While the country was under lockdown, it appears SARS and National Treasury have been hard at work, using this time to refine the law in SARS’ favour. These changes do not refer to the Covid-19 tax relief changes but are aimed at closing tax loopholes and to simply give SARS and the National Prosecuting Authority more teeth. Ask your accountant or tax advisor to help you understand the amendments and their impact on your tax planning and tax compliance strategy.
1. Raising of tax assessments by SARS simply using an estimate
SARS has had enough of taxpayers ducking and diving from their tax administration obligations. In terms of the new amendment, SARS has the power to raise an estimated assessment where the taxpayer does not respond to a request from SARS for relevant material, but this has been thought through carefully.
The law amendment also now ensures that taxpayers will be barred from lodging an objection if the taxpayer does not submit the material requested. Should SARS have you on their radar or have questions subsequent to a lifestyle audit, ignoring a request for relevant material means SARS can raise an estimated assessment and impose penalties and interest.
Getting untangled from this, even where you are innocent, will become far more difficult. Make sure you take your accountant’s calls or respond to their emails, as adopting the ostrich approach will get you into deep trouble.
2. Employer provided bursaries
Are you an employer who has tax structured bursaries, including for relatives of your employees? Or perhaps an employee who has benefitted hereon in the past? The law on this has been amended substantially and from 1 March 2021, using employer-provided bursaries as a mechanism to structure your remuneration from a tax perspective is no longer allowed.
These bursaries must be disclosed on your IRP certificate, and not doing so is a criminal offense. Thus, there is no place to hide hereon and this is truly something of the past. There are now very limited instances where this tax exemption can be utilised, as part of a tax optimal total reward strategy.
3. Withdrawal from retirement funds upon emigration
Have you emigrated or are you planning to emigrate from South Africa in the near future, with retirement funding in a pension preservation fund, provident preservation fund or retirement annuity fund? You are on borrowed time if this is the case and you need to urgently finalise and file your financial emigration application, before 1 March 2021.
If you miss this deadline, your retirement funds will be locked-in for at least the next 3 years in South Africa. We also expect more to come from the compulsory preservation of retirement funds, meaning the government may have the final say on how your retirement funds will be dealt with in future.
4. First good news item – unexpected tax relief for South Africans working abroad
Many expats were concerned that they would not make the 183-and-61 day tax exemption, as a result of the lockdown. SARS has kindly proposed to reduce, for a limited period, the 183 days requirement to 117 days. This rule change creates interesting tax planning opportunities and requires a deeper look for anyone who was outside South Africa for more than 60 days continuously in 2019 or 2020.
5. Living Annuities and termination of trusts
The era of setting up personal trusts left right and centre has come to an end with the introduction of section 7C. There are still instances where old trusts make sense and limited instances where one’s objective is asset protection.
But if you think that creating a new trust will benefit you, perhaps you should get a second opinion from your accountant. You may sound important over dinner referring to your trust or even prevent your children from fighting over who gets the beach house, although inevitably they often still do.
But do not think for a second you will pay less tax, as the opposite is true. Where you have a trust with a living annuity, you need to be aware of the new law changes when considering the death of an annuitant.
6. Circumvention of the anti-avoidance rules for trusts
SARS has now amended the legislation in order to curb the abuse of the introduction of low interest or interest-free loans, advances or credits for trusts.
Just to rub salt in the wounds of those who still persist in thinking trust structures are tax-efficient, SARS has now shown that you need to stop listening to trust advisors who keep trying to find the next loophole. As SARS sees it, they will close it, leaving you with an overly complex trust structure that needs untangling.
7. Reimbursing employees for business travel
SARS has kindly relaxed their strict regulations when excluding business travel expenses. This is, however, subject to the employer’s policy provisions. Make sure your company travel policy is updated to utilise this tax relief.
This is very much part of the equal pay for equal work value methodology for responsible employers where employees were left with little recourse regarding these tax burdens due to an oversight or the employer’s failure to execute the instruction for reimbursement.
8. Roll over of amounts claimable under the employment tax incentive
Excesses of Employment Tax Incentive claims for non-compliant tax employers will now not be rolled over at the end of the PAYE reconciliation period. This is to protect taxpayers once they do become compliant.
9. Tax treatment of secured non IFRS 9 doubtful debt
If you own a business that has been negatively affected by Covid-19, you need to talk with your accountant regarding this change. SARS proposes to make provision for the amount of debt to be reduced, differentiating between taxpayers that apply IFRS9 and taxpayers that do not.
10. Potential tax avoidance caused by dividends deductions
Taxpayers were able to structure their investments in order to issue financial instruments to the investors that yield dividends, while it receives interest or other income on its financial assets, thus avoiding tax implications. The new amendments now mean that taxpayers will no longer have the advantage of this loophole.
11. Refund need not be authorised where the matter is under criminal investigation
The proposed amendments further include that where you are subject to a criminal investigation in terms of the Tax Administration Act, any refund owed to you by SARS will be withheld pending the outcome of such investigation. We can only hope this will not be abused by SARS officials, as we stand reminded by the fact that the Tax Ombud has found SARS guilty of delay tactics in paying refunds.
12. The most critical tax law change! Inclusion of the words “Wilfully or negligently” in tax prosecution
Getting an admitted tax attorney involved on your taxes ensures legal privilege. SARS’ seemingly harmless inclusion of the words “willfully and negligently” when it comes to lesser tax offences increases liability for non-compliant taxpayers, with prosecution resulting in imprisonment or a hefty fine.
By not simply updating your details, forgetting to do something, or making an unintended error can now land you in real trouble. Perhaps now is the time to take your tax administration and compliance extremely seriously, as SARS has just acquired its biggest ammunition yet to discourage non-compliance.
Written by Roxanna Naidoo, Admitted Attorney at Tax Consulting South Africa