Tax – things you should know
I checked “Important dates” on the SARS website – no mention of the last date for provisional taxpayers to file their 2015 returns via efiling! I guess SARS doesn’t consider that important? Anyway, the last date is 31 January 2016. Later than that and you will become liable for administrative penalties. Some of them are quite severe for repeat offenders (anything from R250 to R16 000 per month).
But here are some more things you really must know about SARS
Voluntary Disclosure. There’s a permanent option to voluntarily disclose previously undisclosed income or other naughties. SARS http://www.sars.gov.za/Legal/VDP/Pages/default.aspx makes it look like rather an attractive option. Don’t! There are much better ways of legally tidying up your tax affairs.
Micro businesses (turnover tax). Again SARS makes this out to be a very attractive option for the micro business (less than R1m turnover) http://www.sars.gov.za/TaxTypes/TT/Pages/default.aspx . Again, don’t. The implications are appalling. Consider, if nothing else, that most micro businesses start off with a tax loss. Now SARS wants them to pay tax on their turnover? Helloooo! That’s not all, but just don’t go there. This idea of SARS simply did not fly and will almost certainly disappear from the statutes before long.
Small business corporations. Now this, on the other hand, is a must if you can qualify http://www.sars.gov.za/ClientSegments/Businesses/SmallBusinesses/Pages/default.aspx . If your turnover is less than R20m and yours is not a personal services company or labour broker, then the rest of the qualifying requirements can be sorted out. You’ll be saving up to R90 000 tax every year! Take a look at our web page here and then contact me, firstname.lastname@example.org .
Interest on unpaid tax. Apart from the1st and 2nd provisional tax payments, income tax falls due 6 months after the tax year end except for February year ends when it falls due on 30 September (an unconstitutional distinction, I believe). Read about how Provisional Tax works. Thereafter, interest falls due, currently at 8,5%, unless a third provisional (voluntary top up) payment is made. This interest is not a tax deductible expense, so should you pay a third provisional or not?
The first consideration is cash flow. If you haven’t got the cash then you can’t make the payment and will have to carry the interest.
The other consideration is the cost of not paying. In the case of a company the cost is 8,5% whereas the cost of an overdraft (at prime) is 6,12% because the overdraft interest is tax deductible, but interest to SARS is not. Therefore it is a good idea for a company to pay a third provisional. If you’re paying more than prime your after tax borrowing rate is 0.72 times the rate that you pay at the bank. Compare the result to 8.5% and then make the call. If the result is lower, borrow the money from the bank and pay the third provisional, if it is higher, don’t.
In the case of an individual who also has an overdraft facility at prime, the cost is 8,5% either way because the overdraft interest is usually not tax deductible for individuals (as it is not in the production of income). So there’s no point in paying a third provisional. Of course, if your overdraft rate is higher than prime, then there’s even less reason to pay a 3rd provisional as SARS rates are lower than your bank’s.
Objections. If you need to lodge an objection at SARS, don’t! You won’t get it right and you’ll just dig a pit for yourself or your company to fall into. This really is a job for experts. When a client goes it alone, we almost invariably end up having to unscramble the egg.
Remember that for every extra rand that you or your company earns, approximately 30c to 40c goes to SARS. Then there’s CGT (up to 18,5%), Estate Duty (20%), Dividends Tax (15%), VAT (14%), Transfer Duty (up to 8%). It’s a wonder that we have anything left over to pay our e-Tolls! Trying to deal with SARS on your own is like going to court without a lawyer, chances of getting it right are close to zero.
Should you wish to make an appointment, please feel free to visit Derek’s diary and book a time that suits you.