Is SARS Attacking Your Medical Tax Credit?

B5Taxpayers and tax practitioners have in recent months been surprised to find their medical claim tax credits queried by SARS. Up to this year the processing of the tax credit has gone smoothly.

To many taxpayers such as those with disabilities, pensioners and lower income taxpayers their tax credit is significant.

What is SARS querying? 

The Medical Tax Credit is a rebate to taxpayers who incur defined medical tax expenses. Part of these allowed expenses is the out-of-pocket medical expenses incurred by the taxpayer. In many cases this is claimed as shown on the Medical Aid tax certificate which is sent to SARS direct by the Medical Aid. The certificate shows your medical aid contributions plus expenses not allowed by your Medical Aid scheme – typically, these consist of expenses either not covered or partially covered by the Medical Aid and/or expenses submitted after you have reached your threshold of allowable medical expenses.

According to tax practitioners SARS has begun to ask for documentation (invoices and proof of payment) for out-of-pocket medical expenses shown on the Medical Aid tax certificate.

How to avoid problems

SARS denies it has changed the way it assesses the tax credit and the reason why there are problems is that taxpayers are claiming expenses over and above those shown on Medical Aid tax certificates. In these cases SARS is asking for documentation to substantiate these additional claims. The reason why it has cropped up this year is that, for the first time, SARS is populating taxpayers’ returns with the information received from Medical Aids. If the claim by the taxpayer does not agree with the Medical Aid certificate, then SARS will seek to verify the taxpayers’ claim.

Keep abreast of what SARS is doing and plan accordingly. Make sure that you keep all documentation and be sure you can justify medical expenses claimed over and above what your tax certificates show.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Changes Are Coming to The Companies Act – Be Ready for Them

B4Cabinet has approved the most wide ranging amendments to the Companies Act (the Act) since its launch in 2011.

Some of the important issues are briefly highlighted below. They are of course only proposed changes at this stage, published for comment and therefore subject to alteration (the comment period closes on 14 December). But take note of them now and if any of them are likely to impact your business significantly, ask your accountant for advice on how to prepare for them.

  • Securities Registers to be filed with the CIPC and publically available: Companies will per the proposed amendment now be required to annually send their securities registers (previously known as “share registers”) to the CIPC (Companies and Intellectual Property Commission). Some companies have been reluctant to disclose who their shareholders are but now the public will have anonymous access to this information by looking it up at the CIPC.
  • Greater public access to company information: In addition, the public will have greater access to information such as the Memorandum of Incorporation (MOI), the register of directors, and minutes and resolutions of shareholder meetings.
  • Changes to the MOI: One issue that has bedevilled companies is when changes to the MOI become effective. The proposed amendment states that the revised MOI becomes effective ten days after the company files with the CIPC.
  • Filing of annual financial statements (AFS): To date only companies subject to audit had to submit their AFS to the CIPC. The proposal is that all companies will have to do so.
  • Disclosure of Directors’ Remuneration: This section has been updated by proposing that each director and “prescribed officer” be named and their remuneration disclosed. This could involve administrative time as many companies have not ascertained if their senior managers, who are not directors, fall into the category of “prescribed officers”.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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The Medium Term Budget Speech and the Rating Agencies – Danger in December

B3The new Minister of Finance didn’t have much time to prepare for the Medium Term Budget Speech (MTBS) but he carried it off well.

The MTBS is a three year outlook for the government budget and was introduced by Trevor Manuel to increase transparency into our budgeting process.

Our Big Challenges

For the last nine years, Treasury has fought hard to keep the budgeting system credible. It is the major reason why South Africa has averted the country sinking into outright junk status and joining the downward path of countries like Venezuela.

Yet there has been slippage – several years ago we never planned that our budget deficit to GDP (Gross Domestic Product or the sum of all the outputs of the economy less the inputs or costs) ratio would rise to over 4% or that the Debt to GDP ratio would exceed 50% (i.e. the net indebtedness of government borrowing to GDP).

In Minister Mboweni’s budget these figures are breached – the budget deficit will rise to 4.2% of GDP in the MTBS and the Debt to GDP ratio will reach over 56%.

The Rating Agencies      

Two of the major rating agencies have put the country on junk status. Only Moody’s have kept South Africa on an investment rating. Should Moody’s cut us to junk status (and they will decide in December) we can expect a large capital outflow of at least R150 billion as major financial institutions will be forced to offload South  African bonds. This will cause the Rand to depreciate with consequent adverse impacts on inflation, investment and economic growth.

What will Moody’s do in December?

Moody’s have already indicated that they view South Africa’s rising debt as alarming. Like other rating agencies, they also carefully watch how we are managing our State Owned Entities (SOEs) and whether we have a believable plan to put the economy on a growth path.

These are important as the SOEs carry substantial debt, the bulk of which is guaranteed by Government. Eskom for example has R350 billion in debt of which over R200 billion is subject to Government guarantee.

Economic growth is significant as you can only cut costs for so long and the best way to solve economic problems is to show strong economic momentum. At the moment we are growing at 0.7% versus global growth of 3.5%.

In both these areas, the Government has a credible story to tell. The new Minister of State Enterprises, Pravin Gordhan, has replaced non-performing SOE Boards with new experienced leaders and has been putting in governance structures to stifle corruption.

The President’s Plan

President Ramaphosa recognises the need for economic growth and has devised a  plan which focuses on reigniting the economy.

The main elements of the President’s growth plan are:

  • An infrastructure fund (Ramaphosa plans to raise $100 billion over the next five years. Already he has made substantial progress with this and economists estimate that as new investments kick in from 2020 88,000 jobs will be created annually and economic growth will accelerate).
  • Creating jobs in the economy. The unemployment rate is 27.5% and he has launched the YES (Youth Employment Service) Program. In addition R50 billion of Government expenditure has been reprioritised to focus on this issue.
  • Finding solutions to problems with health and education – two key areas where without progress, we will not get out of the current economic stalemate in the long term.

Generally, the markets have reacted favourably to these initiatives. The key will be Moody’s response in December when they decide if we will descend to outright junk status. It seems likely that Moody’s will give the country time to see how the Budget progresses and how the President’s economic recovery will do – let’s hope so.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Taxpayers Note: How To Upload Supporting Documents Using eFiling

B2SARS have instructed that taxpayers on eFiling need to submit supporting documentation as follows:

  • Files should be no more than 5mb each. You can upload up to twenty files.
  • Document types need to be: Excel (xls or xlsx) or Word (doc or docx). You may also use PDF, jpg or gif files.
  • Set your scanner to black and white and your resolution to 300 d.p.i. or less.
  • You can upload your documents over a period of time but you only have one go at submitting. Once you have submitted your supporting documents, the supporting document upload facility will no longer be available. Remember when you submit supporting documentation, you declare that you have submitted all of your supporting documentation.
  • Don’t include spreadsheets with multiple sheets.
  • Be careful of file names and don’t use special characters like # etc.

Don’t submit:

  • Documents with the same file name.
  • Password-protected or encrypted files.
  • Empty or blank documents.

Finally, if you receive a message like “The document cannot be converted” then print and rescan the document.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Let’s Be Realistic and Positive in 2019

B1“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails” (William Arthur Ward)

As we wind down from a challenging year, perhaps it’s a good time to reflect on how we can make sure that 2019 is a year of positivity and recovery for South Africa.

Most of us are pessimistic about South Africa’s future and see the problems our country faces as too difficult to fix. This is a global phenomenon and you could poll people from the USA to China and get a similar response. Curiously, most people are optimistic about their own future and see the next five years as better than the last five.

Are our large problems insoluble?   

We view the problems South Africa is facing as too big to get to grips with. Worse they seem to mount – in the last few years we have had state capture, load shedding, economic recession to name a few. It’s as though we are experiencing the waves of a tsunami – the waves just pile up until we feel overwhelmed.

One of the interesting things about global research on this topic is that it shows that the more understanding we have of the problems, the more optimistic we feel that there are solutions to these difficulties. In other words if we are aware of these problems and have given them some rational thought, then we know that if we seriously apply our minds to these issues we can find a solution.

Empirical evidence tells us this is not so far-fetched.  For centuries we thought the Protestant v Catholic situation in Northern Ireland would drag on for ever and not be solved. Yet it was. The same with South Africa in the early 1990’s – civil war seemed inevitable but we negotiated our way out of this seeming dead end.

Relative versus Absolute – there’s lots of positives!

The South African economy is three and a half times bigger than it was in 1994. At least eleven million people have come out of dire poverty due to social grants. Millions of houses have been built, most people now have access to running water and electricity. These are concrete advances, yet, as noted above, we see issues such as load shedding as absolutely insoluble. The reality is that if enough people focus on each of these issues, they will come up with a solution.

Away with the clutter   

Let’s concentrate on the big issues as we did in the early 1990’s. We need to change our pessimistic mindset into a positive outlook. With a change of attitude, we can make inroads into our problems.

At the moment, we have one urgently pressing problem – the economy. The good news is that looking at how keen private enterprise is to help solve this issue, we are on the right road.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Beware the New Corporate Income Tax Penalties! And Your Tax Deadlines For November

There are only run-of-the-mill tax deadlines for November but companies need to take note of a new warning from SARS that it will be imposing administrative penalties from December 2018 for outstanding Corporate Income Tax (CIT) returns.  Until now, penalties have only been imposed for failure to lodge personal returns.

The penalties, says SARS, “range from R250 to R16,000 per month (see Table below) that non-compliance continues, depending on a company’s assessed loss or taxable income” (our emphasis), and will apply to companies which have been issued a final demand to submit a return.

Note also that this also applies to dormant companies: “If a company is dormant, it is still required to submit any outstanding returns prior to 2018 to prevent a penalty being imposed.”

Table: Amount of Administrative Non-Compliance Penalty

 

Assessed loss or taxable income

for ‘preceding year’

 

‘Penalty’

Assessed loss R250
R0 – R250,000 R250
R250,001 – R500,000 R500
R500,001 – R1,000,000 R1,000
R1,000,001 – R5,000,000 R2,000
R5,000,001 – R10,000,000 R4,000
R10,000,001 – R50,000,000 R8,000
Above R50,000,000 R16,000

(Adapted from the Tax Administration Act)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Is Your Problem With SARS A Systemic Issue? If So, Speak To the Tax Ombud

b4Many taxpayers are experiencing frustrations in their dealings with SARS. The Tax Ombud is there to assist taxpayers if they have experienced:

  • Procedural difficulties
  • Service issues
  • Administrative problems and the taxpayer has exhausted all avenues of appeal with SARS with respect to SARS dispute procedures.

However, the Ombud may take up a taxpayer’s complaint before all SARS processes have been followed if there are “compelling circumstances”. The most significant of these is systemic issues.

What are “systemic issues”?

The Ombud defines these as coming from causes in SARS’ practices and policies which will adversely affect numerous taxpayers. The Ombud’s Office may investigate systemic issues and recommend solutions to the Minister of Finance.

So far, the Ombud has identified twenty systemic issues. Some of the most significant are:   

  1. Placing unjustified “special stoppers” on taxpayers – these are supposed to be placed on high risk fraud accounts and freeze any payments to taxpayers until they are lifted
  2. SARS not adhering to agreed timelines
  3. Requested documentation being received by SARS and not filed with the taxpayer’s account
  4. SARS illegally instituting collections from taxpayers
  5. Frequent follow-ups by taxpayers where SARS failed to show them the correct procedure for this and/or informing taxpayers how to escalate matters
  6. Assessments being revised without SARS sending the taxpayer a letter of findings
  7. Incorrect bank accounts being used by SARS when processing refunds and incorrectly allocated payments to the wrong taxpayer.

If you think that your complaint falls into a “systemic issue” category (ask your accountant in doubt), then you may approach the Tax Ombud without going through all of SARS’ hoops. There is no doubt that the credibility of the Tax Ombud is growing, and whilst the Ombud may still decide not to help you it is well worth giving it a shot.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Cloud Based Accounting: Ideal For Your Small Business?

b3One of the advantages of the technological revolution is that advances move swiftly down the cost curve. Accounting software for small and medium-sized enterprises (SMEs) has now become much faster, more secure and cheaper. It gives businesses real time information and thus makes SMEs more competitive against big business.

Cloud-based accounting software is stored in remote servers in “the cloud”. Processing also takes place in the cloud and the information is accessible anywhere in the world.  Effectively, it makes the days of loading software onto your accountant’s desktop and passing information via memory sticks obsolete.

The benefits of cloud accounting

It improves cash flow not only because it is less costly with no upfront costs (most people rent cloud-based solutions from as little as R200 per month) but also it allows you to virtually integrate with your customers. This reduces bottlenecks, improves communication and speeds up processes which take cost out of your system. For example, if your customer can see your planned offtake of their product for the next several months, they can reduce their inventory holdings and pass on some of these cost savings to your business.

It helps make your business more integrated as cloud accounting packages can “talk” to your other business software such as Customer Relationship Management (CRM). Thus the CRM system is automatically updated when accounting transactions which affect customers are processed.

The system is visible to multiple users who can interrogate the general ledger from anywhere in the world. This does not compromise internal controls as different users have varying degrees of access to the information. It is also secure as cloud-based software can be stored in different cloud locations.

It enhances management control as not only is the accounting information accessible but it is easy to run your own reports from it. Cloud-based software also leaves easy-to-follow audit trails of data. Management have much better information and they can quickly check how all aspects of the business are performing.

Whilst it involves a (possibly considerable) investment in time and effort to design and set up cloud accounting, once it has been installed the benefits can be substantial.

Ask your accountant for advice on whether it is right for your business.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Lack of a Medical Certificate Not Enough When Dismissing an Employee

b2Recently the Labour Court ruled in favour of an employee who was dismissed for failing to produce a required medical certificate. The employee had a history of absenteeism.

Going AWOL 21 to 24 December

The employee had a medical condition which the employer was aware of. In November last year, the employee was counselled for work absences for the months of September, October and November. These absences were authorised by the company.

In mid-December, the employee had received a warning for two unauthorised periods when he failed to attend work.

On 21st December, he went off ill and contacted the manager on duty to say he was suffering from his medical condition. Further, in his conversation with the duty manager, the employee said he did not know when he would return to work.

The employee was not at work for four days and did not submit a medical certificate to the company as required by company policy. He had, however, shown the duty manager his bank statements which showed he could not have afforded to see a doctor and had self-medicated. This was accepted by the duty manager.

After a hearing, the employee was dismissed. The case went to arbitration where the employee was reinstated, the arbitrator having accepted that there were circumstances which mitigated his failure to produce a medical certificate

The company took this award on review to the Labour Court.

The Labour Court’s findings

The Court found that procedurally the company had acted fairly. The company had followed its policies and procedures. The warning was issued after two unauthorised absences from work.

As to the substantive fairness of the dismissal however, the company argued that the employee did not inform his line manager (who he was required to contact) when he was ill and speaking with the manager on duty was irrelevant. He had also not contacted the company on the additional three days he was ill. In the arbitration, the company, strangely, did not raise this point.

Next the company argued that with no medical certificate, it had no reason to believe the employee was ill. However, as noted above, the duty manager had accepted his explanation that the employee was ill from his medical condition.

Finally, the warning given to the employee on 17th December was not a final warning (in the company’s policies, absenteeism was not listed as a serious offence). Also, the company failed to take into account the employee’s interaction with the duty manager.

The Court ruled there were no substantive grounds for dismissal and the employee was reinstated with costs.

The bottom line is that failure to produce a medical certificate is not necessarily in itself a sufficient ground for dismissal. Be careful when you want to dismiss an employee for absenteeism. Remember how circumstances can vary, so before deciding whether to discipline an employee, review all the actions you have taken and make sure they bolster your case. Get professional advice if in any doubt.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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When Hubris Grows, Can a Market Crash Be Far Behind?

b1“Hubris … extreme or foolish pride or dangerous overconfidence” (Wikipedia)

There is so much information going around that it is almost impossible to see through it all and make informed decisions. As Johann Rupert says, if he could accurately predict the time when shares are going to rise or crash, he would be the richest man in the world.

We know that before a bust there is a boom which usually ratchets up to dizzying proportions. People see prices rising and blindly assume that they need to get in and make a profit – overconfidence and hubris become dominant. This just fuels more price rises until the boom stops and just as quickly prices drop.

Of course, Johann Rupert is right – it is impossible to forecast the top of the boom – but there are some interesting pointers that may be able to tell us that a crash could be imminent –

  • The skyscraper scenario

Deciding to build the world’s tallest building is a classic case of hubris. In 1930, the Chrysler Building became the world’s highest skyscraper and was quickly surpassed by the Empire State Building in 1932. The planning of these skyscrapers was done just as the Great Depression set in.

The World Trade Centre (1974) came just before the stagflation of the mid to late 1970s. The Petronas Towers in Malaysia became the world’s tallest buildings just before the Emerging Market Crash in 1998. The Burj Khalifa broke the world height record on its completion just prior to the Global Financial Crisis in 2008.

Keep an eye on this with Wikipedia’s “List of future tallest buildings” here.

  • Sotheby’s

Another good indicator of a crash is said to be the share price of Sotheby’s. When people are full of hubris they bid high prices on art. This drives up the price of Sotheby’s stock. The mega art prices come mainly from successful businessmen and when they expect their businesses to begin cooling off, they stop buying art. This feeds into the Sotheby’s share price which begins to quickly reverse.

Keep an eye on this by Googling “Sotheby’s stock price dollars”.

In terms of having a strategy as to when to exit a rising market, it pays to watch these two indicators and when they start rising at a slower pace, take advice on whether it might be time to begin to start selling. You will never get the actual timing of a crash right but if you have got rid of the bulk of your investments before a crash, you will be doing well.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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