On the face of it, exchange control legislation has all but fallen away with the announcement by National Treasury that individual investors can take R4million offshore each year. But it seems that someone at Treasury forgot to tell SARS that it is ok for people to take money offshore.

In my experience, it is just about impossible to get a tax clearance from SARS at the moment. The number of hoops that need to be jumped through seem to change quite regularly, they lose the application form, they have different “standard” processing times and then tend to decline the certificate on minor technicalities (it seems that at this stage SARS require a prospective investor to have the amount they intend investing actually sitting in their bank account).

So while exchange controls might officially have been relaxed by National Treasury it seems that another government department is making it almost impossible to get official permission to take the money offshore. The result of this is that people will eventually give up on the the “right thing” and will find other ways to take money offshore again. But is that not the reason we needed a whole big amnesty a while back?

Surely someone at Treasury needs to speak to someone at SARS and find out why they are being so difficult with the tax clearance process? The result of SARS’ approach will be increased non-compliance in the future (especially if we see the rand weaken again suddenly).

Related posts:

1. Push-me-pull-you
2. Lessons from Enron (and the strong rand)
3. SARS – just like Alice

The basic argument goes around the fact that in a retirement fund an investor may not have more than 75% of his/her funds invested in equities and by default most investors tend to opt for “balanced” funds. Although balanced funds can have 75% equity exposure, most, in reality, do not and they tend to err on the lower equity side.

As a result of the lower equity exposure, a balanced fund will under-perform an equity fund over long periods of time.  In fact, Mouton’s article suggests that as a result of the more “conservative” asset allocation, an investor in a retirement fund could have less than 1/3 of the money that an investor in an equity unit trust fund could have. Scary stuff indeed and certainly it sounds like a compelling reason not to use retirement annuities – especially if you are young. Or is it?

Let’s take a different look at the case and let’s assume that the chosen equity fund (outside of the RA) gives a total return of “x” over the period. Now if we use the same equity fund within the RA we could invest 75% of the contribution into this fund – the balance of the money would have to go into the other asset classes and for the purposes of this example let’s refer to that as “cash”. Over the investment term, the RA would then give the following: 0.75x + “cash”. Clearly this is less than the equity fund.

But this is where the financial planner in me comes out…

One of the primary reasons for using an RA is because of the tax saving involved. For every rand you contribute, you receive a “rebate” equivalent to your marginal tax rate. Simply put, if your marginal tax rate is 30% you will only effectively pay 70cents in every rand of the RA premium – the 30cents is the tax saving. Now if you are disciplined you can invest this amount and if we use the same equity fund used above, then over time your return will be 0.3x (or your marginal rate * x).

So your total “RA” return now becomes: 0.75x + “cash” + 0.3x.

This is equal to 1.05x + “cash” (this could be as high as 1.15x + “cash”).

Even without the “cash” portion, 1.05x > x (apologies for the maths but you should have paid attention in class!). And then it is also possible to invest the “cash” portion into a property fund – which would be significantly better than “cash” over the long term.

Now this is where the detractors of RA’s will jump up and say “yes but there will be tax on the income taken from the RA whereas there will only be capital gains tax payable on income taken from the equity fund”. You are correct and this could well be less than the income tax payable on the RA income.  However, at death, there will be estate duty payable on the equity fund whereas the money in the RA will fall outside of your estate (there will also be no executor’s fees on it).

I am sure that there many responses possible to this article, not least of which would be to make sure that the voluntary money was invested via a trust but that has another whole set of implications. The point of this article was to show, mathematically, that there is still a case for RA’s.

Related posts:

1. The future of RA’s looks bleak…
2. Is there still a case for investing offshore?
3. It's not all in the name

I had to apply for a tax clearance for foreign investment for a client of mine and could not help but think how the current tax clearance process reminded me of the mythical animal. On the one head Pravin Gordhan has announced significant relaxation to exchange controls which should make it easier for South Africans to invest offshore. On the other head, however, is SARS – seems that no one has informed them of the intention to allow South Africans to invest offshore more freely. The whole tax clearance application process is far too complicated, time consuming and inconsistent. It seems as if they are intent on making it as difficult as is possible and so it would appear that SARS is pulling in the opposite direction from Treasury.

We eventually got the certificate but after quite a bit of time (more than 3 weeks) quite a few phone calls and 2 visits to the SARS branch…and this during a time when hardly anyone wants to invest offshore.

It is an excellent time to take money offshore – but don’t expect to do it in a hurry if you don’t have tax clearance and so my advice is that if you think you might be investing sometime in the next year, apply for tax clearance. The certificate is valid for 12 months and you don’t have to use it immediately. Don’t wait for the rand to weaken and try to apply in the rush – it will be too late!

Related posts:

1. What’s up with SARS and tax clearance certificates?
2. Lessons from Enron (and the strong rand)
3. Is there still a case for investing offshore?

SARS are no longer sending out forms or reminders so the onus is now fully on tax-payers. It also appears that the form is no longer a requirement and the easiest way to do the 3rd payment is on efiling under the “additonal payments” link…you can even get SARS to take the funds from your bank account if you want.

Related posts:

1. SARS – just like Alice
2. Provisional tax returns – to submit or not to submit?
3. This cant be good?

Part of the service offering of our financial planning business involves assisting people with their tax returns (we submit over 140 each year as well as 80 provisional tax returns). Tax is not really something that we enjoy doing nor is it a profitable aspect of our business. However, it is an essential part of the service offering as more and more people become intimidated by or disillusioned with their dealings with SARS. Do you have any idea how frustrating and time consuming it is dealing with your “company”?

Consider the following example:

This morning we received the 5th assessment that is incorrect as a result of SARS not crediting the tax payer with provisional tax that was paid and this is inspite of us having received a written confirmation from SARS noting that the provisional tax was paid (on time). Instead of being able to pick up the phone and speak to someone about this and get it resolved instantly, the tax payer either needs to go into SARS (this often involves waiting in a queue that is several hours long and will therefore result in a day’s unpaid leave) or else we need to submit an objection to the assessment. This involves unnecessary paper work and too much time. And then we need to do the follow up work and in our experience, objections can take anything from 3 weeks to 9 months to be resolved. And all this time, the tax payer is being prejudiced because of additional expenses incurred to correct an error that he/she never made in the first place. There is no “equity and fairness” in this process. Let me not even get started on the process of registering as a tax payer for the first time – whomever designed it has never had to go through it!

Now if I ran my business and treated my “customers” in the same way that SARS treats its customers, I would most probably have very few customers and would possibly even be out of business. I have said it before and will say it again; when efiling works it is fantastic, but when it goes wrong it is a nightmare. In the same way, dealing with the call centre is just about bearable when it works, but when it does not (or there is a “grumpy” agent on the other side of the line) it is also a nightmare. (And whomever came up with the idea to punch in all the data each time you call and that then needs to be repeated to the call centre agent should be reprimanded for complicating a process unnecessarily – it is not working!) In the past week alone we have spent several hours on hold to the SARS National call centre (it appears that all lines to SARS now go to this line) calls are either not answered at all or else are just “cut off” after 15-20mins of hold time. This is not acceptable and unfortunately our client experiences are not consistent with SARS core values:

“We are committed to providing excellent service to the public. Our relationships, business processes and conduct are based on:

• mutual trust and respect;
• equity and fairness;
• integrity and honesty;
• transparency and openness; and
• courtesy and commitment.”

I understand that SARS is not really a business in the sense of a normal business but it is there to make a profit. Unfortunately, your customers dont have the choice to go elsewhere and so you have a captive market in one sense. But when you dont treat people fairly, or you make it too difficult to do “business” with your company, you foster and encourage an attitude of non-compliance…and this is not good for business and is at odds with your strategic goals:

“Our strategic goals – adopted to enable us to fulfil our mandate – are:

• to optimise revenue yield;
• to provide excellent service;
• to engage in responsible enforcement;
• to transform our people and culture;
• to transform the business and build capability; and
• to promote good governance.”

I guess I dont really expect things to change as a result of this letter and I am also sure that there are plenty of people who are “happy” with SARS, but you need to be aware that in the circles in which we operate, there is an increasing unhappiness and disatisfaction when dealing with SARS. And like I said earlier, it is not like we have a choice to go elsewhere, but when people are treated fairly and politely and with dignity and respect, then it is much more likely that they will comply. And that, is good for business!

Related posts:

1. Provisional tax returns – to submit or not to submit?
2. SARS – just like Alice
3. It’s going to be a long tax season…

In this context I recently had the misfortune of having to go into the SARS Cape Town branch to take in an application to register a new tax payer for the first time. Why this cant be done online or via email is beyond me but SARS insist on original bank statements and certified copies of identity documents and there is no guarantee that the post will get to them (even registered mail) and so it means a trip to their offices.

Armed with the necesary I stood in the queue to get into the building…once inside I was directed to another queue so that I could hand in the forms and get a stamped copy so that I have proof that the application was indeed submitted (this is a necessary strategy anytime you take in any documents to SARS and we have been “saved” a number of times when we have been able to provide a stamped and dated copy of a document that they claimed never to have received).

I eventually got to the front of the queue to do what was the “right thing” and managed to get my copy stamped by a less than friendly official. During the whole experience I was overwhelmed by two familiar but very unwelcome emotions:

1. I felt like I was in the headmaster’s office back at school waiting to be punished by the overly strict, mean principle (yet I was sure that I was not in the wrong in any way).
2. The second emotion was even less welcome and took me back to the dark days of conscription…all of a sudden I was back in infantry school doing basics where my life was not my own but rather in the hands of the state who had the power (and authority) to essentially do with it as they pleased.

Now maybe I am a bit strange and maybe I have issues with SARS but when you are “doing the right thing” and also helping others to “do the right thing” (and when you know the system) and this is the over-riding feeling that comes from dealing and interacting with it, then something must be seriously wrong!

SARS offices are not the friendliest of places and most people that I know would sooner go to the dentist than to SARS…but if SARS is intent on making income tax submissions more simple so that more people can do their own returns either on efiling or by visiting a SARS branch then I suggest that they need some serious lessons in public relations and on how to deal with the public. We are, afterall, their customers and we are the people that ulimately keep them in business. Without us, SARS would not exist so perhaps it is time for a bit of an attitude change by SARS employees to the general public and more importantly, to the people who are trying to do the right thing by getting their tax affairs in order.

Related posts:

1. SARS – just like Alice
2. It’s going to be a long tax season…
3. Open letter to Mr Oupa Magashula

In spite of this we have still received almost 70 emails notifying tax payers that they are liable to submit a provisional tax return – and the letters are confusing too becuase they make reference to the fact that according to SARS, the tax payer is a provisional tax payer and thus liable to submit a return. Although, it also says “You do not need to submit an IRP6 return if you are no longer liable for Provisional Tax. However, you may be charged interest and/or a penalty for non-submission of your IRP6 return if at the time of assessment it is determined that you were liable as a provisional taxpayer”. Little wonder that there is such confusion!

So what do the rules say – just who is a provisional tax payer?

With reference to the definition of a provisional taxpayer in Paragraph 1 of the Fourth Schedule of the Income Tax Act No.58 of 1962, a provisional taxpayer is:
• Any person (other than a company) who derives income, other than remuneration or an allowance or advance as contemplated in section 8(1).
• Any company excluding public benefit organisations and recreational clubs.
• Any person who is notified by the Commissioner that he is a provisional taxpayer (this is an important clause).

The rules then go on to say the following:

The following persons / natural persons are not required to pay provisional tax:

Individuals below the age of 65 who do not carry on a business and whose taxable income:

• will not exceed the tax threshold for the tax year; or
• from interest, dividends and rental will be R20 000 or less for the tax year.

Individuals age 65 and older if their annual taxable income:

• consists exclusively of remuneration, interest, dividends or rent from the lease of fixed property; and
• is R120 000 or less for the tax year.

So that’s what the rules say…but then there is that sneaky clause that says that “any person who is notified by the Commissioner that he is a provisional taxpayer” is liable to submit a return. So does the letter mentioned above constitute “being notified” or not?

So my advice is that if you think you might be liable, or you were in the past but now could be exempt in terms of the above rules, then phone the call centre 0860 121218 and ask SARS. Just make sure that you get the name of the call centre agent, the time and date of the call and most importantly, make sure you get a reference/case number for the call. And if you are still not sure, then err on the safe side and submit a nil return (it is a really simple and relatively quick process).

If you need to submit a return, you have 26 days to go…

Related posts:

1. SARS – just like Alice
2. Open letter to Mr Oupa Magashula
3. It’s going to be a long tax season…

We currently complete and submit about 130 tax returns for clients and started submitting them as soon as the filing season opened. However, 2 weeks into the season (and 10% down) I find myself wondering if I still want to do tax for clients and if so, can clients afford to pay me to do it?

The whole aim behind efiling (as I understand it) is to simplify things and to make it easier for people to submit their returns to SARS and in thus enabling those who dont want to pay someone else to do their return to do it themselves. That’s the theory at least!

In practise it is not like this at all…if the first returns are anything to go by then SARS is in a complete mess and this is going to be a very long filing season indeed.

So far the following has happened:

1. 8 Returns have been submitted
2. 3 have been assessed correctly
3. 2 have been assessed incorrectly with SARS levying incorrect penalties of R56000 & R16000 to the tax payers. They have admitted telephonically that it is an error but the process involved in getting it corrected is unbelievably complex and time consuming.
4. 5 returns are ready to submit but of these there are 2 with outstanding tax issues from 2009 which have still not been finalised despite numerous calls and letters to SARS.
5. 1 return has no IRP5 or any other information for the tax payer on it  (and he is not even a government employee – apparently some departments’ IRP5′s are still not available).

Not a problem, we can always call the call centre (a dedicated line for tax practitioners)…

Give it a try some time – so far it has been out of service at least twice, we have been cut off twice, the “pre-populated” information that needs to be entered is not working and the average waiting time is also too long in my opinion! So if this is anything to go by then this is going to be a very long and very trying filing season.

When efiling works it is brilliant, but when it goes wrong (for whatever reason) it is awful. I just wish that SARS would be honest and admit (publicly) that there are issues with their systems and that they are working on them.

But what is going to happen (again) is that the very people that SARS are trying to help (the individual tax payers) are going to get prejudiced by the complex way of doing things – they will either have to go and stand in a very long queue outside the SARS building (which in some cases has been days long) or they are going to have to pay someone to submit their returns for them.  And based on my conversations with colleagues, thanks to SARS, the price for submitting returns has just gone up!

So start saving or start standing in the queue…

Related posts:

1. SARS – just like Alice
2. This cant be good?
3. Provisional tax returns – to submit or not to submit?

As I arrived there I was greeted by the site in the picture below…

this is a many-hour queue (and it has been like this since November last year according to the SARS lady that helped me). Fortunately, I did not have to stand in line as I just needed to hand in docs and get stamped copies.

The whole exercise has got me thinking about SARS and e-filing and just how much like Alice SARS is…

For those of you who dont remember Alice (it is not a reference to the song) but rather to the little girl with the bump in the middle of her forehead. When she was good she was very good but when she was bad she was horrid!

And so it is with SARS and e-filing – when it is good it is excellent, but when it goes wrong it is awful! It is hard to argue or reason with a computer and even more so with a disinterested clerk at the other side of the call-centre telephone line.

Despite this though, e-filing is on the whole still brilliant – if you are not registered to e-file your annual and provisional tax returns then you are welcome to join the queue. Guess I will see you in August when I make my next trip to SARS to submit the few paper returns that I still cant get on e-filing – but at least I wont be waiting in any queues.

Related posts:

1. It’s going to be a long tax season…
2. This cant be good?
3. What’s up with SARS and tax clearance certificates?

In just over 1 months time it is the end of the 2010 tax year and there are 2 important deadlines that go with this. They are:

Retirement annuities:

• RA contributions need to be made before the end of Feb. This year the 28th is on a Sunday so all contributions will have to be done by the close of business on the 26th Feb in order to qualify for the 2010 tax year. But dont leave it to the last minute – get your contribution in way before that – leaving it to the last minute always creates additional and unnecessary stress.
• If you are unsure about how much you can contribute, speak to your financial planner and most important of all, make sure you are using a unit trust RA. You can get into many of them at no initial fees and you are also not contractually bound in any way (this means you can make changes to the contributions without ever incurring a penalty).

Provisional tax:

• This needs to be in by the 26th Feb as well…and this year SARS are applying “new” rules with respect to how the tax liabiity is calculated. Previously you could make a payment in Feb and top this up by the end of Sept…this year, however, you need to have paid 90% of your total tax liability by the end of Feb (you can still top up in Sept). Failure to pay 90% will result in heavy penalties…
• If you need to pay provisional tax, make sure it is in on time and even if you have a nil return, make sure that you submit the form as well.

Gregg

Related posts:

1. 30th September…
2. Lies, damned lies and direct insurance!
3. Provisional tax returns – to submit or not to submit?