YESTERDAY, TODAY, TOMORROW – A TAX SYNOPSIS FOR 2019

Topic Crux
relocation1Relocation costs benefit:
When will the expenditure be allowed as deductible relocation costs paid by the employer?
  1. There must be both an employer and an employee.
  2. The relocation must be offered by the employer.  Therefore, it is important to remember that this benefit is not a compulsory obligation which employers must comply with.
  3. The relocation/transfer must be to a different town/city/country and not merely to a different branch which is nearby.
  4. The benefit must be equal to the exact expenses incurred by the employee.
  5. All the documentary proof (i.e. invoices) relating to the incurred expenses, must be kept.
expat1
Expat tax amendment
In terms of the current law:
Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 currently provides quite a significant income tax exemption for any South African resident who is working abroad on a temporary basis, which exemption comes down to a 100% income tax exemption of any remuneration received from any employer(s) for work done outside South Africa if:

  • The South African has been out of South Africa, living and working in a foreign country for a minimum of 183 days, of which at least 60 days must have been consecutively. *

In terms of the amendment (which will be effective from 1 March 2020):

Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 will no longer be a 100% exemption.  From 1 March 2020 only the first R1,000,000 (one million Rand) of a South African’s foreign salary/income will be exempt from income tax and any amount above the R1,000,000 will be subject to South African income tax.

*This proviso will still apply.

financial1
Financial Emigration
Financial emigration is one of the options which falls within the ambit of tax planning and could be an option for you and your family.

However, before the decision can be made, we firstly need to analyse your financial portfolio in order to determine whether financial emigration will be cost effective and whether it is the best option for your portfolio (taking all relevant factors and circumstances into consideration).

For more information contact Chantél van der Merwe at c.vandermerwe@fhbc.co.za or give us a call.

sponsor1
Is your business about to sponsor sporting equipment to a local sportsman/woman? Here’s why it may qualify as a business expense.
The basic requirements in order to qualify as a sponsor, whose sponsorship constitutes advertising/marketing expenditure are:
  1. The sponsor must be conducting a trade;
  2. The trade must produce income; and
  3. The expenditure must have been incurred in connection with the sponsor’s trade or linked to the sponsor’s income-producing activities.

Having a look at the third requirement as stated above, it seems as if one cannot deduct an expenditure unless the expenditure is linked with the sponsors own trade and income-producing activities.  On the one hand it may be interpreted that this means if you sponsor something that is not linked with your business’s own trade – you cannot deduct such amount as an expenditure.

Regarding the nature of the example where a bicycle is sponsored by a financial services company – it might, on the face of it, disqualify the sponsorship cost as advertising expenditure.
Or on the other hand, it could be understood that the sponsor’s “income-producing activities” in fact, include the activity of marketing its business, which then constitutes as a valid deduction.  In the end, this topic lives on in a grey area of our law.  But – in The New State Areas Ltd v CIR -case, Watermeyer CJ, made the following statement:

“. . . the purpose of the expenditure is an important factor; if it is incurred for the purpose of acquiring a capital asset for the business it is capital expenditure even if it is paid in instalments; if, on the other hand it is in truth no more than part of the cost incidental to the performance of the income producing operations, as distinguished from the equipment of the income producing machine, then it is revenue even if it is paid in a lump sum.”

carbon_tax1
SA’s all new carbon tax:You must start keeping record of your carbon footprint for SARS from 1 June 2019.
The implementation of carbon tax isn’t just a brand-new concept for our regulatory authorities, but it also falls within its own highly specialised field of tax law which is yet to be tested by taxpayers, tax practitioners, SARS and other interested parties/stakeholders.  Therefore, in order to ensure that your company will be tax compliant in terms of the Carbon Tax Act 15 of 2019 and the Customs and Excise Amendment Act 13 of 2019, it is of utmost importance to seek professional financial and legal advice.

To emphasise the importance of the record keeping of your company’s carbon footprint – please note that the first tax reporting period for carbon tax already started as from 1 June 2019 and will end on 31 December 2019.  The tax returns for the latter period must be submitted to SARS via eFiling in July 2020.  Additionally, you or your company will need to be proactive regarding your 2020 budget by including an amount of the estimated carbon tax your company will be liable for.

bursaries1
Bursaries and scholarships in the workplace: invest in your team
The application in the workplace

Where the benefit is granted to an employee the following requirements must be met in order to qualify for the tax-free benefit:

The bursary or scholarship will be exempt from tax where:
The bursary is granted to an employee  

  • who agrees to reimburse the employer for the bursary if the employee fails to complete his/her studies for reasons other than death, ill-health or injury; or
  • The bursary is granted to a relative of an employee that earns less than R600,000 per year,
  • and to the extent that the bursary does not exceed R20,000 per year (or R30,000 per year for a disabled relative) in respect of:
  • grade R to matric (as contemplated in the definition of ‘school’ in section 1 of the South African Schools Act, 1996 (Act No. 84 of 1996); or a qualification to which an NQF level from 1 up to and including 4 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008 (Act No. 67 of 2008)); and
  • in the case of further education (meaning NQF level 5 up to 10), to the extent that the bursary does not exceed R60,000 per year (or R90,000 per year for a disabled relative).

Bursaries and study loans granted as fringe benefits
Where a bursary or study loan does not fall within the ambit of the above exemption, it will be taxable in the employee’s hands.  In this case, the bursary/study loan will be taxed as a fringe benefit (in terms of Paragraph 2(h) of the Seventh Schedule).

church1
What you need to know about Public Benefit Organisations and section 18A receipts
What is a public benefit organisation (PBO)?
Section 30(1) ITA sets out the different requirements which must be complied with by organisations in order to qualify as public benefit organisations.  These requirements can be summarised as follows:

  • Firstly, the organisation must be a non-profit organisation, which was formed, incorporated or established in South Africa, or a non-profit organisation established in a foreign country, that is exempt from income tax in that foreign country;
  • Secondly, the organisation’s sole or principle objective/goal must be to carry on one or more public benefit activities, where –
    • All the activities are carried on in a non-profit manner; and
    • with an altruistic of philanthropic intent; and
    • No such activity is intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of the organisation – other than by way of reasonable remuneration payable to that fiduciary or employee.
  • Thirdly, each of the activities must be for the benefit of the public or must be widely accessible to the public at large, including any sector thereof (other than small and exclusive groups).

Why is it crucial to apply for the income tax exemption? 

The fact that your organisation complies with the requirements set out in section 30 of the ITA, does not automatically grant your organisation a tax exemption.  In order to qualify for the said exemption, your organisation must apply for its PBO status.  This application must be submitted to SARS’s tax exemption unit.  Together with your application, you must also submit your organisation’s constitution.

Once your organisation’s application has been approved, your organisation will no longer be liable for income tax (and donations tax).

Keep in mind that your organisation must still submit annual tax returns (IT12EI), as this obligation does not fall away.

 

For the full versions of the above news articles with references, please visit our website:

https://www.fhbc.co.za/latest-news/

Or get in touch:

T +27 (0)21 864 5180 / c.vandermerwe@fhbc.co.za

Our next tax topic – January 2020

“To be or not to be” Shakespeare

Does your business qualify as a “Small Business” according to SARS?