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Implications of changes to our tax laws

There were three very important changes that will affect most individuals in South Africa.

On 20 January 2021, President Cyril Ramaphosa signed off on some dramatic changes to our tax laws. While some of these were administrative in nature, there were three very important changes that will affect most individuals in South Africa.

Criminal prosecution for negligence

Some negligent errors or omissions on your tax return may now lead to criminal prosecution with a fine or imprisonment of up to two years as the result. “Not knowing” is no longer an excuse for these errors or omissions. Previously, Sars had to prove intent – in other words, you had to be found guilty of wilfully/intentionally omitting information or providing incorrect information to Sars before you could be convicted. Under the new legislation, some very common “mistakes” may now lead to formal prosecution, including but not limited to:

  • Failure to register your details with Sars or to notify them of any changes to your details.
  • Failure to appoint a representative taxpayer or to notify Sars of such appointment or a change in representative taxpayer.
  • Failure to submit a return when required to do so.
  • Failure to retain all relevant substantiating records.
  • Failure to provide any information as and when requested by Sars to do so.
  • Failure to appear and comply when you are requested by Sars to attend a meeting or a hearing in order to give evidence.
  • Failure to comply with a directive or instruction from Sars.
  • Failure to disclose any material information to Sars or failure to provide Sars with any notification as required under any tax act.
  • You are notified by Sars to pay an amount on another taxpayer’s behalf in settlement of tax debt and you fail to do so.

Some of the above may be relatively innocent actions, but they can clearly have devastating consequences. Having a competent tax advisor has never been more important.

Retirement funds and emigration from South Africa 

From 1 March 2021, members of a retirement annuity fund, pension preservation fund and provident preservation fund, may qualify for a full withdrawal of benefits before retirement where:

  • The member is or was an SA tax resident who emigrated from South Africa, and that emigration is recognised by Sarb for purposes of exchange control, where the emigration application was received on or before 28 February 2021 and is approved on or before 28 February 2022, or
  • The member is not an SA tax resident for an uninterrupted period of three years or longer on or after 1 March 2021. 

How the three-year requirement works

National Treasury has confirmed that the three years mentioned above can start before 1 March 2021, meaning that if on 1 March 2021 the member already met the requirements and was not an SA tax resident for a period, they do not need to start counting the three years again from 1 March 2021.

Our understanding is that the member needed to have officially informed Sars when they ceased to be an SA tax resident. We await confirmation from Sars on the supporting documentation that will be required from clients to process these requests from 1 March 2021.

Harmonisation of provident fund benefits

From 1 March 2021, provident and provident preservation fund members will only be able to take a maximum of one-third of their unvested retirement fund assets in cash at retirement unless their total unvested retirement fund assets are R247 500 or less. The remainder will have to be used to purchase an annuity. This is in line with the benefits allowed in pension funds and retirement annuities.

Members of provident and provident preservation funds on 1 March 2021 will receive vested rights on:

  • Their assets in those retirement fund(s) on 28 February 2021,
  • Any future growth on those retirement fund assets.

Any vested assets at retirement can be taken 100% in cash, but the balance (i.e. any contributions made to the provident fund from 1 March 2021 plus the growth thereon) will be subject to the rule that 2/3s of the benefit must be applied to purchase an annuity.

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Michael Haldane

Global & Local Investment Advisors

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Thank you Micheal, could you please explain the meaning of the last prosecutable item e.g.

“You are notified by Sars to pay an amount on another taxpayer’s behalf in settlement of tax debt and you fail to do so.”

The way it reads is that I may have to pay someone else’s tax that I don’t know!?

Dear Keminsky88

Thank you for making contact with us.

No, thankfully that is not the case. You will not be held responsible for paying another person/entity’s tax out of your pocket, but SARS may ask an individual or entity who has administrative control of another’s income or assets to deduct outstanding taxes from those funds. The most common example is the monthly tax (Pay As You Earn) that an employer is obliged to deduct from its employees and pay to SARS on a monthly basis.

Another example is an IT88 directive issued to an employer to deduct outstanding taxes (over and above the normal Pay-As-You-Earn tax on salaries) from an employee’s income. The directive may specify a recurring monthly amount to be deducted, or alternatively an ad-hoc lump sum. Directives for lump sum deductions are more common when an employee leaves his/her employer and a directive is issued by SARS that a specific amount of tax must be deducted prior to the employee receiving any benefits from his or her company retirement fund. A similar directive can also be issued to a financial institution for outstanding taxes to be deducted from an individual’s benefit due from his preservation fund or retirement annuity at withdrawal or retirement from these products. It is important to note that there are tax implications at retirement or withdrawal from your retirement benefits in any case. The tax directive that we are talking about in this discussion, is for outstanding tax over and above this. These directives will be issued when a person or entity has neglected to pay tax that was due in the past.

SARS may instruct your bank to deduct amounts due from your bank account(s) or if you have discretionary investments with a financial institution, that institution may be instructed to deduct a particular amount of tax due from your investment and pay it across to SARS. There are strict parameters that SARS need to comply with before they are allowed to issue such a directive, but once the directive has been issued, the recipient must facilitate the payment of the particular amount to SARS.

These directives are not new to our tax environment. It is purely the consequences of not following them that has now been made more severe. It has always been a requirement that an employer must deduct PAYE, etc., but previously the onus was on SARS to prove that anyone that did not follow a particular directive or a standard tax rule, acted wilfully or negligently before that person could be prosecuted. Now, guilt is immediately assumed the moment anyone that was supposed to pay tax on another’s behalf, neglected to do so.

We hope the above clarifies the matter.

Kind Regards,

The team at Global & Local.

End of comments.

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