Exemption of foreign pensions received by South African residents

Over the past few years there has been uncertainty surrounding the circumstances of South African residents receiving pension payments for services rendered or partly rendered outside South Africa. The South African Revenue Service (SARS) has previously taken the view that if the fund was located in South Africa, then the source was deemed to be in South Africa and therefore rendered the total amount of the pension payment as being taxable in South Africa, irrespective of the fact that the pension may have related partly to services that were rendered outside the country.

Binding General Ruling No 25 (Ruling), issued by SARS on 14 November 2014, provides clarity on the interpretation and application of the words "from a source outside the Republic” contained in s10(1)(gC) of Income Tax Act, No 58 of 1962 (Act). It is now indicated that the reference to ‘source’ in the Act refers to the originating cause which gave rise to the pension income. In terms of the Ruling, a formula will be used to determine the portion of the pension that will be exempt.

Section 10(1)(gC) of the Act does not refer to the source rule contained in s9(2)(i) of the Act. Section 10(1)(gC) of the Act exempts from the payment of income tax any pension received by or accrued to any resident from a source outside South Africa as consideration for past employment outside South Africa.

Section 9(2)(i) of the Act in turn provides that an amount is deemed to have been received by or accrued to a person from a source within South Africa if that amount constitutes a pension or annuity and the services in respect of which that amount is so received or accrued were rendered within South Africa. However, if the amount is received or accrued in respect of services which were rendered partly within and partly outside South Africa, only a relevant portion will be from a source within South Africa.

In the Explanatory Memorandum on the Taxation Laws Amendment Bill 2011, pursuant to which s9(2)(i) was introduced, it was indicated that the source of pension payments will be based on the source of the underlying services giving rise to those payments.

Section 9(2)(i) of the Act specifically provides for when a pension payment is deemed to be sourced in South Africa and when not and the section provides for an apportionment of the pension concerned in respect of services that were rendered partly within and partly outside South Africa.

The ruling applies from the date of issue (14 November 2014) and will apply until it is withdrawn or the relevant legislation is amended.

Accordingly, recipients of pension benefits should ensure that the correct formula is applied in determining which portion of the pension benefit received may be exempt on the basis of services having been rendered outside South Africa.

However it appears that the Ruling did not deal with the receipt of lump sum payments.

Tax in South Africa: SARS has reached its limit of effective collection

In a new series of TV advertisements called "Paranoia", the South African Revenue Service (SARS) warns people: "We’re closing in on you." The character in the advert is jumpy and sweaty. For good reason. Presumably SARS has picked the low-hanging fruit — the 4% of personal income taxpayers who, being easily audited, contribute 41% of all personal income taxes.

But the public isn’t stupid. It knows personal income tax receipts have grown at a compound annual rate of 10.7% (double the rate of inflation) since the 2008 global financial crisis; that the ratio of taxes to gross domestic product has increased from 22.9% to 26.1% since 1994; that public servants’ wages devour 88% of state spending; that 16-million social grants consume 76% of the income taxes paid by the upper middle class; and that at least one-third of all personal income taxes are evaded.

An internet search for "how to evade tax in SA" yields 380,000 highly readable results. SARS’s ads are an inducement, not a warning.

In a previous campaign, "SARS Thanks You", the agency took a different tack, by showing its gratitude to taxpayers for the difference they make to individual lives. One expensive three-minute advertisement inadvertently shows long queues, antiquated equipment and soiled bed linen in a state hospital, with a doctor who calls the scheduled cataract surgery "nerve-wracking". But cataracts are routinely removed in a 30-minute procedure in a private hospital or ophthalmologist’s rooms with a 99.8% success rate.

It was cold comfort for taxpayers that, according to the advert, R442bn would be spent on state health services. The private healthcare system, with just 12% of the resources, serves about the same number of people as the public healthcare system, with vastly better outcomes. The adverts quickly became a laughing stock.

SARS’s original advertising campaign involved amnesties for wayward taxpayers. Amnesties in 1996, 2004, 2006 and 2011 covered business and personal income tax, value-added tax, pay-as-you-earn (PAYE), exchange controls, and sundry excises and duties. It is no coincidence that, over the period 385,000 taxpayers "took advantage" of the amnesties, and 440,000 taxpayers disappeared into the so-called informal sector, the characteristics of which are income-tax evasion and circumvention of labour laws.

While a little compliance did stem from the amnesties, it became an embarrassment to SARS that only 5.2-million people (34.4% of all employed people) paid any personal tax at all, leading it to pass regulations making registration for PAYE compulsory regardless of income, which trebled the number of apparent personal taxpayers to 15.4-million.

As far back as the 14th-century Islamic world, economists understood that, at low tax rates, economic activity flourishes and people comply with their tax obligations. At high tax rates, economic activity recedes and resources are diverted to tax evasion. At some comfortable mid-level tax rate, tax revenues are maximised. SARS appears to be acutely aware that it has reached this point.

The effective rate of personal income tax has remained static at about 19.5% over the past decade. Even for the very rich — those earning more than R5m a year (supposedly only 166 of them) — the effective tax rate has remained static at about 39.7% over the past decade.

Taxes on cigarettes, alcohol and fuel have remained roughly constant in real terms for the reason that 20% of fuel and 45% of cigarettes are smuggled, and the Treasury has little space to raise taxes on these items without promoting further tax evasion.

If SARS and the Treasury continue along the present lines, SA will quickly slide from a predatory to a failed state. The government has proved to be an enthusiastic raiser of taxes and a hollow and insolent provider of services. The delivery of such minimal political goods as security of persons and property, institutions of dispute resolution, institutions of political participation and methods of regulating the use of common resources are at an advanced stage of collapse.

Mining and water rights have been quietly nationalised. People are kept in a state of tenancy in their own homes. Policing is done more effectively by private security companies than the police. Low-fee private schools are growing exponentially while state schools close down.

Private healthcare dominates in the provision of quality medical services. Meanwhile, tax morale is declining and heavy-handed advertising by SARS will keep it so.

Twelve Pillars - Review

This is exactly what happened to Michael Jones in this new novel by Jim Rohn and Chris Widener when his car broke down on the side of the road in the dark of the night just to be lead straight into a life-changing relationship.

Walking to the nearest house, Michael stumbles across a plantation style mansion on an estate named "TwelvePillars." Charlie, the estate's caretaker, helps Michael get back on the road again and also strikes up a relationship with him - and along the way teaches Michael the secrets of success - the Twelve Pillars of Success - that have made the owner of the house, Mr. Davis, a wealthy and successful man.

Twelve Pillars blends together the fundamental principles and teachings of Jim Rohn and with the help of Chris Widener, those principles have been weaved into a unique tapestry of a fictional account of three characters – Michael, Charlie and Mr. Davis.

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Live a Life of Three-Dimensional Health
The Gift of Relationships
Achieving Your Goals and the Proper Use of Time
Surrounding Yourself with the Best People
Becoming a Life-Long Learner
Income Seldom Exceeds Personal Development
Communication Brings the Common Ground of Understanding
The World Can Always Use One More Great Leader
Leaving a Legacy

Twelve Pillars offers simple but very powerful principles of success that will inspire you to take your life to the next level and beyond. You will undoubtedly achieve more and live a more productive, fulfilling life rewarded with more meaningful relationships. If you want a book that introduces success principles in a quick, easy, and fun format, this is the book for you. It will challenge and encourage you to become the best that you can be!

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Tax in South Africa: Nene’s tax challenge

South Africa does not have the scope to increase corporate tax rates, a new survey suggests.

Finance minister Nhlanhla Nene is under pressure to find ways to increase tax revenues to reduce South Africa’s budget deficit and keep rating agencies at bay. But with economic growth now expected to reach a meager 1.4% this year, any potential tax hikes would need to be implemented with care.

According to PwC’s Paying Taxes 2015 survey, South Africa’s total tax rate (a measure of the burden of all taxes a company must pay in relation to its commercial profit) of 28.8% ranks it 40th out of 189 countries. The global average total tax rate is 40.9%.

The survey compares the ease of paying taxes across 189 economies by considering the situation of a medium-sized business in its second year of operation. It studies the time the case study company needs to prepare, file and pay its taxes, the number of taxes it has to pay, the method of payment and the total tax liability as a percentage of its commercial profits.

Tax in South Africa: No evidence justifying penalty

Judgment was handed down in the Tax Court on 18 November 2014 in the case of AB (Pty) Ltd v The Commissioner for the South African Revenue Service (case number 1132, as yet unreported).

In this matter the South African Revenue Service (SARS) audited and assessed a vendor in respect of Value-added Tax (VAT). It appeared that the vendor could not adequately explain, nor provide supporting documentation, in respect of discrepancies between its VAT declarations for the relevant periods, and the VAT control account in its books.

The vendor objected against the assessments, but the objection was only partially allowed. The revised assessments, following the partial allowance, were in respect of overstating input VAT, additional tax at 200% in terms of s60 of the VAT Act, No 89 of 1991 (VAT Act) (as it read at the time), a 10% late payment penalty in terms of s39 of the VAT Act, and interest.

The vendor appealed against the decision of SARS to not allow the objection in full. However, the vendor subsequently conceded that the capital amount of the tax was due, and proceeded with the appeal only in respect of the additional tax, late payment penalty, and interest.

In support of its appeal, the vendor submitted to SARS that it had never been its intention to evade tax, that it was under the impression that its auditor was correctly dealing with its tax affairs (not having any tax or accounting experience themselves), and requested that SARS be lenient and waive the penalties and interest.

In respect of the 200% additional tax, the parties agreed that SARS had the duty to begin and that the onus was on SARS to prove that the imposition of the additional tax was correct.

SARS called one if its auditors as a witness, which recommended to an internal committee that the additional tax be imposed. However, the decision to impose the additional tax was ultimately made by a more senior committee, and little reliance could thus be placed on the witness.

The court noted that SARS did not place any evidence before the court as to how and why the senior committee arrived at its decision, and there was thus no evidence that would enable the court to assess the correctness of the decision. The court also noted that SARS, at the outset of the hearing, advised the court that it no longer sought to impose 200% additional tax, but only 100% additional tax. This implied that SARS conceded that the decision of the committee was incorrect.

The court took the approach that a court is allowed to re-hear the entire matter where the correctness of a discretionary decision (which is subject to objection and appeal) is contested.

On such a rehearing, SARS has to lead evidence afresh to show how the percentage of additional tax was arrived at, and that it was correct, but no such evidence was presented. SARS did thus not discharge the onus, which it had accepted.

The court accordingly set aside the imposition of the additional tax, and directed that "the additional tax be remitted to nil”. The court did not deal with the late payment penalty and the interest.

Tax in South Africa: who is paying?

New data from StasSA finds that government received less tax from businesses in 2012/13 than it did four years prior, in 2008/09.

During 2008/09, businesses paid R189 billion in taxes, but this decreased to R152 billion in 2010/11.

There was a moderate recovery to R181 billion in 2012/13 but that was still 5% less than the 2008/09 figure, as it struggles to recover to pre-recession levels.

Following last year’s income tax deadline, StatsSA noted that individual tax payers contributed R277 billion to government coffers in 2012/13 financial year, up 40% from 2008/09.

SA Revenue Service (Sars) said that upward of 3.8 million South Africans had submitted their tax returns.

"Of those, just over two million returns were completed via eFiling and over 1.8 million completed electronically at a Sars branch,” spokeswoman Marika Muller said in a statement.

"If you were successful in completing your ITR12, know that your inclusion as a member of the individual tax base is an extremely important one. Of the R1 trillion of total income received by government during the 2012/13 financial year, R872 billion was collected as tax,” StatsSA said.

Most of this tax was collected from individuals who contributed just under a third of the total (32% or R277 billion).

Value Added Tax (VAT) came second, at R215 billion (25%), followed by taxes paid by businesses (R181 billion or 21%).

Excise tax contributed 10% (R89 billion), followed by other taxes (13% or R111 billion).

Your First Year in Network Marketing - Review

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Tax in South Africa - Proposed amendments to the Tax Administration Act

Requests for relevant material

In terms of section 46 of the TAA, the South African Revenue Service ("SARS”) may, for the purposes of the administration of a tax Act, require a taxpayer or another person to submit "relevant material” (whether orally or in writing) that SARS requires. "Relevant material” is currently defined in section 1 of the TAA as any information, document or thing that isforeseeably relevant for the administration of a tax Act. The DTLAB 2014 proposes that the definition of "relevant material” be amended to refer to any information, document or thing that in the opinion of SARS is foreseeably relevant. The draft memorandum on the objects of the Tax Administration Laws Amendment Bill 2014 ("the Draft EM”) states that the purpose of this proposal is to clarify that the statutory duty to determine the relevance of any such information is that of SARS and the term foreseeably relevant does not imply that taxpayers may unilaterally decide relevance and refuse to provide SARS access thereto.

Furthermore, section 46(4) of the TAA currently provides that a person receiving a request for relevant material from SARS must submit the relevant material to SARS at the place and within the time specified in the request. The DTLAB 2014 proposes that section 46 be amended to allow SARS to not only specify the place and time for the submission of the relevant material, but also the format in which the person must submit the relevant information. The Draft EM states in this regard that it has happened that taxpayers refused to provide information in a certain format, particularly electronic format. Accordingly, if this amendment is introduced, taxpayers will not be able to provide print-outs to SARS if SARS specifies the relevant material to be provided in electronic format.

Requests for suspension of payment pending objection or appeal

In terms of section 164 of the TAA, a taxpayer may request a senior SARS official to suspend the payment of tax or a portion thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to that tax. A senior SARS official may then suspend payment of the disputed tax or a portion thereof having regard to a number of factors set out in section 164(3) including, inter alia, the compliance history of the taxpayer, the amount of tax involved, the risk of dissipation of assets by the taxpayer, whether the taxpayer is able to provide adequate security for the payment of the amount involved, whether payment of the amount involved would result in irreparable financial hardship to the taxpayer or whether any fraud is involved in the origin of the dispute. The DTLAB 2014 proposes that the merits of the taxpayer’s basis of disputing the assessment and the strength of the disputed assessment, as are evident from any document related to the assessment, should also be included in the list of factors to be considered.

The Draft EM in this regard states that the proposed amendment clarifies that the factors listed in section 164(3) were never intended to be exhaustive as a SARS official is administratively obliged to consider all relevant factors, but that the amendment will clarify that the merits are relevant to the extent available.

Reportable arrangements

The DTLAB 2014 proposes a number of amendments to the reportable arrangement provisions contained in Part B of Chapter 4 of the TAA. In terms of the current provisions, the primary reporting obligation is on the "promoter”, being the person who is principally responsible for organising, designing, selling, financing or managing the reportable arrangement. Only when there is no promoter or when the promoter is a non-resident, must the other participants disclose the required information. The DTLAB 2014 proposes that the reporting obligation will no longer fall primarily on the promoter. All participants (including the promoter) will have the obligation to report the required information within 45 business days of the arrangement qualifying as a reportable arrangement or within 45 business days of such person becoming a participant in a reportable arrangement. A participant need not report the arrangement if that participant has a written statement from any other participant that the arrangement has been reported.

Currently, a "participant” is (i) the promoter, or (ii) a company or a trust which directly or indirectly derives or assumes that it derives a tax benefit or financial benefit by virtue of an arrangement. The DTLAB 2014 proposes that the definition of "participant” be expanded to not only refer to companies or trusts, but a person who derives a tax benefit or financial benefit. Accordingly, individuals would also fall within the ambit of the reportable arrangement provisions.

Don't Sweat the Small Stuff and It's All Small Stuff - Review

Don't Sweat the Small Stuff...and It's All Small Stuff is a book that tells you how to keep from letting the little things in life drive you crazy. In thoughtful and insightful language, author Richard Carlson reveals ways to calm down in the midst of your incredibly hurried, stress-filled life.

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• Let others have the glory at times
• Lower your tolerance to stress
• Trust your intuitions
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Tax in South Africa - Construction firms’ tax affairs worry SARS

The South African Revenue Service (SARS) is concerned about the low level of tax compliance in the construction industry, whose reputation was tarnished by widespread bid-rigging and price fixing uncovered by the Competition Commission.

Last year 15 companies paid a total fine of R1.46bn for collusive tendering following an investigation by the commission. Now it transpires that the tax authority has had to dig deep for data and badger construction companies to pay their dues to the fiscus.

In the 2013-14 fiscal year SARS completed 800 audits of construction firms, which raised R1.76bn in assessments of which R192.6m has been collected.

It also discovered — on the basis of information supplied by the Construction Industry Development Board and the National Home Builders’ Registration Council — that there were 627 companies that were not registered for either value-added tax (VAT) or pay-as-you-earn (PAYE).

SARS noted a general decline in industry compliance in its annual report tabled in Parliament last week. On-time filing of VAT returns declined from 47% in the 2010-11 financial year to 43% in 2013-14, while the level of nonfiling increased from 36% to 48%. Though PAYE filing compliance improved from 61% to 65% in the past four years, corporate income tax filing fell. The number of late or outstanding corporate tax returns increased from 64% in 2011 to 75% in 2013.

In a bid to enforce compliance, SARS officials made more than 9,500 telephone calls to nearly 4,200 taxpayers in the industry last year. "This resulted in more than 1,800 cases being finalised and the submission of more than 5,000 outstanding returns," the authority’s annual report said.

"Overdue debt of around R480m was collected … SARS referred 29 cases with a prejudice of R52m to the National Prosecuting Authority (NPA) for possible prosecution."

SARS would continue to focus on the construction industry, it said. "SARS will pay particular attention to companies that receive government contracts to ensure they are tax compliant because these firms receive funding that is sourced from taxpayers," it said. The modernisation of the tax clearance certificate system would tighten control over the issuance of certificates that are required for applications for government contracts.

Besides construction, audits of four multinationals probed for transfer pricing yielded assessments of R3.7bn, of which R2.4bn was collected.

High-net-worth individuals also received particular attention from SARS, which has identified about 3,000 in the country. Nearly 80 audits were conducted into their affairs, yielding assessments of R349m and recovering debt of R106m. Six cases were referred to the NPA for possible prosecution.

The compliance of tax practitioners came under SARS’s spotlight following the implementation of the Tax Administration Act, which required that they re-register. The act enables SARS to better monitor and regulate the conduct of tax practitioners.

In the re-registration process, SARS was able to recover R13.5m in debt. It conducted 243 compliance audits of tax practitioners which yielded revenue of R14.2m. Twenty cases of outstanding returns involving R18m were handed to the NPA for possible prosecution.

Former acting commissioner Ivan Pillay noted in his review that more than 99% of the 6.6-million returns received by SARS last year were submitted electronically, either through e-filing or at a SARS branch office. Nearly 94.5% of all personal income tax returns filed were processed within three seconds.

"Measures enabling employers to register their employees for income tax have borne fruit resulting in the achievement of a compliance level of more than 99% among individuals required to register for personal income tax," Mr Pillay added.

SARS conducted more than 1.8 million audits, of which about 20,000 were "high-risk, complex and high-impact" cases.

It collected R900bn in tax last year, of which R311bn came from personal income tax, R180bn from corporate income tax, R238bn from VAT, and R176bn from customs revenue. Total debt outstanding at year end was R83bn, or 9.2% of total tax revenue, of which R29.5bn was new debt. A total of R15bn was written off during the year.