What the 2010 Budget means
Tax Administration
From 1 November 2010 until 31 October 2011, a voluntary disclosure program is proposed to be instituted which will afford taxpayers the opportunity to approach SARS and disclose information they have not reported, without penalties and with reduced interest charges. It is also said to allow individuals with unreported bank accounts overseas a chance to fully divulge any untaxed revenue. However, the full amount of tax will remain due. A defaulting taxpayer must comply with the following requirements before he can be granted relief:
Complete disclosure is made to SARS
SARS was not aware of the default
A penalty or additional tax would have been imposed had SARS discovered the default in the normal course of business.
An important implication of this program is that government proposes to remove the discretion of SARS to waive interest charged on unpaid provisional tax. This programme therefore seems to allow for the waiver of penalties and a reduced interest charge and not the tax liability. Consideration will also be given to give exchange control relief.
SARS will also be refocusing its enforcement and audit capacity, and modernising its systems to combat what they have identified as a deteriorating level of tax compliance during the recession.
Individuals
• Annual increases to tax free income were made for individuals below and over 65 years.
• The same applied to the increase in monthly monetary caps for deductible medical scheme contributions for beneficiaries and their dependents. The same deduction system that applied in the 2010 tax year will apply for another tax year.
• The R30 000 tax exemption for retrenchment packages will be merged into the retirement lump sum tax exemption.
• The SITE system will be abolished.
• The company car fringe benefit rate, which is currently 2.5% of the cost of the vehicle, will be increased.
• Measures will be implemented to ensure that employer deductions match employees gross income with regard to employer provided group life insurance schemes.
• It is proposed that employee insurance packages will be taxed fully as a fringe benefit on a monthly basis.
• A recent judgment provided that Sars can only collect the outstanding tax from employees where fringe benefit tax was incorrectly calculated.
• It has been intimated that SARS will in the future focus on large taxpayers and high net worth individuals over the next 3 years as an area for improved tax administration.
• Consideration may be given that certain amendments to the provisional tax payment legislation are made to ensure that taxpayers with little or no provisional tax to pay are exempted.
• The proposed CO2 Vehicle Emission tax will be implemented from 1 September 2010 as a specific tax. New passenger cars will be tax based on their certified CO2 emissions at specified rates.
• Changes to the controlled foreign company legislation are proposed to ensure that ""protected cell"" companies are included in the CFC legislation. It is proposed that each cell of this limited liability company will be treated as a deemed separate company for tax purposes. This could impact on individuals offshore planning.
• Advance tax rulings will only be granted to compliant taxpayers, i.e. all tax returns must be submitted and all outstanding tax must be paid.
Corporate Tax
• The rate of corporate income tax and secondary tax on companies (STC) remain unchanged at 28% and 10% respectively.
• Regarding the new dividend tax, it seems that most of the pre-implementation issues have been resolved but attention needs to be given to some remaining smaller issues. There is no particular date scheduled for the introduction of this new dividend tax regime.
• The pending company law reforms will require changes to the tax rules including the treatment of companies, dividends, reorganisations etc.
• The Minister is considering granting relief from exchange control and taxation for certain kinds of head quarter companies located in South Africa. The idea is to encourage invested, via South Africa, into Africa.
• Aspects of the tax system which act as a barrier to certain forms of Islamic compliant finance, may also be relaxed.
• Enhanced allowances are being considered in regard to improvements on leased land. This will allow private developers who improve the land of a third party (including the Government) to access depreciation allowances, including the urban development zone allowances in future.
Further proposals which will impact on businesses include the following:
• Revisions to the current legislation affecting the treatment of employee share schemes.
• The Corporate ""rollover"" provisions of the Act will be amended further to deal with issues such as:
Transfer of plantations; Relaxation of the conditions for share relief in the case of listed shares; Change in the elective position regarding the transfer of trading stock between group companies; Improved rollover provisions for the transfer of bad debts which will allow the acquiror to write off a bad debt which occurs after the reorganization.
It is proposed that the current income tax rules for the valuation of trading stock should exclude financial instruments in general (and not only shares as is currently the case) and this is due to the recognition that financial reporting distinguishes financial instruments from other inventory or trading stock.
Attention will be given to the current system for taxing short term insurers which may involve tax changes during the current and ensuing tax years.
Relief is provided for the unusual circumstances where a country changes its entire unit of currency. No particular country is referred to in this regard.
Foreign currency reporting rules are to be clarified.
Kerry Watkin - TRM Services http://www.etaxes.co.za/
