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Budget & Tax Update 2007 The morning ahead 2007 Budget 2006 Tax update The Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006 The Second Small Business Tax Amnesty and Amendment of Taxation Laws Act 10 of 2006 The Revenue Laws Amendment Act 20 of 2006 The Second Revenue Laws Amendment Act 21 of 2006 2006 Tax update - Appetiser Small business tax amnesty Waiver of additional tax, penalty and interest Recreational clubs and PBOs Scientific or technological research and development Small business corporations Section 103 and the new general anti-avoidance rules CGT VAT 2007 Budget – Highlights Replacing the secondary tax on companies with a dividend tax, reducing the rate from 12.5% to 10% and broadening the base Personal income tax relief for individuals amounting to R8.4 billion Abolishing the retirement fund tax Treating the sale of shares held for more than 3 years as capital gains No change in VAT, CGT, Donations Tax or Estate Duty rates Wage subsidy and social security tax reform Personal income tax Reduction in personal tax Tax thresholds Rebates Interest exemption Couple over 65 earning only interest R190 000 tax free Monetary caps on medical aid contributions CGT Corporate tax rates No change to basic rates SBCs revised tables STC Other taxes, rates Estate duty Rate remains unchanged Primary abatement increases NB: revisit wills Donations tax Rate remains unchanged Tax free threshold increases Transfer Duty No change Savings and retirement reform Move to expenditure model of taxing retirement funds Tax treatment of contributions to pension, provident and RAFs to be phased in over time Favourable tax treatment of basic savings element Some tax encouragement above basic element No special tax treatment above a specified ceiling Aim to encourage savings by lower and middle income earners Savings and retirement reform Abolition of retirement fund tax Effective 1 March 2007 Simplifying retirement fund thresholds Lump sum withdrawal rules too complex Withholding tax on lump sums received by persons earning below R43 000p.a abolished Taxation on dividends Worldwide model – shareholder level with treaty relief STC – company level SA company tax rate inflated by STC for comparison purposes STC to be replaced with a tax on dividends Taxation on dividends cont. Anti-avoidance measure effective immediately Amalgamation transaction sec 44(9) Additional measures around corporate reorganisations to be proposed First phase – 1 October 2007 STC renamed a dividend tax at company level Tax base broadened Cover all distributions not just profits Provision for return of capital subject to antiavoidance Tax rate reduced from 12.5% to 10% Targeted exemption for amalgamation transactions Taxation on dividends cont. Second phase – 2008 Legal liability for dividend tax moved from company to shareholder Company must withhold the tax @ 10% Implementation depends on renegotiation of several tax treaties Imputation system will not be followed Final withholding tax Companies to apply tax treaty to foreign shareholders Gains on long term equities Current section 9B Elective Listed shares only 5 years Proposed change Expanding to all shares 5 years reduced to 3 years Depreciation allowances New rail locomotives, wagons New quay walls and other port facilities 20 yrs New commercial buildings and upgrades From 14 yrs to 5 yrs 20 yrs Environmental capital expenses Dams and tanks etc – allowances Clean-up, restoration, decommissioning – immediate w/off BEE transactions Share cross issue Ords issued in exchange for redeemable prefs Gains and losses on dual dispositions to be disregarded Share buybacks of listed shares Purchase from public then trf to BEE partner Forced section 311 sale and replacement of shares Gains on forced sale to be ignored to extent replaced Intra-group transfers Rollover relief for assets moved within the group De-grouping charge if company leaves the group Currently no time limit, proposed 6 years BEE transactions – cont. Connected person sale of depreciable assets Deals where BEE partner acquires close to 50% of ownership Transfer of depreciable assets to BEE entity subject to connected person anti-avoidance levels Exceptions to be accommodated where avoidance not the driver Broad-based share incentive schemes Sec 8B not successful and so to be reviewed Public benefit organisations Level of tax deductible donations Current level 5% of taxable income Increase to 10% of taxable income PBO threshold for trading activities Greater of 5% of Gross inc or R50 000 Increased to Greater of 5% of Gross inc or R100 000 Municipal Property Rates Act 4 year implementation of new valuation roll and rating Have you received your letter yet? Valuations are close to market value Look out for the new rating formula Wage subsidy & social security A wage subsidy by 2010 Reduce direct cost of employment Help alleviate high rate of unemployment amongst the youth Facilitate the social security reform SARS to administer the social security tax and wage subsidy Payroll based tax PAYE system will be administrative platform Small business development Small business tax compliance cost study Develop a simplified tax regime for very small businesses – target 2008 Enhanced tax administration SARS to place greater emphasis E-filing Re-engineer forms Scanning and imaging Reliance on 3rd party data 3 cross-industry areas of focus Trusts – co-operation with master’s office Undervaluation of stock – additional audit activity Employees’ tax – SARS audit teams to be trained Small business tax amnesty 11 301 applications by 13 Feb 2007 Pace of applications expected to pick up Technical issue on certain types of trusts Legislation may follow to clarify Miscellaneous income tax amendments Residential accommodation fringe benefit Exemption for South Africans working abroad Streamlining the medical regime Deductibility of foreign taxes Simplifying the averaging formula for individual farmers Provisional payment system Reciprocal tax relief for sportspersons Employee tax relief for sole proprietors Miscellaneous VAT amendments E-commerce downloads Dried maize Streamlining business reorganisations Transfer among rental pool members Horse-racing industry Game-viewing clarification Change of use adjustments to fixed property Improper use of turnover apportionment method Clarifying payment dates Documentary evidence for input tax Documentary evidence for zero-rated exports Electronic storage of cheques, bank deposit slips and other docs Pension Funds Act, 1956 Forced early withdrawal from retirement fund Through divorce or maintenance order Deferred until final retirement date Tax complications at that stage Amendment to trigger immediate severance Living annuity drawdowns Current rate 5% to 20% Proposed change 2.5% to 17.5% Cross-border enforcement SARS will explore memoranda of cooperation with neighbouring jurisdictions Counter avoidance and abuse Artificial dual residence Transfer pricing Non-declaration of foreign income Indirect tax proposals Fuel taxes General fuel levy up 5 cents a litre to Petrol R1.21 per litre Diesel R1.05 per litre Road Accident Fund levy up 5 cents a litre 41.5 cents per litre Indirect tax proposals – cont. Duties on alcoholic beverages Up between 8% and 10.5% Traditional beer Duties on tobacco products Up between 5.3% and 10.7% Look out for ‘snus’ smokeless tobacco Tips for Trevor 2005 & 2006 Lobola ‘Lobola is a social responsibility put upon one’s shoulder unwillingly so it should be tax-deductible’ 2007 Lobola the sequel ‘Impose VAT and tax on lobola trusts, since some people are making money out of them’ Tax Update 2006 Developments in 2006 Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006 Second Small Business Tax Amnesty and Amendment of Taxation Laws Act 10 of 2006 7 February 2007 Second Revenue Laws Amendment Act 21 of 2006 25 July 2006 Revenue Laws Amendment Act 20 of 2006 25 July 2006 7 February 2007 Interpretation notes and guides Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006 Second Small Business Tax Amnesty and Amendment of Taxation Laws Act 10 of 2006 Small Business Tax Amnesty Astounding move from government which must leave all law abiding taxpayers a little irritated. Purpose and objective Broaden the tax base Facilitate normalisation of tax affairs of small business Increase and improve tax compliance culture Facilitate participation in the taxi recapitalisation programme Small Business Tax Amnesty – cont. Separate unit within SARS has been established to process all applications. The secrecy provisions of section 4 are extended to cover tax amnesty Small Business Tax Amnesty – cont. Persons who may apply A natural person Deceased or insolvent estate of natural person A trust (inter vivos or testamentary) where all beneficiaries (discretionary and vested) throughout 2006 y.o.a were natural persons Small Business Tax Amnesty – cont. Requirements to qualify – Must have carried on a business The gross income of the business or businesses for the 2006 y.o.a was not more than R10 million Apportion the R10 million if y.o.a is less than 12 months and part of a month is treated as a full month Small Business Tax Amnesty – cont. Method and period of application Form SBA-001 together with supporting docs 1 August 2006 to 31 May 2007 Small Business Tax Amnesty – cont. Information required in the application 2006 taxable income from carrying on of business ‘Carrying on of business’ includes investment income incidental to the regular carrying on of a business Capital gains? What if business ceased in 2006? Income tax return for 2006 y.o.a Statement of assets (at cost) and liabilities at end of 2006 y.o.a SARS liabilities subject to amnesty? Small Business Tax Amnesty – cont. Information required in the application - cont If actual amounts cannot be ascertained for purposes of the SBA-001 or statement of assets & liabilities, reasonable estimates can be provided Must disclose which amounts are estimates Beware materially wrong estimates Small Business Tax Amnesty – cont. Evaluation and approval Commissioner must approve an application If applicant is a qualifying person Applies on correct form and within period allowed Provides all information Small Business Tax Amnesty – cont. Evaluation and approval - cont Commissioner must not approve an application If before submission of application Formally notified of an audit, investigation or other enforcement action This disqualification falls away if before the application is submitted Notice of audit, investigation or other enforcement action has been withdrawn The audit or investigation has been concluded Commissioner must issue a notice of approval or rejection Subject to objection and appeal Tax court has jurisdiction to hear any appeal Small Business Tax Amnesty – cont. Amnesty levy Based on 2006 y.o.a taxable income but only from carrying on of business Sliding scale see page 20 of notes 2005 Assessed loss 2005 Assessed capital loss What does 2006 y.o.a mean? Year end during 1 April 2005 to 31 March 2006 Small Business Tax Amnesty – cont. Example 2006 y.o.a sources of income Salary 2006 - R200 000 Printing business net income - R300 000 Profit on sale of printing press - R100 000 = Capital gain Capital gain on sale of holiday cottage - R50 000 Rental from holiday cottage by a friend - R5 000 2006 other deduction/allowances RAF contributions - R10 000 Medical expenses – R10 000 Small Business Tax Amnesty – cont. Example - cont 2006 y.o.a taxable income from business Printing business net income = R300 000 Capital gain (100 000 – 10 000) x 25% = R22 500 Taxable income from business = R322 500 Levy table pg 20, levy = 1 300 + 4 500 + 2 900 Total levy payable = R8 700 Small Business Tax Amnesty – cont. Payment of amnesty levy Within 12 months of delivery of notice of approval Small Business Tax Amnesty – cont. Scope of relief Income Tax - receipts and accruals for all years pre 2006 from carrying on of a business Employees tax – remuneration paid on or before 28 Feb 2006. NB ‘paid’ VAT - any supply or import on or before 28 Feb 2006 Withholding tax on royalties – amount paid on or before 28 February 2006 STC – div declared or deemed to be declared in y.o.a preceding 2006 i.e. year ends prior to 1 April 2005 UIF levies – remuneration paid on or before 28 Feb 2006 SDL – remuneration paid on or before 28 Feb 2006 Small Business Tax Amnesty – cont. Scope of relief Not only the tax but also any additional taxes, penalties and interest SARS may extend the date to submit all subsequent returns and waive all penalties and interest on these No prosecution Deemed not to have committed any offence No criminal prosecution Small Business Tax Amnesty – cont. Exclusion from relief Any amount already paid Payable as a result of any return submitted to SARS Payable as a result of assessment VAT not paid due to false declaration of input tax claim or false zero-rating of exports Small Business Tax Amnesty – cont. Deductions and losses going forward Assessed loss and capital losses arising during qualifying period are lost STC credits are lost VAT input tax lost for any supply during the qualifying period Small Business Tax Amnesty – cont. Circumstances where approval is void Failure to pay levy in time Failure to make full disclosure- On application form Of taxable income for 2006 Information in 2006 tax return Statement of assets and liabilities Any estimate provided is materially incorrect Waiver of additional tax, penalty and interest Draft regulation issued on 24 January 2007 to prescribe circs that SARS may waive Additional tax, penalty or interest Imposed on a failed applicant Business tax debt Any additional tax, interest and penalty imposed in respect of All taxes covered by the tax amnesty Payable during the qualifying periods prescribed in the tax amnesty Waiver of additional tax, penalty and interest – cont. Who qualifies? Anyone who qualifies for tax amnesty But is to extent prohibited from applying because amount owing or becomes owing to SARS due to information furnished in a return to SARS amount owing to SARS in terms of an assessment issued May apply for waiver of business tax debt No later than 31 May 2007 On prescribed form Waiver of additional tax, penalty and interest – cont. Information required in application List categories for waiver Statement of assets (at cost) & liabilities for 2006 All returns outstanding as on 31 Dec 2006 (except returns covered by a successful amnesty approval) If actual amounts not available then reasonable estimates can be provided SARS must approve if all requirements are met Waiver of additional tax, penalty and interest – cont. Business tax debt will not be waived Sheriff has attached assets Sequestration or liquidation proceedings have started Notice of audit or investigation delivered by SARS N/A if SARS withdraws or concludes Waiver of additional tax, penalty and interest – cont. What is being waived? Business tax debt outstanding on 31 July 2006 after setting off any refunds or credits due What will not be waived? Business tax debt above R1 million Amounts paid after 31 July 2006 If approved agreement must be signed Agreeing balance owing to SARS and payment terms Any other conditions required by SARS Waiver of additional tax, penalty and interest – cont. SARS not bound to waiver if Failure to make full disclosure Materially incorrect information supplied to SARS Failure to comply with conditions of signed agreement If SARS not bound full amount of business tax debt can be reinstated plus interest thereon from 1 August 2006 FICA Exemption Persons who assist or advise a client in terms of the Small Business Tax Amnesty Applies for the duration of the amnesty application period Currently 1 Aug 2006 to 31 May 2007 Auditing Profession Act (APA) Registered auditor Assists or advises a client in terms of the Small Business Tax Amnesty Exempt from section 45 of the APA from 1 Aug 2006 Condition Must have signed engagement letter in place Small Business Corporations Section 12E turnover limit increased R6 million up to R14 million Learnership Allowances Section 12H was set to expire in Oct 2006 Extended to Oct 2011 Maximum allowance on entering increased From R17 500 to R20 000 for existing employees From R25 000 to R30 000 for new employees Maximum allowance on completion increased from R25 000 to R30 000 Effective for agreements entered into on or after 1March 2006 Learnership Allowances – cont. New section 12H(2A) for disabled learners entering learnerships on or after 1 July 2006 On commencement Existing disabled employees – lesser of 150% of the annual remuneration R40 000 New disabled employees – lesser of 175% of the annual remuneration R50 000 Completion allowance – lesser of 175% of the annual remuneration R50 000 VAT – Small scale farmers and other vendors Section 27 of the VAT Act Farmers falling into category D – 6 monthly Small vendors falling into category F – 4 monthly Annual turnover threshold increased from R1 mill to R1.2 mill Revenue Laws Amendment Act 20 of 2006 Second Revenue Laws Amendment Act 21 of 2006 Section 1 definitions Company Now includes a co-operative Co-operative Section 1 of the Co-operatives Act Autonomous association of persons united voluntarily to meet their common economic and social needs through a jointly owned enterprise Shareholder Includes a member of a co-operative Recreational clubs Clubs received full exemption in terms of section 10(1)(d)(iv)(aa) and para 64 of 8th Schedule Club amenities used by general public and members Growing level of trading activities to raise funds Were treated more leniently than PBOs System of partial taxation has been implemented Exemption narrowed to only cost sharing Income from non-members subject to tax Now treated consistently with PBOs Recreational clubs – cont. Section 10(1)(cO) is added Applies to clubs approved in terms of sec 30A Defines the limits of the new system for partial taxation Separates exempt income from taxable income Section 30A is added covers the conditions for exemption Recreational clubs – cont. Section 10(1)(cO) exempts receipts and accruals from Membership fees Any business or trade that Integral to provision of amenities or facilities for the members On cost recovery basis No unfair competition Occasional fundraising activities by volunteers Any other source on condition receipts and accruals fall below greater of 5% of total annual membership fees and subs R50 000 Recreational clubs – cont. Expenditure incurred in producing exempt income cannot be offset against taxable club income Sec 10(1)(cO) is effective for years of assessment commencing on or after 1 April 2007 Recreational clubs – cont. Capital gains tax Rollover provisions apply (same as para 65 and 66) Assets used mainly for Providing social and recreational facilities The proceeds on disposal must be reinvested in another recreation club directed asset Elective provision Recreational clubs – cont. New section 30A definition of a recreational club Section 21 company, society or association Principal purpose to provide social and recreational amenities or facilities to its members. Exemption is not automatic Clubs must apply for approval Recreational clubs – cont. Approval must be granted if Non-profit motive Surplus funds may not be distributed On dissolution assets may only be transferred to another club or PBO No excessive remuneration or commission based All members entitled to annual or seasonal membership No sale of membership rights No tax avoidance schemes Recreational clubs – cont. Penalties for violating section 30A Withdrawal of approval 6 months to transfer remaining assets to another approved club or PBO If fail to transfer Market value of those assets less liabilities deemed to be an amount of taxable income in year approval withdrawn Recreational clubs – cont. Effective dates Transitional period for sec 30A approval, applications must be made before the later of 31 March 2009, or Last day of its 1st y.o.a Scholarship and bursaries Section 10(1)(q) Taxed employees on salary sacrifice schemes Prohibited deduction sec 23(j) Skills shortage in SA needs to be addressed Amendment provides for exemption of all bona fide schemes However, if granted purely because of employment relationship To an employee, the employee must agree to reimburse employer if fails to complete his or her studies To a relative of an employee, will only be exempt if Remuneration of employee below R60 000 per annum, and Only exempts up to R3 000 per year, anything more is taxable Registration of intellectual property Sec 11(gB) has been extended and allows deduction for The grant, restoration or extension of a patent Registration or extension of a design Renewal of the registration of a trade mark Applies to all expenditure after 2 Nov 2006 Pre 2 Nov 2006 sec 11B(2)(b) applied Scientific or technological research & development Sec 11B allowed a deduction for R&D expenditure including registering, extending or renewing intellectual prop rights Capex 40:20:20:20 Improved R&D tax incentives to stimulate R&D New sec 11D for expenditure after 2 Nov 2006 Scientific or technological research & development – cont. Section 11D provides 2 sets of incentives Operating expenses deductible up to 150% Capital allowance 50:30:20 Applies to R&D undertaken in RSA Discovery of novel, practical and non-obvious information of a scientific or technological nature Or creation of any invention, patent, design or computer copyright or other similar property of scientific or technological nature Specific exclusions – prospecting, business processes, trade mark creation, social science and humanities and market research, sales or marketing Scientific or technological research & development – cont. Part R&D Apportion 150% deduction only for R&D Capital allowance 50:30:20 applies only to R&D portion of asset used regularly for R&D (e.g. pg 48) Recoupments Recovery of R&D expenditure will result in recoupment of the previously allowed deduction (e.g. pg 49) Cease of use of building on which R&D allowance claimed subject to recoupment limited to 100% of cost less 10% for each year used for R&D (e.g. pg 49) Scientific or technological research & development – cont. Government grant funded R&D projects If grant is taxable 150% allowed only to extent expenditure exceeds twice the amount of the grant (e.g. pg 50) If grant exempt then no deduction Reporting requirement Info on R&D project to Minister of Science & technology Small business corporations Small co-operative did not qualify for 12E status Unfair Section 12E now available to co-operative Small business corporations – cont. Sec12E disqualification through dual shareholding or membership other than Listed share or unit trust Body corporate Share block Collective interest entity List of exceptions extended allowed to act as members of non-business co-operatives e.g. consumer buy-aids, social co-operatives (nursery school) and funeral societies can be members of friendly societies. Small business corporations – cont. Section 12E(4)(c) definition of investment income Limits rentals to those derived from immovable property only Section 12E(4)(d) definition of personal service Requirement to employ at least 4 full-time non connected employees Decreased to 3 or more Public Benefit Organisations Tax rates of PBOs Depended on legal form of PBO Company 29% Trust 40% Unfair for PBO trusts Tax rate applicable to all PBOs irrespective of legal form 29% Effective y.o.a ending in the 12 months to 31 March 2007 Public Benefit Organisations – cont. Refining the PBO activity list Low cost housing PBO - minimum earnings of beneficiaries to be increased from current R3 500 (chg to Part I and II) PBOs that issue guarantees for low income housing loans (added to Part I) Conservation, environment and animal welfare (All activities in part I added to part II) Foreign established charities Agencies or branches Qualify for exemption but not section 18A donations Public Benefit Organisations – cont. Liberalising permissible investments Sec 30(3)(b)(ii) limitations deleted Free to invest as desired CGT on disposal of PBO assets Clarifies how to deal with assets used for dual trading and public benefit purposes Definition of PBO Sole object test relaxed to principal object Public Benefit Organisations – cont. Dual registration Director of Non-profit Organisations (NPO) Precondition for tax exemption status Removed PBO exemption now without NPO registration Provisional tax PBOs are exempt from the system Only for 3 years from 1st y.o.a commencing on or after 1 April 2007 Public Benefit Organisations – cont. Withdrawal of approval PBO in violation of section 30 or its founding statement Failed to transfer assets to another PBO Subject to tax on ‘accumulated net revenue’ Change Amount taxable is market value of assets not transferred less liabilities Personal service companies and trusts Section 23(k) limits deductions to Salaries Legal expenses (sec 11(c)) Bad Debts (sec 11(i)) Benefit fund contributions (sec 11 (l)) Expenses i.r.o premises, finance charges, insurance, repairs and fuel and maintenance i.r.o assets Condition that assets are used wholly and exclusively for trade Oil and Gas Exploration and Production Section 26B and Tenth Schedule inserted Oil & Gas exploration and production will be subject to provisions of IT Act but subject to 10th Schedule override Mining environmental rehabilitation funds New section 37A and 10(1)(cP) Fund growth is exempt from tax Contributions by eligible parties will be tax deductible General anti-avoidance rule Part IIA inserted in Chapter III Old section 103 required 4 elements Transaction, operation or scheme Avoidance, reduction or postponement of tax Manner not normally employed for business purposes, other than tax benefit or abnormal rights and obligations created Purposes solely or mainly for avoiding, postponing or reducing tax General anti-avoidance rule Old section 103 – cont. If requirements satisfied SARS determined liability for tax as if the transaction had not been entered into or carried out 103 has been ineffective Deleted for any arrangement or scheme after 2 Nov 2006 and new sections apply. General anti-avoidance rule – cont. Sections 80A to L of Part IIA inserted in Chapter III Requirements for an impermissible avoidance arrangement An arrangement Plus the tax effect Results in an avoidance arrange Plus the sole or main purpose is tax avoidance Plus a tainted element Results in an impermissible tax avoidance General anti-avoidance rule – cont. Definitions section 80L similar to sec 103 Arrangement Avoidance arrangement Transaction, operation, scheme, agreement or understanding Any arrangement that results in a tax benefit Party Anyone who participates or takes part in an arrangement General anti-avoidance rule – cont. Section 80A - Impermissible tax avoidance arrangement if Sole or main purpose to obtain a tax benefit, and A tainted element is present Abnormality (based on sec 103) Lack of commercial substance (sec 80C expands) Misuse or abuse of tax provisions (Canada and Europe) The 2 new elements provide a far more effective remedy for SARS General anti-avoidance rule – cont. Section 80B – Tax consequences Provides SARS with specific remedies and general remedy modelled on 103(1) Specific remedies Disregard, combine, re-characterise any steps Disregard any accommodating or tax-indifferent party Treat any accommodating or tax indifferent party and the other person as one and same person Reallocate amounts, re-characterise amounts General anti-avoidance rule – cont. Section 80C – Lack of commercial substance Contains indicators to determine when an avoidance arrangement lacks commercial substance Substance over form ‘unblinkered approach’ Round trip financing Accommodating or tax indifferent parties Offsetting or cancelling elements No reasonable expectation of pre-tax profit Pre-tax profit insignificant compared to tax benefit General anti-avoidance rule – cont. Section 80D – Round trip financing Section 80E – Accommodating or tax indifferent parties Section 80F – Treatment of connected person and accommodating or tax indifferent parties Section 80G – Presumption of purpose Rebuttable presumption if tax benefit Step or part may have different purpose to whole General anti-avoidance rule – cont. Section 80H – Steps in or parts of an arrangement Section 80I – Use in the alternative SARS may apply GAAR as an alternative basis for raising an assessment Section 80J – Notice SARS must give notice of intention to invoke, with reasons Taxpayer has 60 days to reply (extendable) SARS has further 180 days to raise queries, withdraw or invoke Section 80K – Interest may not be waived if GAAR invoked Reportable arrangements Old section 76A – introduced 1 March 2005 2 classes of arrangement Interest, fees etc vary depending on actual tax benefits Hybrid debt and equity instruments Intended to provide early warning to SARS Section 76A not effective and replaced with sections 80M to T New provisions not yet effective, date to be announced Reportable arrangements – cont. New provisions trigger reporting when an arrangement Interest, finance costs, fees or other charges are dependant on tax treatment lack of commercial substance as contained in GAAR financial liability for GAAP but not for tax No expectation of pre-tax profit for any of the participants Pre-tax profit is less than NPV of tax benefits Reportable arrangements – cont. Responsibility for reporting is placed on the promoter of the arrangement In the absence of a promoter all participants must report On reporting only a list of agreements to be reported and not the actual agreements Penalty for not reporting is R1 million Small personal service entities Para 1 of the 4th Schedule Obligation to withhold 34% Denial of tax deductions except for salaries Three amendment to relax provisions Client supervision applies only if must be at clients premises Regular payments deleted Escape hatch 4 or more employees now 3 or more Small personal service entities – cont. Relaxation of client withholding Onus of proof on client relaxed Rely on affidavit or solemn declaration that not PSE If in good faith then no liability to withhold Directives available again Relief for over withholding Reduce rate below 34% CGT valuations – submission dates Para 29(5) of 8th Schedule Value asset by 30 Sept 2004, and Lodge CGT 2L form, generally y.o.a asset sold High value assets had to submitted with 1st return after 30 Sept 2004 Value exceeds R10 million Intangibles exceed R1 million Unlisted shares, all share exceed R10 million If forgot to submit can still use the valuation just prove it was done pre 30 Sept 2004 Capital gain attributed to trust beneficiaries Concern that old wording of para 80(2) did not permit Attribution of portion of a capital gain Attribution of a capital gain in multiple beneficiaries Amendment confirms VAT - Excessive consideration Section 8(27) 10(26) and 16(3)(m) Any amount received in excess of amount charged If not refunded in 4 months Account for output tax If amount is refunded later then input tax can be claimed VAT – Entertainment expenses Section 17(2)(a) Generally denied Exception for subsistence i.r.o employees away on business Extended to self employed natural persons (contractors) where meals, refreshments and accommodation is paid by the vendor VAT – Deemed output on cessation of enterprise Section 22(3) triggered where supplier has not been paid within 12 months Creditors outstanding on date of cessation of enterprise did not trigger output tax Amended to trigger output tax on all amounts unpaid on date of cessation of enterprise if input tax has been claimed 2010 FIFA World Cup Schedule 1 of VAT Act Schedules 1 and 2 of Revenue Laws Amendment Act, 2006 Customs and Excise Act, 1964 2010 FIFA World Cup – cont. Tax free bubble concept Income tax and VAT (not other taxes) Restricted to FIFA designated sights For specified periods Receipts and accruals exempt from income tax VAT on supplies at zero rate Expenses on tax free income not deductible Tickets sales VAT at 14%
