Tax Clearance Certificate being terminated

Logista_Sep-03The issuing of the printed Tax Clearance Certificate (TCC) will be terminated after 25 October 2019, as we are fully implementing a more secure and electronic Tax Compliance Status (TCS) system.

Since the implementation of the TCS system in 2015, we advised taxpayers that our goal was to terminate the use of the printed TCC, and would stop issuing TCCs at a future date.

We have now reached a point where the ability to print a TCC will be terminated, and the TCS PIN will have to be used by taxpayers to share their tax compliance status electronically with third parties. In addition to terminating the ability to obtain and/or print a TCC, all active TCCs that are currently in circulation will be cancelled. You will therefore no longer be able to verify or print it.

You are encouraged to familiarise yourself with the electronic TCS system and the use of the TCS PIN, so as to be prepared when we entirely terminate the TCC concept.

The secure and convenient electronic TCS PIN provides you with a way to authorise any third party (an organisation or government department) to view your tax compliance status online via eFiling by providing them with the PIN. It will present them with your overall tax compliance status as at the date and time they view it, instead of your tax compliance status as it was at the date when the TCS PIN was issued to you. To protect the confidentiality of taxpayer information, no other information will be accessible to a third party through this process.

It is important to remember that your tax compliance status is not static, but changes according to your continued compliance with tax obligations.

For more information on how to use the TCS PIN, please refer to the “Guide to the Tax Compliance Status Functionality on eFiling”.

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 shareholder agreement versus your Memorandum of Incorporation – There is only one winner

Logista_Sep-03Shareholder agreements usually form the backbone of shareholder relationships as they govern, for example, how shareholders sell their shares, how shareholder disputes are settled and the type of authority required for certain transactions.

The Companies Act makes it clear that:

  • If there is any conflict between the MOI (Memorandum of Incorporation – the statutory document which per the Companies Act “sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company”) and the shareholders’ agreement, the MOI will prevail.
  • Similarly, if there are any differences between the Companies Act and the shareholders’ agreement, then the Companies Act will take precedence.

The case that tested a shareholder agreement v the MOI

A company issued a new MOI in 2012. This MOI conflicted with the shareholders’ agreement and some shareholders approached the Court to have an order granted that the shareholders’ agreement governs the relationship amongst shareholders and thus supersedes the MOI. The shareholders’ agreement contained a non-variation clause which stated that no changes to the agreement could be made unless all shareholders agreed in writing.

The Court refused to grant the order and said that the issuing of the new MOI was done lawfully and in line with the requirements of the Companies Act. The shareholders’ agreement so materially conflicted with the MOI that it was now effectively null and void.

As a shareholders’ agreement is fundamental to the workings of shareholders, it is important to carefully consider how the MOI will relate to the shareholders’ agreement. Thus, any potential conflicts should be ironed out when drafting either a new MOI and/or a shareholders’ agreement.

Take your accountant’s advice when doing this to avoid extra cost, aggravation and time taken to resolve any differences which may surface when you need to enforce your shareholders’ agreement.

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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Be ready for SARS employee audits

Logista_Sep-01

“Forewarned is forearmed” (Wise old saying)

SARS is having trouble meeting its revenue targets and this is clearly putting enormous pressure on the South African economy. Further economic deterioration in the economy will probably result in a downgrade to junk status by Moodys. This will mean that all three of the major ratings agencies will have consigned our economy to junk status which means further currency weakness and probably a recession.

Most of the tax paid in South Africa is paid by individuals and it is logical that SARS will focus on maximizing its revenue with this segment of taxpayers. Thus, one can expect more auditing by SARS of employees’ tax returns.

Implications for employees

Any SARS queries will be initially directed at employees who will have to justify what they have claimed. Most employees will go back to their employer and say, for example, ‘there is this query on my car allowance and how should I respond?’

It would make sense for employers to ask all employees to run SARS’ questions through the employer so that SARS receive a consistent answer (employees may have their own tax adviser to help the employee respond to the query, but the adviser may not understand how the employer’s tax administration works).

Implications for employers

If SARS are not satisfied with the responses to their queries, they may start to look at how the employer administers its employee tax obligations.

SARS places a substantial onus on employers to collect tax and to pay it over to the Revenue authorities. This involves a knowledge of taxes like:

  • Remuneration and benefits paid to:
    • expatriate employees
    • local employees
    • executives and directors
  • Retirement benefits for employees, executives and directors
  • Payments to labour brokers and independent contractors
  • Share incentive schemes
  • Cash book payments
  • Gifts, prizes, awards and gift vouchers
  • Loans to employees
  • Company cars
  • Travel allowances and reimbursements
  • The Employment Tax Incentive (ETI).

These taxes are all different and require an understanding of tax legislation and the administrative systems required to process and collect the taxes.

In making their enquiries of the employer, SARS will most likely look to get an understanding of the employer’s systems and if dissatisfied with the response may audit the employer.

An audit can take up to one year to complete and apart from the stress of the audit there will be penalties, interest plus tax due where SARS finds the tax has been incorrectly calculated. SARS can also go back several years when they find errors, and this can become a costly exercise. At the moment, SARS appears to be homing in for the most part on the ETI, labour brokers, company cars and travel allowances – perhaps therefore pay particular attention to these taxes.

So, it is a prudent idea to frequently test how robust your systems are and how well you understand the tax laws. SARS often tweaks the law and issues interpretation notes on how businesses should levy and pay over tax.

Having an independent viewpoint can be invaluable when testing your systems – make use of your accountant to help you as apart from being at arm’s length he or she has the skill and experience to assist in this important exercise.

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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Communicate with candour – the “Oracle of Omaha” speaks

Logista_Sep-02“The CEO who misleads others in public may eventually mislead himself in private” (Warren Buffett)

Companies that are sustainable in the long term are honest with themselves and with all the businesses’ stakeholders.

The starting point is candour

If you are open and honest in your dealings with people you will gain their trust and once you have this people will follow you. The word “candid” comes from the Latin candeo which means to illuminate – the candid person is not afraid to shine a light on and confront the problems facing the business.

Make this a key aspect of your leadership

Train yourself to show candour in all your dealings. Doing this will mean you will deliver a consistent and increasingly trustworthy message to the company’s stakeholders. You will also find that your staff will follow this example which in turn will result in a tightly focused business. In the long term this will make the company more sustainable and profitable.

It works! The Candour Analytics Survey

In the United States one consultancy has attracted a lot of attention by drawing up and publishing such a survey. It has developed a model that measures the various communications issued by the company along with financial numbers and looks at a company from several angles:

  • Capital Stewardship;
  • Strategy;
  • Accountability;
  • Vision;
  • Leadership;
  • Stakeholder Relationships; and
  • Candour.

This model looks at the clarity of the communication and gives negative marks to what it considers “FOG” (Fact deficient, obfuscating, generalities). What is interesting about the Candour Analytics Survey is that the higher corporations score in this survey, the more they outperform the market – the top 25% Candour-ranked companies outperformed the S&P Index nearly threefold in 2017-2018 (29.7% versus the 11% return of the S&P Index).

As the consultancy says, candour is a proxy for trustworthiness.

Does it have credibility?

One of the biggest fans of this survey is Warren Buffett who has now made candour one of his key principles and as he stated in a communication to his shareholders: “…We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less.”

There is strong empirical evidence that the survey is meaningful and the endorsements it has obtained show it is well worth making Candour one of your key principles.

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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Spying on employees is becoming a big industry

Logista_Sep-04In a recent UK survey 72% of employees felt that their employers were eavesdropping on them.

Gathering information on employees is now a multibillion dollar industry and is continuing to grow as more sophisticated technology is launched.

Why are employers doing this?

A good example of how keeping tabs on employees can be beneficial is the destruction of the World Trade Centre on 11 September 2001, where many firemen died needlessly searching for people who were not in the buildings. Technology is available that pinpoints who is in an area and how long it will take to get everyone to safety.

It is also possible to determine when people enter sensitive areas or try to access confidential information.

An employer also needs to know if its staff are passing on business secrets or running down the company to friends, fellow employees and the public – damage to a firm’s business reputation is one of the biggest existential risks faced by a company.

Employer versus employee

It is a balancing act as employees have a right to privacy and a right to their personal information being protected whilst as noted above the employer, in order to trade successfully, needs to be aware of potential harmful employee actions.

Maintaining trust

The most important issue is to maintain trust between employer and employee. Once this is undermined the harm to both parties can be lasting and severe.

Management need to be open with their staff if they intend to monitor them. Tell the staff what you plan to track (emails, social media, telephone conversations etc) and that any employee can request the information you have gathered and how you will use it, and destroy it once it is no longer needed. Update staff contracts and conditions of employment with these measures.

An open process with staff will help to clear up uncertainties they have and will keep the trust between you and your employees. It will also enable your business to protect itself against reputational damage from employees leaking negative information about your business.

Protection of Personal Information Act (POPIA)

POPIA awaits the announcement of a commencement date before the one year grace period starts running and among other things will allow staff to compel employers to give their staff access to all the information that the business holds on them.

Technological advances have made it feasible to intercept and analyse your employees’ communications. In view of the arrival of POPIA and more importantly the relationships you have with your staff, think about this carefully, particularly as there will be harsh penalties for any material POPIA lapses.

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 big mac index says the rand is way undervalued

Logista_Aug-03f“Our results indicate that the Big Mac Index is surprisingly accurate in tracking exchange rates over the long-term, which is consistent with previous PPP research findings” (ScienceDirect)

For decades the Economist has been publishing its Big Mac Index to give an estimation of how under- or over-valued a currency is. This is done by comparing the price of a MacDonalds Big Mac Burger in a country to the price of the burger in the USA.

Although this began as a lighthearted attempt to establish currency values, it has gained traction and credibility.

Purchasing Power Parity (PPP)

It is a tenet of economic theory that over time currencies will equate to the cost of goods and services in other countries. Thus, if a basket of goods and services costs, say,  $20 in the USA and costs R100 in South Africa, then the Rand to US dollar rate should equal R5 to 1 US$.

The Big Mac Index

The cost of a Big Mac is $5.74 in the U.S. whilst the cost in South Africa is R31 which translates into the PPP rate of US$1 = R5.40. As the actual rate at the time the index was measured was R14.18 to the dollar, so the Rand is 61.9% undervalued (14.18-5.5/14.18).

How do we compare worldwide?

The Economist looks at approximately 60 countries in compiling its index and we rank as the third most undervalued currency, ahead only of Malaysia and Russia.

Whilst some will dismiss the Big Mac index, it does underline that South Africa faces many headwinds with a potential downgrade to full junk status (Moodys is expected to announce its decision on South Africa’s debt in October after the Medium Term Budget), a stalled economy and uncertainty as to how to re-ignite economic growth. As economic growth is dependent on investment another key issue is how to make South Africa an attractive place to invest.

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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If artificial intelligence is not that intelligent, should we be worried about our jobs?

Logista_Aug-02“Real stupidity beats artificial intelligence every time” (Terry Pratchett)

Artificial Intelligence (AI) is being rolled out in many guises throughout business. One instance of this is voicemail with some amusing results. One person recalls getting a voicemail message which said “I’m a user music to reach an audience” and, another example, “ — working with the Russian” but “I got killed”.

As the person said it’s hard to feel your career will be threatened by AI when you come across examples such as these.

In another irritating situation, a colleague recently got a call from a cell phone company which asked “will you pay your arrears in three days. Press 1 if this is correct.” When the person tried to say “what arrears?”, he was told that this is not a valid response. The colleague then phoned the company only to find a robot answered the phone. At this stage you feel you are probably having an Orwellian nightmare.

Will AI get “intelligent”?

There can be little doubt it will rapidly advance and predictions as to where it will go vary widely – some say that by the end of the next decade, robots will be as smart as humans

Another school of thought maintains that as AI will not be able to learn creativity, real human emotion or have a human personality, so it will never replace humans.

AI relies on mountains of high quality data for it to be able to effectively run its algorithms. There is a relative dearth of this data at present.

Effectively, the sceptics say AI will always just be software and don’t be fooled by your robot declaring its love for you. It is software trying to mimic human behaviour.

It must also be remembered that there are many tasks that don’t need human intervention.

So, what happens to our jobs?

AI is one of the drivers of the fourth industrial revolution and it is instructive to look at the first three industrial revolutions to understand what we can learn.

The first one came in the late eighteenth century when man began mechanizing factories and agriculture. Urbanisation began to develop rapidly (from displaced farm workers) and there was social unrest as many jobs were lost and professions weakened. This led to substantial inequality of incomes as a few industrialists made fortunes, a middle class began to slowly emerge but the vast majority remained in poverty.

The second industrial revolution came a hundred years later and was led by inventions that made the ordinary person’s life much easier – electricity, the aeroplane, the washing machine, the vacuum cleaner and many more that created a surge in living standards. Universal franchise and recognition of unions also came into existence in the developed world. So significant were these changes, such as housewives spending 42 hours less a week on household chores, that they enabled women to enter the jobs market. In turn this rapidly grew the middle class and inequality decreased substantially. Clearly this second revolution grew employment and living standards.

Another important aspect is that the second industrial revolution was a work enabler whilst the first industrial revolution was a job replacer.

The third industrial revolution began in the 1980s with the rise of digitization and it has been similar in some areas to the first industrial revolution – the middle classes have regressed in the developed world whilst the top 1% has become wealthier. However, in developing countries, mainly Asia, hundreds of millions of jobs have been created as industrialization has rapidly rolled out there.

The fourth industrial revolution is expected to automate just under half of the jobs in the United States and thus be similar to the third revolution. How it will fare in places like China and India is difficult to predict. In South Africa business will benefit from the new technologies but the poorer communities will not have the skills to take advantage of opportunities offered by AI. Thus, inequality will continue and may get worse.

Overall, the last two hundred and fifty years has seen a massive upward change in the number of jobs created. The problem lies in the uneven timing of these changes – it took three generations in the nineteenth century for there to be real progress in growing jobs.

Whilst AI may sometimes seem comical at the moment, it is going to reduce and/or eliminate many jobs. But it will also create new employment opportunities. As a business owner, upskill your workers so they can be prepared for the changes that are already happening.

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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Don’t let a death or disablement destroy your business

Logista_Aug-01The greatest need in many small businesses is for cash flow. Picture this scenario:

Three people start a business and after a few years it is beginning to make profit – in a year it will go cash positive. One of the shareholders is killed (or disabled) in an accident, leaving the spouse and children desperate as neither the company nor remaining shareholders can afford to buy the dead shareholder’s equity.  The family put his or her shares up for sale. The other two shareholders now face the prospect of a new shareholder who may not agree with their strategies. The outlook for the business is suddenly very uncertain.

Buy/sell policies  

Had the shareholders put in place a buy/sell policy when they started the company, the death of the one shareholder would not have threatened the business. The policy on the death (or disability) of the shareholder results in the remaining shareholders acquiring the shares and proceeds of the policy going to the family of the dead shareholder.

In this way the shareholders keep control of the business and the family of the shareholder receive a pay out which will help remove the financial uncertainty they face.

Generally, buy/sell policies are governed in terms of a shareholders’ agreement.

If the shareholders have loans then make sure they are covered in the agreement – they will need to be dealt with anyway on the death or disability of the shareholder.

Also ensure the agreement is aligned with your Memorandum of Incorporation (MOI) as the MOI has preference over a shareholder agreement.

Key person insurance

If you have shareholders who are active in your company or you have a key manager(s) and the loss of any of these people could have a detrimental impact on the business, then the company can take out insurance on these key people. Proceeds from key person insurance flow into the company.

Suppose, for example, that you recruit a marketing executive who substantially grows your business. Should this executive be killed or disabled, it will lead to a material loss in sales. Taking out key person insurance will give your company the financial space to recruit and train a new marketing manager and will give you time to make up the lost sales

Many companies have failed by not providing for the loss of a shareholder or key manager.

Take expert advice when taking out either of these policies as there are legal, potential tax and or death duty exposures.

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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Youth Employment Tax Incentive Extended for Ten Years

B-04

There is chronic unemployment in the country and it is especially felt by the youth where up to 50% cannot find a job. The Employment Tax Incentive (ETI) is designed to encourage companies to employ “youths” (between the ages of 18 to 29) for 1 to 2 years.

Incentives for employers to make use of the ETI are attractive. You can deduct from your monthly PAYE owing the amounts shown below in the third column. In addition, these deductible amounts are exempt from Income Tax i.e. you get a double benefit.

The monthly calculated ETI amount per qualifying employee is determined as follows:

Source: SARS

Source: SARS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There are conditions – the employer must be in good standing with SARS and employees (apart from being aged 18 to 29) must have valid ID documents (or be a legal refugee).

This is a good incentive and it helps to address one of South Africa’s intractable problems. Another advantage is you can over the two year period identify employees with potential who will fit into your business.

Speak to your accountant to ensure you claim this incentive correctly.

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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