The Password Guru Got it All Wrong!

Password protected to login on the computer screenHow many times have we entered a website and been asked to enter a new password which is at least 8 characters long and contains 1 capital letter, 1 number and 1 symbol like “@”? We end up with a password that is impossible to remember. The temptation is to use an easily-hacked word and/or to record it on a piece of paper stuck to the wall above our computer.

At least we “know” (assuming no one copies it from the wall) that we have a “secure password”.

This type of password was invented by Bill Burr in 2003 and became accepted globally. Mr Burr is now a retired US government computer expert.

The problem is that he admits now this was all a mistake and says it takes less than one minute for sophisticated cyber hackers to crack a password such as “P@55w0rd”.

It can however take up to a trillion years to crack a passphrase such as “mydoghasnonosehowdoeshesmell”. If you take a passphrase you are familiar with, then it will be relatively easy to remember.

Why not see who can come up with the best passphrase for your office or family?  Choose something easy to remember – how about “getlostcybertoffeenosedbothacker”?

Seriously, consider changing your password. There will be confusion as many IT consultants will almost certainly stand by current password methodology; and some sites will continue to insist on symbols and capitals. Speak to an IT consultant you trust if you have any further queries.

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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SARS’ Plans to Tax Income Earned Abroad

a3_b99fc474-e856-11e6-93cc-bb55973994dbAs the law currently stands, if a South African tax resident works abroad for 183 days or more (of which 60 days must run consecutively) in a year, that person is not taxed locally on foreign based earnings.

Treasury has however released draft legislation which if adopted will repeal this exemption.

For many South African employers and employees this could have serious consequences, particularly cash flow implications.

The proposed changes

When the ex-Minister of Finance presented his Budget in February 2017, he proposed that residents working abroad should be taxed if the country they worked in charged no income tax. It is inequitable, he argued, that these people should pay no tax at all.

However, the draft new law goes much further than the ex-Minister suggested and proposes taxing any differences between taxes charged abroad and South African tax rates.  If, for example, you work abroad for more than six months and the tax rate in the other country is 25%, you will be liable in South Africa for any difference between that 25% and the rate at which you would be taxed in terms of our law (the maximum tax rate here is 45%).

The new rules are proposed to come into effect from 1 March 2019 (i.e. the 2020 tax year for individuals).

Implications for employers and employees

When employers have staff working abroad, salary packages are designed around the tax free element or reduced tax paid offshore. Employers will thus have to reconsider these packages to ensure that employees receive the same take home income.

In cases when employees work abroad at lower tax rates, they are taxed in the country where they work. They will, based on the proposed changes, also be taxed in South Africa on any difference between the offshore country’s tax rates and local tax rates. The employees will receive a tax credit for the tax they have paid abroad. However, they will only be able to do this at the time when they submit their tax return. Receiving a refund from SARS and getting this credit approved by SARS is likely to be a time consuming process. These employees will thus be penalised on a cash flow basis, which would also increase the employers’ administration workload as they may have to consider bridging loans to employees awaiting their tax credit.

These earnings will usually be subject to Double Tax Agreements (DTAs) which vary by country (we have signed DTAs with 76 countries). Understanding and applying these various DTAs will be onerous for both employers and employees.

Employees’ potential reaction and the danger for our economy

Employees who work abroad are generally speaking highly skilled and globally marketable. They could therefore easily choose to take up tax residency in a low tax jurisdiction. This will mean renouncing South African tax residence status, which will trigger 18% capital gains tax on their assets.

The likelihood is that South Africa will lose a significant number of skilled individuals to offshore countries. We already have a skills shortage in South Africa and to lose more skills will have a further detrimental effect on the economy. Many multinational companies use South Africa as a springboard into Africa and employ staff in countries on the continent. These individuals could decide to re-locate elsewhere, such as Mauritius, which offers low tax rates and sophisticated financial services.

Businesses and employees affected by this potential change to the Income Tax Act should follow the process of the draft laws until they become legislation – probably at year end or early next year. This is because the draft laws have been opposed by sections of the business community and thus there may be changes made when the legislation is finalised. Consider also participating in the process by making your own submissions on this draft legislation – the result may be a better outcome for all involved.

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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Your Will: The Master of the High Court Wants Qualified People to Assist “Lay” Executors

judge-writing-shutterstock_342224861Many people nominate either their spouse or children to be the executor/s of their deceased estate.

When the nominated person presents him or herself to the Master of the High Court (“the Master”) to get their Letter of Executorship, they could be in for a shock. They may well be told at the reception desk that only qualified lawyers, accountants or firms that specialise in winding up estates will be given a Letter of Executorship. If the executor does not fit into one of these categories, he or she will be classified as a “lay” person, which means that there are bound to be additional administrative problems in finalising estate matters.

If an executor is indeed told this, it is not accurate in that “lay” persons can be appointed as executors; in which event however, the Master of the High Court will want to see suitably qualified people or organisations appointed as their agents.

This may have implications for you when drafting your will.

Why has this happened?

Winding up an estate is a specialised business and the Master in the past found that executors without the requisite skills floundered, which resulted in delays in winding up the estate. The Master therefore had to frequently and routinely intervene to appoint an adequately skilled executor.

Appointing a qualified agent
 

If the executor does not have the requisite skills, the Master will strongly encourage the executor to appoint an agent to assist. This agent could be from a firm specialising in deceased estates, an attorney or an accountant.

The agent will effectively work for the executor, who can negotiate the agent’s contractual terms and fees. Importantly, if the agent does not fulfil the terms agreed on, the executor may replace the agent.

The agent appointed or replaced by the executor must notify the Master that he or she has the skills to assist with the winding up of the estate.

What to do when drafting your will

When drawing up your will, keep this in mind. Either appoint a professional executor upfront, or, if your nominated executor will need help when winding up your estate, why not suggest (in a separate note to your choice of executor) someone suitably qualified you trust to assist with the winding up? That way you and the executor can negotiate the terms with the agent and know that your estate will be in good hands.

It is better to be proactive when preparing your will to avoid delays and possible extra costs in winding up the estate.

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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Directors’ Meeting Minutes: Why Are They so Important?

37750760 - financial director announcing data

The Companies Act (the Act) gives directors the power to run and manage the company’s business. In return it places responsibilities and personal liabilities on directors who do not fulfil their fiduciary duties.

What is required of directors’ meeting minutes?

Meetings of directors are to be kept and must contain at least:

  • All resolutions passed at meetings (these need to be sequentially numbered and dated), and
  • Any declarations of conflicts of interest.

As meetings of directors decide on the strategic direction of the company, the recording of these meetings is critical in reflecting what decisions are taken and how they are arrived at.

The Act also requires that directors understand the issues facing the company and take time to formulate their own, independent views, so they can actively contribute at directors meetings. The minutes should also reflect this.

Adequate control is to be exercised over minutes to ensure they are a fair reflection of the meeting. They should be circulated amongst the directors to prevent any omissions or misleading statements. As illustrated by recent revelations on State Owned Companies, this is a vital point to prevent malfeasance and ensure directors act only in the best interests of the company.

The golden rules of good minutes 

Like a good newspaper article, minutes should follow the 5 Ws:

  • Who? The names of the attendees and who sent apologies;
  • What? What actually happened at the meeting, how the agenda was followed, the decisions that were made and significant events that had a bearing on these decisions. As someone said – it should not be a ball by ball commentary but must contain sufficient information to capture the essence of the meeting.
  • Where? The minutes are kept by the company secretary or one of the directors and secured in a safe place.
  • When? Minutes should be done timeously after meetings and circulated amongst the board whilst the meeting is fresh in the minds of the directors.
  • Why? Directors’ minutes go to the heart of the business. They are the most important recordings of how and why decisions were taken. Take due care in recording them.

Finally, there needs to be a balance between confidentiality and transparency in terms of disclosure to staff and stakeholders. As minutes can be used by statutory bodies (such as SARS, the Competition Board etc), it is best to get a legal opinion as to what to record about contentious issues.

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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Robots and the Rise of AI: Will New Technology Lead to Greater Unemployment?

shutterstock_530775229“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.” (Warren Bennis, American scholar and author)

We often read how the advent of new technologies, such as Artificial Intelligence (AI), will result in higher job losses. And of course the last thing we need in South Africa is increased unemployment.

A lesson from history: The ATM story

ATMs turned 50 in June and at the time of their invention, it was predicted that substantial job losses would follow.

In fact employment levels rose as banks used the savings from fewer tellers to invest in more branches to sell other bank products such as mortgages and insurance. This resulted in more jobs created at better pay as ATMs reduced repetitive work for more skilled employees.

The logical deduction from this is that, historically, the productivity gained from technology should actually lead to more economic growth with people having higher incomes.

But – that isn’t always what is happening

Globally, productivity has been low since 2004 and incomes have not grown significantly except for the top 1% of earners. This seems counter-intuitive as we are in the middle of a technological revolution – let’s look at why that is.

The global labour pool

The technological revolution of the 1980s gave a big push to globalisation which integrated economies around the world. Jeans were designed in New York, cut in Vietnam, assembled in China and rolled out globally.

This integration introduced nine hundred million new workers from emerging markets to world labour markets. This led to a surplus of labour and depressed wages globally.

The paradox of current productivity

Today with wages low because of excess global labour, there is little incentive to push for productivity initiatives. In essence, this leaves an uncomfortable status quo with the middle class feeling stuck, the poor making modest gains whilst the highest earners at the top get even richer.

Research has also shown that there is a lag effect between new technology and productivity gains. The introduction of electricity helps explain this. By the 1890s electricity was being mass produced for consumers but it took until the1920s before it was used for widespread industrial production. The reason cited for this is that to use electricity, factories had to be completely redesigned and it took thirty years to figure out how best to do this.

These two factors (excess global labour and the lag effect) explain why, despite technological advances, we are currently experiencing low productivity.

Where does this leave South Africa?

Talk of mass layoffs due to technological improvements in the short term is probably exaggerated. History suggests, however, that in all probability in the next generation, new technology will be harnessed and will result in job losses.

In the meantime, there are opportunities to integrate with the global market via unskilled labour. In time these employees enhance their knowledge and begin to move up the skills ladder. It happened in Asia – why can’t it happen here?

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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Protect Your Clients’ Personal Information from Hackers!

shutterstock_540300280We have been speaking of hacking and ransomware for a while and it just grows and continues to make news.

In a recent case in England, a small to medium-sized entity (SME) was fined GBP 60,000 (over R1m) for failing to take “basic steps” to prevent hackers from gaining access to clients’ personal information, including their banking details.

It is important for South Africa, despite the Protection of Personal Information Act (POPI) not yet being effective, as personal information is protected by our constitutional right to privacy. In any case negligence in protecting this information, if it leads to loss, could expose you to a substantial damages claim.

A UK case illustrates the danger

A video hire company with more than 26,000 customers had a coding error on its login page. This enabled a hacker to gain access to the names, addresses and bank account details of its customer data base.

Authorities found that the company had failed to take “basic steps” to protect customer information. These “basic steps” were:

  • Adequate testing on their website would have revealed the coding error,
  • Customer passwords were simple and prone to attack, and
  • Their decryption key was not secure. These keys more effectively hide security algorithms as hackers are aware of most algorithms.

What is “personal information”?

“Personal information” has several definitions in South African law, but POPI, even though it is yet to commence, suggests that it will cover information such as:

  • A person’s name (including where applicable a juristic person e.g. a company),
  • Contact details,
  • Religion,
  • Sexual orientation,
  • Personal views,
  • Private correspondence,
  • Health records,
  • Employment records,
  •  Financial records,
  • Biometrics (DNA, fingerprints) etc.

Check your systems now!

POPI has been promulgated but is waiting for the government to gazette a date for it to be fully effective (after which a one year grace period will commence). The administrative fines for transgressions will then be up to R10m. That is in addition to your existing risk of being sued for millions in damages.

It pays to ensure now that personal information under your control is adequately protected to prevent any chance of being sued for negligence. This will also help you get ready for POPI.

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 Special Voluntary Disclosure Programme:
Time is Running Out, and Automatic International Exchange of Tax Information is Kicking In

shutterstock_524062759There has been widespread reporting that globally, revenue authorities are clamping down on tax havens. As from next month, tax authorities from over 50 countries (set to grow to over 100 by September 2018) will be automatically reporting to their counterpart tax offices on, amongst other things, bank accounts and investments held by their nationals.  This is in terms of the OECD’s automatic exchange of tax information policy.

With such information exchanged, SARS will undoubtedly be in an even better position to request relevant material, issue assessments and potentially prosecute tax offenders. In addition, Exchange Control will also be informed and could commence proceedings against individuals and entities that have unauthorised forex holdings.

Those wishing to take advantage of the Special Voluntary Disclosure Programme (SVDP) have until the end of August 2017 to submit their applications for amnesty relief, which includes immunity from prosecution and reduced penalties.

If you are accessing the SVDP, do so quickly as the application process may be time consuming.

Speak to your accountant now if you are 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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Time is Running Out, and Automatic International Exchange of Tax Information is Kicking In

In The News Again: Mandatory Audit Firm Rotation

shutterstock_557969968Recently the head of the IRBA and the Finance Minister announced that this would commence on 1 April 2023.

There has been a backlash to this by prominent bodies such as the King Committee, the Institute of Directors and the Chief Financial Officers Forum (Finance Directors of JSE listed companies). The opposition centres around the cost of the move to MAFR, estimated at R10 billion in the first ten years and whether the intended purpose of MAFR will in fact be achieved. A number of countries who previously introduced mandatory rotation have in the meantime scrapped this for the same reasons.

MAFR, say those opposed to it, will effectively dilute shareholder rights and will lead to less investment in South Africa, as it will deter companies from listing on the JSE.

These bodies have appealed to Treasury to reconsider the matter. These are strong words and we will update you as this unfolds.

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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Blockchain Technology: New Potential in Financial Services

A5Bitcoin is currently the best known user of a blockchain platform, but expect many more varied uses to emerge.

For example Calastone, which provides a platform for mutual funds (e.g. unit trusts) to trade in 34 countries, recently successfully replicated its transactions for a full day using blockchain technology.

Will this be good for us? 

This potentially paves the way to transform the industry, resulting in enhanced and faster access to global and local securities at a significantly lower cost.

The financial services industry has been in a race to be the first to use blockchain technology.

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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