will be taxable in South Africa on salaries earned abroad to the extent that the source country does not levy tax on the income so earned. To the extent however that income is taxed abroad too, South Africa should grant a credit against taxes payable here in terms of either an applicable double tax agreement or the provisions of section 6quat of the Income Tax Act.

[1] 58 of 1962

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The 2017 tax season is open

The Commissioner for SARS recently published the annual notice to officially ‘open’ the 2017 tax season. Individuals are now able to file their annual income tax returns for the 2017 year of assessment (which ended on 28 February 2017) from 1 July, and we request that our clients contact us so that we can arrange for the necessary. The following time frames will apply:

  • For a company, within 1 year of its year-end (for example, a company with a financial year-end of 31 March 2017 is required to submit its 2017 tax return by 31 March 2018);
  • For all other taxpayers (including natural persons and trusts), returns are to be submitted at the latest by:
    1. 22 September 2017 for persons still making use of manual hardcopy returns;
    2. 24 November 2017 for persons (excluding taxpayers registered for provisional tax) making use of SARS’ eFiling system; and
    3. 31 January 2018 for all provisional taxpayers making use of SARS’ eFiling system.

As was the case in previous years, companies may only file returns using eFiling – manual returns are not allowed in terms of the above SARS notice.

Not all individuals are required to submit income tax returns. Various criteria are listed which, only if any of these are met, means that a person is obliged to submit a return to SARS.  For example, all companies, whether incorporated in South Africa or not, are obliged to submit returns if South Africa is the place from which the company is effectively managed.  Non-tax resident companies, but which were incorporated in South Africa, must also render returns, as well as non-tax resident companies incorporated outside of the Republic and earning income from a South African source.

Taxpayers (excluding companies) are required to submit returns if they carried on any trade in South Africa during the 2017 tax year. This does not include the mere earning of a salary. A variety of other factors are listed in terms of which non-company taxpayers are required to submit returns. The main exemption from having to submit a return for tax resident natural persons though is if the person earned only a salary from a single employer during the year which did not exceed R350,000, and income from interest for that person was also less than R23,800 (or R34,500 if the person is older than 65).

Quite a number of taxpayers are therefore potentially exempt from the requirement to submit an income tax return, even if registered for income tax purposes. However, even though it may in terms of the notice not be required to submit a tax return, it may still be beneficial to do so. Natural person taxpayers are often under the unfortunate impression that the completion of a return necessarily gives rise to the incidence of tax.

This is of course not so and many may have suffered tax consequences during the year already by having amounts deducted from salaries in the form of pay-as-you-earn contributions deducted from their salaries. This of course amounts to a mere cash flow mechanism introduced to ensure a steady supply of cash to the fiscus and which contributions are set-off from the annual tax liability when the annual tax return submitted is assessed. However, the opportunity to negate this is presented through the completion of a tax return and claiming deductible expenses in the form of e.g. medical aid or pension fund contributions.

The principle in this regard is that all income is taxable irrespective of whether a return is completed or not. However deductions can only be claimed by completing a tax return and natural persons specifically should jump at the opportunity to do so.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Beware of capital gains tax when you emigrate

While many people immigrate to South Africa, we also see many of our clients emigrating from South Africa. And while formal migration-status is not necessarily linked to tax residency, the time of tax migration often coincides with formal emigration linked to passport or visum status. Many are surprised to learn (often after the fact) that emigration for tax residency purposes gives rise to tax consequences in South Africa, and specifically to capital gains tax (“CGT”) consequences in the form of so-called “exit charges”.

In essence, section 9H of the Income Tax Act, 58 of 1962, determines that when a person ceases to be tax resident in South Africa, that person is deemed to have disposed of all his or her assets on the day that the individual emigrates for income tax purposes. In other words, in calculating their income tax exposure, individuals emigrating for tax purposes are regarded as having sold all of their assets at market value on the day before that on which they leave the country. As a result, a capital gain is realised on this deemed disposal that is subject to CGT at the prevailing tax rates. Currently, 40% of capital gains so realised by individuals are included in their annual taxable income, which amount may be subject to tax at rates of as high as 45%.

The policy justification for taxing individuals upon emigration is that taxes are to be levied on all capital growth achieved on assets owned by South African residents while they were tax resident. Once an individual will have emigrated, limited mechanisms would exist whereby capital gains may only be realised upon eventual actual sale of assets subsequently once the individuals are no longer tax resident in South Africa. (It is for this reason that South African immovable property is excluded from the “exit charges” regime; section 35A of the Income Tax Act provides for a withholding tax mechanism whereby CGT may be recovered from non-residents when they sell South African immovable property.)

While one may have sympathy for the policy justification for the levying of “exit charges”, it must be recognised that any deemed disposal of assets necessarily creates a cash flow conundrum for the individuals affected, quite often proving prohibitive for wealthy individuals seeking to emigrate. It is quite possible that assets of individuals emigrating may consist mainly of illiquid assets such as share investments. Upon emigration, these very assets may need to be actually disposed of in order to raise sufficient cash resources to be able to pay the resultant CGT that would have been payable on a deemed disposal of those assets at emigration.

This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)