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UKnow Editorial – Feb 2019

As an avid reader of just about anything (I am one of the proud bibliobibuli), I recently read again and was reminded of two interesting things about my beloved profession. The first is the debate on whether the accounting profession is indeed the oldest or the second oldest profession in the world. Then, interestingly enough, the first recorded name in history belongs to an accountant! The 5 000 year old Kushim tablet appears to record the receipt of shipments of barley in Mesopotamia, recorded by Kushim.
The significance of this is not the fame or glory of these claims, but indeed that accounting has always been that significant in daily life – whether it is your own personal finances, a multi-national company or a non-profit venture. So whether you like it or not, having transactions and financial information recorded and stored properly from the outset will not only save you time, money and administration later on, but it will serve as a proper basis for making important personal and business decisions. Take care of this basic necessity, even if you outsource it, and you will reap the rewards!
If you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin, Instagram and Facebook.

Warm regards until next month.

Oddette Boshoff

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From Bookkeeping to Audit to Tax – Who is responsible for what?

In the (not so) olden days, the auditor or accountant handled everything related to finance and business for a client: from bookkeeping to financial statements to tax and business advice. Those were simpler times….

With all the new legislation and regulation of the various professional designations, the increase in technical complexity in the individual fields (such as tax, accounting and audit) and the imposition of independence requirements, corporate governance and the like, it has become very important but also very difficult to distinguishing what tasks or services are being executed, and more importantly to determine who is responsible for what.

The environment and circumstances in which a person or business operates are unique and will require individual discussion. However, we want to illustrate below in simplified terms how important it is to address this between clients, colleagues and service providers in order to gain clarity and avoid miscommunication. This is by no means an exhaustive list of tasks, responsibilities and accountabilities that need attending to, but merely serves as a starting point to facilitate discussion.

A typical year for a business that operates in South Africa in the context of accounting, tax and related accountabilities will comprise the following:

Day to Day

Bookkeeping: All transactions of the business must be accurately and completely recorded in the financial records of the enterprise. This can be done in any appropriate format, but it is advisable to use industry standard software that gives assurance on security, built in features such as audit trails, etc.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors.

Financial, operational and general business administration: The administration of an enterprise may encompass many areas and it is very important that the various responsibilities must be clearly assigned. It happens too often that an operational team assumes a finance team will attend to certain responsibilities or administration, whereas the finance team assumes that the particular task falls outside its scope of responsibilities.

In addition to this, the implementation and monitoring of internal control measures is vitally important and in certain instances addressed in legislation.

Any person/s can be given these responsibilities, and any or all of these tasks can be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors.

MONTHLY

Management Accounts: In order to properly manage a business, meaningful monthly management accounts must be compiled indicating profit or loss, asset and liabilities, cash flow, etc. This can be done in any appropriate format and include as much information as is needed by the business owner or appointed executives.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers.

Reconciliations: Various reconciliations should be done at the end of every month such as bank, debtors, creditors, VAT, payroll, etc. These reconciliations might also be required by SARS, independent auditors, etc.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors.

Payroll Administration: The payroll of the business should be properly administered as the risks of non-compliance with various legislation and the consequences of errors are significant. This can be done in any format, but it is advisable to use industry standard software that gives assurance on security, built in features such as audit trails, etc.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors.

EMP201 PAYE return: The monthly employer declaration to SARS on the EMP201 return must be submitted and paid by certain due dates.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors. The enterprise may appoint a tax practitioner in this regard.

BI-MONTHLY

VAT201 return: The bi-monthly (in most instances) VAT return to SARS must be submitted and paid by certain due dates. SARS will often raise queries or require supporting documentation after the submission of the VAT return, which must be provided timeously and with great care. VAT legislation is complex and as with any tax legislation there are often amendments which must be complied with. Incorrect VAT returns or payments can have significant consequences for the enterprise.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors. The enterprise may appoint a tax practitioner in this regard.

BI-ANNUALLY

Provisional Tax: The provisional income tax of the enterprise must be calculated, submitted and paid on the IRP6 return to SARS every six months. Income tax legislation is complex and as with any tax legislation there are often amendments which must be complied with. Incorrect provisional tax calculations, returns or payments can have significant consequences for the enterprise.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors. The enterprise may appoint a tax practitioner in this regard.

EMP501 Employer Reconciliation: A reconciliation of the payroll declarations must be completed and submitted to SARS every six months, and the corresponding tax certificates must be issued with the year-end reconciliation.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors. The enterprise may appoint a tax practitioner in this regard.

ANNUALLY

Compilation of Annual Financial Statements: Various laws and regulations require the compilation of annual financial statements for an enterprise, each with specific requirements.

In the case of companies, the Companies Act requires companies to compile annual financial statements, predominantly in terms of International Financial Reporting Standards (IFRS) or IFRS for SMEs.

The annual financial statements may be compiled and reported on independently by an independent accounting professional on the basis of the financial records provided by the company and in terms of the appropriate accounting framework such as IFRS for SMEs. It can also be internally compiled by the company if the directors are of the opinion that they have the necessary expertise to do so against the requirements set.

The directors’ and other required reports, tax calculations, working papers and supporting documentation for the annual financial statements must be provided by the company and is the responsibility of the directors. It can however be outsourced to service providers or the independent compiler in addition to the compilation engagement.

Independent Review / Audit: Various laws and regulations require the independent review or audit of the annual financial statements of an enterprise, each with specific requirements.

In the case of companies, there are certain criteria which will determine each year whether the annual financial statements of the company must be independently reviewed or audited.

The independent review or audit may only be conducted by a Registered Auditor (SA) or Chartered Accountant (SA) where the public interest score of the company is greater than 100.

It is important to note that auditors may only audit and report on the annual financial statements presented to them, including the directors’ and other required reports. The auditor may not advise on, prepare, calculate or compile any of the information contained in the annual financial statements.

Income Tax Return: The income tax of the enterprise must be calculated, submitted and paid on the income tax return to SARS every year. Income tax legislation is complex and as with any tax legislation there are often amendments which must be complied with. Incorrect income tax calculations, returns or payments can have significant consequences for the enterprise.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors. The enterprise may appoint a tax practitioner in this regard.

CONTINUOUSLY

Statutory Compliance: There are various statutory and regulatory compliance requirements which will be applicable to a particular enterprise, and it remains the accountability of the owner or duly appointed executive to comply with any and all of these.

In the case of companies, there is a requirement to submit and pay annual returns to the CIPC, together with the submission of either the annual financial statements of the financial accountability supplement. There are also compulsory company secretarial duties to attend to such as the resignation and appointment of directors, the issue of shares, and the registration of amendments to the Memorandum of Incorporation (MOI), etc.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, this accountability rests with the directors.

Records of Minutes – Meetings and Decisions: Where an enterprise is managed by more than one owner, or executives appointed to do so, it is advisable, and often required by legislation and regulation, to keep records of all meetings and decisions made by such owners or executives.

Any person/s can be given this responsibility, and this task can also be outsourced to service providers. However, it remains the accountability of the owner or duly appointed executive of the enterprise. In the case of companies, this accountability rests with the directors and those charged with governance.

It is clear from the above that a review of the administration and the assignment of the various responsibilities and accountabilities within an enterprise should be done frequently. Changes in legislation and regulation and changes in the business environment could pose a significant risk to the enterprise if this is not attended to.

Oddette Boshoff

Director

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South Africans working abroad – 1 year to get your affairs in order

Many South African tax residents earn foreign employment income. This income is currently not taxed in South Africa if:

  • the person was abroad for that employment for more than 183 full days during any 12 month period,
  • the 12 month period includes a continuous period abroad exceeding 60 full days,
  • the income constitutes any remuneration received by way of salary, bonus, commission, etc. (including fringe benefits and allowances) for services rendered for or on behalf of any employer, and
  • the services were physically rendered outside the Republic of South Africa by the South African tax resident.
  • (It is important to note that this exemption may only be claimed by private sector employees, and not independent contractors or government employees.)

After much public debate, the legislation regarding the exemption of tax on foreign employment income earned by South Africans has been amended and will come into effect on 1 March 2020. The “Expat Exemption”, section 10(1)(o)(ii) of the Income Tax Act, will now only exempt the first R1 million of such foreign employment income earned by residents per tax year.

Any income tax paid on the foreign employment income in the foreign host country may be claimed in the taxpayer’s income tax return against the resulting tax liability in South Africa by way of section 6quat. However, this claim will be limited to the amount of South African tax payable on the foreign income.

South African tax residents working abroad and receiving income as described in this section will have to ensure that their tax affairs are in order by 1 March 2020 to comply with this amended legislation. This might include a review of tax planning and administration, as it might result in the taxpayer now having to submit and pay provisional tax in South Africa every six months, as well as having to submit annual income tax returns. Affected residents might also want to reconsider their contracts for foreign employment. In some cases it might be necessary to consider the provisions of the Double Tax Agreement between South Africa and the foreign host country. There has also been much talk about possible mass emigration by South African residents as a result of this amended legislation, however each case should be considered individually.

It is vital that taxpayers collect and retain all necessary documentation and information, such as proof of foreign taxes already paid, in order to properly discharge any burden of proof required by SARS.

Lobbying groups are still petitioning National Treasury for further relief, with submissions made for instance on the exclusion of fringe benefits and allowances in the R1 million threshold. Treasury indicated that a Special Workshop will be held during 2019 to investigate these submissions.

We will, as always, keep you updated on any further developments in this regards.

Oddette Boshoff

Director

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UKnow Editorial – Nov 2018

The countdown to the end of the year has begun, with around 6 weeks to go until a well-deserved summer break for most. Many of us are feeling the pressure to get everything done before the holidays!

International transactions are becoming a common occurrence for businesses and individuals. However, with these transactions people often forget the related international tax and exchange control implications. As our world becomes a global village, especially with e-commerce being so accessible nowadays, this is something that needs to be taken into account and planned for. Failure to do so can result in dire consequences. Be mindful of this when dealing with any transaction outside the borders of South Africa.

The SARS filing season for non-provisional taxpayers ended on 31 October and the preliminary results have been published by SARS. The filing season was shorter than in previous years, but it seems that the results improved from last year. The next filing deadline is 31 January 2019 for the 2018 income tax returns for provisional taxpayers.

If you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin, Instagram and Facebook.

Warm regards until next month.

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Penalties for Non-submission of Corporate Income Tax Returns

This penalty is not a new thing for individual taxpayers, as SARS had been imposing penalties for non-submission of their income tax returns since 1 January 2009.  Companies with outstanding income tax returns have recently received notifications from SARS that this penalty will now be imposed on companies as well.

Click to enlarge

It is not surprising that SARS decided to also impose the penalty on companies who fail to submit their income tax returns.  What is surprising is that SARS issued this notice in September, while the public notice referred to in section 210(2) was still only in draft form and open for public comment until the 31st of October 2018.

The “failure to comply with an obligation that is imposed by or under a tax Act” is defined in the draft public notice as follows:

Failure by a company to submit an income tax return as and when required under the Income Tax Act for years of assessment ending during the 2009 and subsequent calendar years, where SARS has issued that company with a final demand, referring to this notice and requiring the submission of the outstanding income tax return, and the company failed to submit the return within 21 business days of the date of issue of the final demand.

Compare this to the public notice issued in respect of natural persons:

Failure by a natural person to submit an income tax return as and when required under the Income Tax Act for years of assessment commencing on or after 1 March 2006 where that person has two or more outstanding income tax returns for such years of assessment.

Companies have not been afforded the “one return grace” enjoyed by natural persons.  Once the draft notice has been accepted and SARS issues the public notice, a company that is not up to date with its returns will be liable for the administrative penalty.

The penalties range from R250 to R16 000 per month that non-compliance continues, depending on a company’s assessed loss or taxable income.  It is compulsory for registered companies to submit their income tax returns. If a company is dormant, it is still required to submit any outstanding returns prior to 2018.

A company must submit its income tax return within 12 months from the date on which its financial year ends.  A “year of assessment” is defined as the financial year ending in any particular calendar year.  So, while natural persons have to submit their 2018 income tax returns by 31 October 2018 and provisional taxpayers by 31 January 2019, a company with a financial year ending on 28 February 2018, will have a full year to submit its income tax return.

It will be interesting to see if SARS treats the notices issued in September as “final demands” for purposes of the imposition of the penalty.  In the interest of fairness and reasonableness, the demands should only be issued after the public notice has been published in the Government Gazette.

Annalize Duvenage – Specialist Tax Consultant

Petro van Deventer – Senior Manager

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Selected for verification? What to expect

Every professional accountant needs to do continuous professional development (CPD) to meet the requirements of his or her professional body. While getting my CPD hours up to date, I stumbled across this article from SARS.

I immediately knew that I would love to share the article, as it deals with something that I encounter on a daily basis.

It often happens that after an income tax return is submitted, SARS informs you that your return has been selected for verification. The letter they issue is a standard e-Filing letter asking for supporting documents.

Being selected for an audit and being selected for verification are two different processes. I will publish a separate article about being selected for audit in a next edition of UKnow.

The information below is taken from a publication of SARS and therefore with credit to them.

Who can be selected for verification?

Any taxpayer can be selected by SARS for verification for the purpose of proper administration of tax, including selection on a risk basis.

(We can only assume that the risk assessment is done by a computer, but we have no information as to what the risk parameters are.)

What is verification?

Verification is a face-value verification of the information declared by the taxpayer on the declaration or in a return. This involves a comparison of this information against the financial and accounting records and/or other supporting documents to ensure that the declaration/return is a fair and accurate representation of the taxpayer’s tax position.

Once you have submitted your declaration/return, your declaration/return could be selected for verification.

(What SARS doesn’t say here is that you could also be selected for audit, either after a verification or instead of a verification.)

What steps should I take if I am selected for verification?

If you are selected for verification, you will be notified by SARS through an official letter. This letter will indicate that you must either submit the requested relevant material (supporting documents) within 21 business days from the date on the letter or alternatively submit a Request For Correction (RFC).

The required relevant material will differ depending on the tax type.

SARS Top Tip: The relevant material needed will be listed in the verification letter sent by SARS.

(Just a note to mention:  Firstly, the letters that we receive on eFiling in fact require us to submit the relevant information within 21 days.  This means calendar days, not business days.  And SARS treats this deadline very seriously.  Secondly, the standard letters issued on eFiling are issued with a standard list.  However, it often happens that SARS is actually looking for something very specific that is not on the list.  But more about this later.)

 “What can I expect during the verification?

A letter requesting further relevant material could be issued if the relevant material initially supplied was not sufficient to finalise the verification.”

This second letter issued on eFiling is identical to the first.  Sometimes SARS sends an email to specify the material that they require.  Sometimes we receive a telephone call from SARS to request the information or material.  In other cases, we need to phone SARS to try and find out what it is they are looking for.  Very often we have no idea what they require, as we are in only possession of two identical, system-generated letters.  Without further notice we are often then notified that an additional income tax assessment has been issued with the reason “ASSESSMENT BASED ON INFORMATION AVAILABLE TO SARS”.

What if I don’t respond to the request for verification?

If you do not provide the relevant material, a second letter will be sent to you. If you still do not respond, a SARS official will contact you telephonically and request that you submit the necessary relevant material within 5 business days.

Should you not respond to this telephonic request, SARS may raise an assessment based on information readily available or obtained from a third party.

Top Tip: It is better to respond to all queries straight away. Higher penalties can apply if it is found that an understatement occurred.

What can I expect when the verification is finalised?

If you are subject to an inspection, verification or audit, we will endeavour to:

  • Notify you that the return or declaration is subject to verification within 15 business days of submission, if your return is for the current filing period.
  • Conclude verification within 21 business days from the date all required supporting documents are received, if your return is for the current filing period.
  • Conclude an audit within 90 business days from the date all required supporting documents are received.

SARS must ensure that the tax position declared is in line with the relevant tax legislation.  If it is found to be incorrect, an assessment will be raised.

The levying of understatement penalties must be considered by SARS where an understatement occurred. The percentage of a penalty varies from 0% to 200%. Harsher penalties are reserved for culpable repeat offenders or obstructive taxpayers.

Once the verification is finalised, you can expect one of the following:

  • Where no further risk(s) were identified and no finding was made, a Notification of the finalisation of the verification via eFiling, e-mail or post;
  • Where no further risk(s) were identified and a finding was made, a Notice of Assessment of the revised assessment via eFiling, e-mail or post;
  • Where further risk(s) were identified, a Referral for Audit Letter via eFiling, e-mail or post.  If you have a refund due, the refund will only be paid once the audit is complete and the specific refund validations were passed.

If you are aggrieved by the assessment, you can dispute it.

If SARS revised the assessment, you need to ask them the reasons for doing so as they don’t usually send you a letter providing the reasons.  Except in the case of a trust, the request for reasons must be submitted on eFiling.  SARS must provide the taxpayer with the reasons within 45 business days.

Petro van Deventer

Senior Manager

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UKnow Editorial – September 2018

Happy Spring! Although it is still bitterly cold in the Western Cape as this newsletter is published, the countdown to a new season and consequently the end of the year has begun. Just over 3 months to go until a well-deserved summer break for most!

The contributions to our newsletter UKnow are written and designed by staff members who volunteer to do so. Anyone in our firm has this opportunity, and we value these contributions immensely. What I like about this format is that everybody has a chance to say or do something about experiences in their everyday work life which they think can be valuable – whether it is a highly technical matter such as our article on employment income abroad, a manifest on the importance of every employee’s role in a firm, or the design in the editorial photo. We really have such an amazing team at Unik! The different strengths of each team member is a real contribution to the power of the firm Unik Professional Services as an entity.

The Office of the Tax Ombud recently published a leaflet on what constitutes systemic issues and such issues that have been identified. We publish a link to this leaflet on the website of the Tax Ombud as anyone who has ever experienced frustration with tax matters might find this informative. This leaflet can be accessed at http://www.taxombud.gov.za/Documents/Systemic%20Issues%20OTO.pdf

If you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin, Instagram and Facebook.

Warm regards until next month.

Oddette Boshoff

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The True Source of Employment Income

It has become a small world after all, with individuals and companies operating in various jurisdictions.  What most tax authorities like to do, is to tax their subjects (residents) on their worldwide income, while taxing non-residents only on income from a local or domestic source.  While certain general rules pertain to the determination of a person’s tax residence, identifying the source of income often means navigating murkier waters.  Earlier this year, the Western Cape division of the Tax Court issued a judgment that turned the concept of source, at least as far as employment income is concerned, on its head.[1]

The question to be decided by the court was whether certain employment income received by the appellant was “from a source within the Republic”.  Now, the Income Tax Act determines the source of certain categories of income like royalties, interest and dividends.  As far as employment income is concerned, however, the Act is silent, and one must search for the “true” source.  Fortunately, intrepid pioneers of the tax world have already embarked on this brave expedition and the discovered the source of employment income to be … where the services are rendered.[2]  So it should have been plain sailing.

Most countries have entered into agreements for the avoidance of double taxation (or DTA’s).  Most of these agreements are based on the Model Tax Convention on Income and on Capital published by the Organisation for Economic Cooperation and Development (or OECD).  This organisation has thirty-six member countries.  Although South Africa is not a fully-fledged member, cooperation with our country has been strengthened through “Enhanced Engagement programmes” and we are now identified as a “Key Partner”.

If a South African tax court is required to consider the content of a certain DTA, for example to make a ruling on the source of certain income, the OECD would not be a bad starting place.  Especially as the organisation has also issued a Commentary on the Model Tax Convention to facilitate interpretation.

Back to the case before the Tax Court.  A certain individual (Mr. X) is employed by a company.  After much to and fro between SARS and Mr. X, it was confirmed that, for tax purposes, he is in fact a resident of the United States of America.  He is “ordinarily resident” in the US and has taken a breather from President Trump to come and work for a South African “branch” of a US company.  His employer is registered in South Africa as an “external company”.  This, the court finds to signify that “the foreign company is given legal recognition in South Africa, for taxation purposes, at least.”  So that settles the question of who falls in which jurisdiction:  the employer is deemed to be a South African resident (so it seems) and Mr X remains a native of the US.

Mr X received a salary from his employer for the period 1 March 2013 to 31 October 2013.  During this period, he performed services outside the borders of South Africa for a total of 62 non-continuous days.  The question before the court was whether the income earned in respect of these services was income “from a source within the Republic” and therefore to be included in Mr X’s income for purposes of South African tax.  To be specific, the court said:

“The entire dispute hinges on the definition of where the employment is exercised and consequently where the source off the remuneration is located, as set out in the DTA.”

Paragraph 1 of Article 15 of the DTA between South Africa and the United States provides as follows:

Subject to the provisions of Articles 16 (Directors’ Fees), 18 (Pensions and Annuities) and 19 (Government Service), salaries, wages and other remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised such remuneration as is derived therefrom may be taxed in that other State.

In interpreting this provision, the judge refers to the Vienna Convention on the Law of Treaties (to which South Africa is not a party) and ultimately decides to appply the primary rules of interpretation used in our domestic law.  She proceeds to interpret the provision “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”.

The court consequently interprets Article 15(1) as follows:

  • “The place where: “…the employment is exercised…” ordinarily means the place where the employment agreement is implemented.”
  • “If the words were meant to convey the meaning that the non-resident country must be the country in which the person fulfils his/her employment obligations at any given time, then the active voice would have been used in the construction of the relevant phrase. Instead, the phrase is constructed in the passive voice with the employment as the subject and no actor is mentioned.”
  • “No mention is made of where each actor must be located when the employment is exercised.” (Referring to the wording “employment exercised”)

The court then poses five questions in order to determine where the employment is exercised:

  1. What the contract itself stipulates concerning the law governing it – South Africa
  2. Where the contract was concluded – South Africa
  3. Who is paying the employee – An external company registered in South Africa
  4. Who the services are being rendered to – The employer
  5. Where the services are being rendered – Outside South Africa

With respect to the last question, the court finds that the services were rendered “to the employer’s clients qua the employer.  In effect and in substance, appellant therefore rendered the services to his employer”.

The judge finds herself persuaded that “there is a sufficiently close connection between the raison d’etre for rendering the service outside S.A. and the employment contract to interpret the rendering of the services as no more than reciprocal performance by the appellant to his employer” and hence decides that the remuneration has its source in South Africa.

It seems that the nature of the employment contract itself, which contract had been concluded in South Africa, was the deciding factor for the Court in holding that the source of the income was local.

Now to address the befuddlement created by this decision.  For most tax practitioners, Silke on South African Income Tax is a first point of reference.  Paragraph 5.8 of this very textbook has the following to say about the source of employment income:

“While the High Court has yet to consider the point, the Special Court for the Hearing of Income Tax Appeals (now the Tax Court) has consistently held that the source (in the sense of ‘originating cause’) of income from employment and other services rendered is the services, irrespective of the place where the contract is made or the remuneration is paid.  The source of the remuneration would therefore be located at the place where the services are rendered.”

And it seems that Silke’s is not a lone voice in the wilderness.  The OECD’s commentary on Article 5 of the Model Convention regards the location of where the services are rendered as the determining factor:

“Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid.”

Poor Mr X.  It was beyond contention that he rendered certain services outside the borders of South Africa.  In fact, he spent a full 62 days performing services in other locations.  As a US tax resident, the remuneration for these services will be included in his worldwide income and subject to tax there.  Now, due to the “reciprocal nature” of his employment contract, this remuneration will also be taxed in South Africa.  Furthermore, if the other tax jurisdictions where he had physically been present when rendering the services have also entered into DTA’s based on the Model Convention, he would have been subject to tax there as well.  At least the tax paid in South Africa will be allowed as a credit against his liability for tax in the United States.

Annalize Duvenage

Specialist Tax Consultant

[1] TCIT 14218, judgment delivered by Judge R Allie

[2] COT (SR) v Shein 1958 (3) SA 14 (FC); CIR v Nell 1961 (3) SA 774 (A)

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No Such Thing as a Meaningless Job

A month or so ago one of my colleagues said that she thought the processing of VAT invoices was the most menial job in the office.  After making her see the bigger picture, however, she admitted that this basic job is actually the most important one, because we use this processed information for almost everything.

To explain this, we need to draw a picture of the whole process.  But believe me, although I tried my best, this picture is not complete.

Click to enlarge

Sometimes the person responsible for the capturing of source information might think:  “I have the most menial, meaningless job in the office – I only capture invoices.” Not true!  This “stupid” job affects not only the VAT, but also the general ledger, accounts payable or receivable and the bank account. The same goes for the person responsible for receiving the stock.  This affects the inventory level, the inventory value, the processing of finished goods, accounts payable and the bank account.  It may even cause down time if the incorrect products have been received or inventory levels are too low.

Then there’s the payroll officer, whose job it is to process the wages and make sure that his or her colleagues receive the right amount of remuneration.  But it doesn’t stop there.  It is also this person’s responsibility to make sure that the employer meets the statutory requirements in respect of PAYE, UIF and contributions to the Compensation Fund.  To ensure that labour relations stay positive, the payroll officer also needs to make sure that leave calculations and employer contributions are recorded accurately.

The receptionist, front office employees or switchboard operator is the face of your business and creates the first impression on which a potential client may base his decision to become your client (or not).

Imagine responding to a SARS request for relevant material, or preparing for a field audit, if you didn’t have a reliable, thorough colleague who made sure that all the filing was correct and up to date.  And don’t forget the person who brings you your morning coffee or afternoon cup of tea while you are suffocating under a mountain of paperwork.

Yes, there are employees sitting in the glass office in the corner or on the top floor.  They use the information that you processed, prepared and provided to do the management account, budgets, forecasts, costings and financial statements.  This information is vital for the client and is used for many purposes:  to get a loan from the bank to purchases new machinery, to find a new investor, to calculate bonuses and salary increases to name a few.

It is said that a business works like a pyramid:  At the bottom are the employees, then the managers, the directors and finally the CEO.  The higher up on the pyramid, the higher the stress and risks.

But actually, it’s like a symphony orchestra.  The first violin may lead the orchestra, but the conductor is the one who “balances” the orchestra, and to do so he needs every single instrument to do its part.  From the huge tuba to the smallest triangle in the percussion section.

So next time the thought that you are only a number in ‘n cubical doing a stupid, meaningless job, think again…  Without you the orchestra will simply not sound the same.  Your part, big or small, is VERY important.

I hope that this article lands on every employee’s table, so that they can see that they play a role in the orchestra.

Petro van Deventer

Senior Manager

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UKnow Editorial – August 2018

August is Women’s Month and we are very proud of our team of women at Unik! Please see our special dedication in P.S. below and the article included in celebration of them.

Tax season is now in full swing. It is important to understand your obligations in terms of tax compliance, and we publish some information in this regard in the articles this month. Taxpayers are reminded that the filing season will be closing earlier this year, and it is imperative to ascertain which filing deadline applies.

We will be posting a special notice to inform and remind clients and readers about the CIPC requirement for companies to submit either annual financial statements or a Financial Accountability Supplement (FAS) in certain circumstances when submitting their company’s annual returns. The XBRL format is required in these instances, and we will be communicating to affected clients to assist with this process.

If you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin, Instagram and Facebook.

Warm regards until next month.

P.(ersonal)S.(tory). Meet our team of superwomen at Unik. I could not imagine running our firm without this lot – they are fun, committed, passionate, perfectionists, tough as nails, and sometimes eccentric – but all truly Unik!

These women are very special and we celebrate each one’s uniqueness and strengths. We are mothers, daughters, wives, professionals, managers and friends. Together, we make an amazing team and can take on any challenge thrown at us.

We salute all our women!

Warm regards until next month.

Oddette Boshoff

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