Harbour & Associates

It is a general rule in tax that transactions between connected persons are deemed to be at market value. Typically, this arises when someone sells their fixed property or shares in a private company to their trust. The question then arises “Who must do the valuation?” and the Income Tax Act and Transfer Duties Act are silent in that regard. They simply say that SARS may challenge any valuation. This means that the seller can determine the market value. And that raises the question “On what basis must the asset be valued?” Generally, companies are valued on their last signed…

I have been wrong all this time! The answer is yes, a trust must register as a taxpayer even though it will never receive taxable income. I dug this up while referencing my upcoming book 16 Steps to Tax Wisdom. Here’s why – s67 Registration as taxpayer.—(1)Every person who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated in section 66 must apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of the Tax Administration Act s66 Notice by Commissioner requiring returns for assessment…

Would you believe? The Master of the High Court offices are overwhelmed with a backlog due, they claim, to Covid. And now, with load shedding taking about 4 hours out of most working days, they don’t have generators. So what do they do during those four hours? Well, we do know that they close their doors and allow no members of the public in for follow-ups etc. Then, knowing their general attitude towards their work, I doubt that they do anything except scroll through their favourite social media app. And so, we wait, and wait, and wait.

Why would you want to form a trust for your aged parents? Firstly, here’s why you wouldn’t. The cost of transferring assets into a trust structure may be prohibitive. They can include – Transfer Duty Capital Gains Tax Securities Transfer Tax Conveyancer’s fees Depending upon the remaining life of the second dying of the parents, the protection from taxes on death of the gain in value of the assets may not warrant the above costs Their estate may not be big enough, bearing in mind the allowances for CGT and Estate Duty on death. Then why would you? The above…

I referred to the new anti-money laundering act in an earlier post regarding trusts. The same Act amends the Companies Act to require the reporting of beneficial ownership (essentially the shareholders) of all companies to CIPC. Interestingly, the Master of the High Court has already published their requirements on their portal CIPC have also added the facility to their website, but at my last try it didn’t work. One side effect of this is that those of you who are employees who are not allowed by their employer to run a business will now no longer be…

If you bought from us, you probably only paid R475 to register your company (R300 for us and R175 for CIPC). Not a big deal. But then the business doesn’t get off the ground and you want the company de-registered. Now what? Now we have a very different story. This is the sequence (and our current fees) All tax returns must be filed (presumably Nils) R2 020 for each tax year. All CIPC returns must be filed R1 120 for each 12 months following registration. De-registration at CIPC R4 500 De-registration at SARS R3 500 That’s a whopping 11 140…

I was caught really flat footed recently when, in a meeting, I was asked whether the client, who buys and sells residential property and is VAT registered, must charge VAT on each sale. I knew the answer was “No”, but an alarm bell rang in the back of my head, because I had accepted that as common knowledge and had never gone to source, the VAT Act, to confirm it. I promised to go to source and report back. Well, I had to report back that nowhere in the Act, does it state in simple terms that the trade of…

SARS seems to be trying everything in the book to squeeze more out of those who pay tax. Now it’s all about assessed losses. If your company had an assessed loss at the beginning of any year, it could carry it forward as a deduction against future taxable income provided it traded in that year. This remains the case for companies whose taxable income is less than R1m. However, for those whose taxable income exceeds R1m the set-off is limited to 80% of the taxable income. Evidently, although s20 is not absolutely clear on this, the balance of the assessed…

As part of its efforts to (unsuccessfully) avoid grey listing, South Africa, at the end of 2022 promulgated the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act. This new Act amended 3 other Acts, amongst them, the Trust Property Control Act. Here’s what it did. Definition of “beneficial owner” (of the trust property) includes amongst others, the Founder, the Trustees and any beneficiary referred to by name. 11(1) The trustees are required to (e) record the prescribed details relating to accountable institutions which the trustee uses as agents to perform any of…

Now I’m disgusted. A new client whose personal tax return was due in November 2022 didn’t submit until January 2023. It was a perfectly straightforward return and his tax came to R75 000. He had paid R68 000 in PAYE so there was R7 000 still to pay. All well and good. But SARS had hit him with R2 000 per month, R6 000 in total, Administrative Penalties for late submission! Now, I know SARS has the authority to impose these penalties, but the punishment is so excessive in relation to the crime, that I can’t help thinking that there’s…

As accountants we are very much aware that loans to shareholders by their company need to bear interest, otherwise the interest is deemed to be a dividend and subject to Dividends Withholding Tax. But what I missed until recently is that, because trusts are defined as “persons” in the Income Tax Act, this also apples to loans by companies owned by a trust to the trust itself. Normally, this would never happen as, why would the trust need a loan? However, it did come up and I had to go to the Act s64E(4)(a) and (b) to unscramble my head.

For over 20 years, we have been hearing that Government is working hard to make it easier to do business in South Africa. Huh? It would be ridiculously simple if just one reasonably intelligent, well informed, person spent just one hour thinking about it. He or she would come up with the following for any company whose turnover is less than R20m. Eliminate annual CIPC returns. They are a complete waste of time and money and achieve nothing. Saving about R1 000. Eliminate provisional tax returns. Collect all taxes from the Annual tax returns. Saving about R1 000 this would…

So, what is the real tax cost of the salary that you draw from your own company? You, and many like you, may be pleasantly surprised. What most people forget is that when they draw salary from their company, this is a tax deductible expense, so the company saves 27% tax (currently 28%, but coming down). So, let’s say you’re under 65 and that the only income that you receive is from your company. Your company owes you some start-up money and you charge R23 800 interest per annum on that loan. The first R23 800 interest received is tax…

Here are some Do’s – If we didn’t form your trust, then it was probably formed with a donation of R100. You MUST open a bank account and deposit that R100, otherwise your trust was not actually formed. Keep a copy of the first bank statement on file. Once the R100 has been used up in bank charges, close the bank account. You don’t need it. If we didn’t form your trust, then the trustees are probably required, in terms of the Trust Deed, to hold annual meetings. Make sure that they do and that minutes are kept. Otherwise they…

There is no threshold for normal company tax. The first Rand of taxable income is taxed at 28%. However, there’s an exception to this. If the company is a Small Business Corporation (SBC) then the first R91 250 profit is free of tax. The tax rate then steps up to 7%, then 21% and finally 28% above R550 000 taxable income. The main qualification is that all shareholder must be natural persons and may not be shareholders in any other active company or CC. It may also not be a rental company or a personal services company. There are other…

If you are starting a business you have to consider whether to continue as a sole trader or to register a company. In favour of a sole trader – You already have to submit a personal tax return. If you remain as a sole trader, then you still only submit your own return, but if you register a company, then you have to submit one for the company as well. A company has to submit two annual returns to CIPC and pay their small fee. If you don’t do it yourself you will need to pay for the registration. Currently…

The sale of property always attracts VAT or Transfer Duty but never both. Under special circumstances, the sale can be zero rated. This is when you buy a commercial property renting business as a going concern. Developers are invariably VAT registered, so the VAT that they charge you replaces Transfer Duty. They often advertise this as “No Transfer Duty” and then bury the VAT in their selling price, so you don’t see it. In the above example the Transfer Duty (after taking the VAT out of the price) would have been R44 963, but the VAT in the selling…

No. Only shareholders which are companies are exempt. Having said that, if company A is a beneficiary of a trust which owns company B and company B declares a dividend, can the dividend flow through the trust to company A using the Conduit Principle thereby avoiding the DWT? An interesting question. I’m not a tax specialist, but by the way I read s41 and then s1 of the Income Tax Act, in order to be exempt the dividends have to be received by a company which is, either directly or indirectly, a 70% or more shareholder in the company…

This question arises because it only takes about a week to form a company but 6 to 8 weeks to form a trust. You want your trust to own this new investment company, but only the company has been formed. The trust is still in process at the Master’s office. The end of February is approaching and you and your spouse each want to make the R100 000 donation to the company on loan account before the tax year ends. If you miss the deadline, that’s R200 000 loan account missed. So, you make the donation and the trust is…

The guy I was talking to on Zoom lives in Cape Town, works remotely for a Dubai company and earns a good income. He and his wife are thinking of living in Dubai for half of every year so that they will not be deemed to be South African residents. They figured they would save 45% tax because he’s on the maximum marginal tax rate. It seemed like a good idea as Income Tax in Dubai is zero. There are a number of factors that he missed. I didn’t ask what his income is, so let’s work on R2m a…

Blog

Market value for connected transactions

Must a trust register as a taxpayer?

The Master’s office does not have backup power!

New trust for aged parents

CIPC and the disclosure of shareholders

How do I de-register my company?

If I trade in residential property must I charge VAT?

Assessed losses that won’t carry forward

New laws relating to trusts

SARS penalties now R2 000 per month for late personal tax returns

Loans to a trust by a connected company

How to make it easier to do business in South Africa

How entrepreneurs save tax

I have just formed a trust. What next?

How to minimise company tax

Why register a company?

Can I buy property from a developer with no VAT and no Transfer Duty?

Are trusts exempt from Dividends Withholding Tax?

Can I donate R100 000 to my trust’s new company before the trust is formed

Should I live in Dubai to save tax?

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