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TAXtalk Magazine Issue 15, Mar/Apr 2009

IN THIS ISSUE

	How the new turnover tax system will operate

	Civil vs. criminal investigation. A taxpayers right not to give self-incriminating evidence
	Auditors must be protected against spurious litigation

	See this months Contents page

Dear Reader
Dear Reader CPD (Continuing Professional Development) is described by The South African Institute of Tax Practitioners as “learning activities for developing and maintaining the capabilities of professionals to perform competently within their professional environments”. The SAIT further explains CPD as being aimed at maintaining the professional’s competence after obtaining a qualification. The purpose of CPD is to enhance the professional’s ability to perform the tasks and roles expected by the profession and the general public. CPD can also be seen as an extension of the learning process leading to qualification as a tax professional. The principles of lifelong learning are entrenched within this process of development and can therefore be described as self-directed growth and learning, where new skills and knowledge are being acquired.

SARS right to conduct tax audits versus the promotion of administrative justice act
SARS, through legislation, has the power to call for information about or from taxpayers, to conduct audits on taxpayers’ affairs and, in certain circumstances, to search premises and seize records. Generally the purpose of a tax audit is to maintain and increase the compliance levels of the tax base of a country. The aim is to achieve the maximum preventative effect. This is achieved by creating the perception that the risk of detection of irregularities through well-targeted and high-quality audits is high.

Auditors must be protected against spurious litigation
The number of people entering the audit profession or remaining in it is declining, at times dramatically. The prime reason for the phenomenon is that damage claims arising from alleged professional negligence are increasing and the amounts claimed are rising to staggering” levels, according to a discussion paper just released by the South African Institute of Chartered Accountants (SAICA). The Discussion Paper on the Equitable Apportionment of Registered Auditors’ Professional Liability is one in a series of SAICA’s thought leadership publications. SAICA maintains that the claims levelled against auditors are often far in excess of the economic damage caused directly or indirectly by the auditor.

How the new turnover tax system will operate
The new micro business turnover tax was introduced on 1 March 2009. SARS has now made the micro business registration forms available on its website (go to www.sars.gov.za). Businesses wishing to register as micro businesses must do so by 30 April 2009. This article outlines how the new tax system will operate. In essence, the turnover tax taxes the turnover of a micro business, rather than its taxable income. The main benefit of electing to be registered as a micro business is the potential saving in compliance costs, as a micro business will not submit VAT returns and its annual tax return should be a simpler document, requiring essentially only the declaration of the business’s taxable turnover for that year. A micro business that is an employer must still comply with the employees’ tax, SDL and UIF obligations, so there will be no saving in compliance costs in that area.

How the new turnover tax system will operate (..continued)
Although these tax liabilities may look fairly attractive, it must be borne in mind that the tax table is based on turnover as opposed to taxable income or profits. Therefore, the tax liability indicated at the various levels of turnover will be payable regardless of the level of profits and even if the business is operating at a loss.

Professional privileges and the tax practitioner
It is an undisputed fact that SARS has extensive powers to compel taxpayers and their advisers to provide information. This raises the question whether, under the South African law, valid grounds exist whereby an adviser may refuse to provide information to SARS. In the United States, a tax practitioner may refuse to provide information on the basis that the information is protected by one of three privileges, namely the attorney-client privilege, the tax practitioner-client privilege and the work-product privilege (United States vs. Textron Inc & Subsidiaries 507 F Supp 2d 138, 2007 US Dist.)

Professional privileges and the tax practitioner (continued...)
In Textron it was made clear that the completion of a tax return does not in itself amount to providing legal advice; but it does not follow that an attorney cannot, in the course of completing a tax return, provide legal advice that may be privileged. In practice, a legal professional is often required to attend meetings with clients in an attempt to protect communications. It should be made clear that the mere presence of a legal professional at meetings does not in itself protect communications. The purpose of the meeting should be established, i.e. whether it was to obtain legal or accounting advice

Civil vs. criminal investigations A taxpayers right not to give self-incriminating evidence
Last year ended on a controversial note with significant changes to the system for provisional tax. These changes caused a huge outcry from taxpayers and tax practitioners. Parliament last year approved an important change to the provisional tax payments process and the imposition of additional tax on underestimates relating to these payments.

Independent contractors’ tax status about to change
If you are a contractor in the engineering and environmental sectors, take note if you find yourself working under conditions similar to the following:

You are truly an independent contractor.
You are not subject to the control or supervision of your client as to the manner in which your duties are performed or your hours of work.

Stringent credit constraints hamper first-time buyers
The Minister of Finance is to be lauded for encouraging banks to extend credit to worthy customers as it has become apparent that generally, financial institutions are currently applying credit lending criteria beyond even the stringent NCA (National Credit Act) regulations. Of course, it is understandable that the financial institutions have considerably tightened up these lending criteria, particularly in the current volatile times.

New tax ruling presents poser for trusts
Template wills and inexperienced drafters may result in trustees having to pay 20% capital gains tax on loan accounts due by trusts to deceased estates. A recent judgement in the Special Income Tax Court considered that the drafting of a will with a clause bequeathing the residue of an estate to a particular trust amounted to the forgiveness of a debt and thus gave rise to a capital gains event. As a result, the trustees have to pay 20% CGT on the amount of the loan bequeathed to them.

TAXtalk News
SARS NEW ADMINISTRATIVE PENALTIES TAKE EFFECT Regulations prescribing administrative penalties for non-compliance have been gazetted. Section 75B of the Income Tax Act No. 58 of 1962 is applicable. The penalties are based on the taxpayer’s taxable income for the year of assessment immediately prior to the year in which offence took place. Further information on the penalties and application has been provided by SAICA and is available on www.taxtalk.co.za

Tech Review
From storage options to office productivity and collaboration, more and more devel-opers are looking online for possibilities and some are rising up to challenge the mighty Microsoft on its own turf. Online services are useful tools for small and large businesses alike, offering flexibility, scalability and lower costs than traditional options.

The paper trail - Stationery deliveries vs. do-it-yourself fetch and carry
A prediction of the paperless office was made as early as 1975 in Business Week. The term referred to the ‘office of the future’, a streamlined workspace free of clutter, and originally came to prominence with the introduction of the personal computer. The paperless office these days is considered to be a philosophy of working with minimal paper and the aim of converting all forms of documentation to a digital form. The idea is driven by a number of motivators, including productivity gains, costs savings, space saving and reduced environmental impact.

The paper trail - Stationery deliveries vs. do-it-yourself fetch and carry (continued...)
Waltons Products Waltons supplies stationery and office equipment. Waltons Retail offers a broad mix of products that include self-assemble office furniture,stationery and computer consumables.

Book Review
Egonomics – What makes ego our greatest asset (or most expensive liability) David Marcum & Steven Smith Simon & Schuster

Tales from the Glass Ceiling – A survival Guide for Women in Business Jo Haigh (Yorkshire Businesswoman of the Year and IoD Business Adviser of the Year) Capstone Publishers

Conversations – Secrets of business success that you won’t get from an MBA… Siyabo nga Mapoko – with JSE Alt X entrepreneurs iCaptive Books

Archived Issues

Issue 21 March/April 2010

Issue 20, January/February 2010

Issue 19, November/December 2009

Issue 18, September/October 2009

Issue 17 July/August 2009

Issue 16, May/Jun 2009

Issue 15, Mar/Apr 2009

Issue 14, Jan/Feb 2009

Issue 13, Nov/Dec 2008

Issue 12, Sept/Oct 2008

Issue 11, Jun/Jul 2008

Issue 10, Apr/May 2008

Issue 9, Jan / Feb 2008

Issue 8, Nov/Dec 2007

Issue 7, Sept/Oct 2007

Issue 6, June/July 2007

Issue 5, March/April 2007

Issue 4,Dec06 - Feb 2007

Issue 3, Aug-Nov 2006

Issue 2, April 2006

Issue 1, December 2005

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