Accounting – Page 2

21 Jun

There is a number of techniques that taxpayers use to reduce their capital gains tax (CGT) exposure on long-term share investments. A common practice is to utilise the annual exclusion of R40 000 provided for in paragraph 5 of the Eighth Schedule of the Income Tax Act[1] by selling shares that have been bought at a low base cost, at a higher market value and then immediately reacquiring those shares at the same higher value, thereby ensuring that the investments’ base cost is increased by as much as R40 000 per year. If the gain on those shares is managed and kept below the annual R40 000 exclusion, taxpayers receive the benefit of a ‘step-up’ in the base cost of the shares to the higher value for future CGT purposes, without having incurred any tax cost.

A reverse scenario is to build up capital losses for off-set against any future capital gains and taxpayers are often advised, especially during times of market volatility, to ‘lock-in’ capital losses created by the expected temporary reduction in share prices. This involves selling shares at a loss and then immediately reacquiring the same shares at the lower base cost, but with the advantage of having created a capital loss – a technique known as ‘bed-and-breakfasting’.

Without placing an absolute restriction on ‘bed-and-breakfasting’, paragraph 42 of the Eighth Schedule limits the benefit that could have been obtained from the ‘locked-in’ capital loss. The limitations of paragraph 42 apply if, during a 45-day period either before or after the sale of the shares, a taxpayer acquires shares (or enters into a contract to acquire shares) of the same kind and of the same or equivalent quality. ‘Same kind’ and ‘same or equivalent quality’ includes the company in which the shares are held, the nature of the shares (ordinary shares vs preference shares) and the rights attached thereto.

The effect of paragraph 42 is twofold. Firstly, the seller is treated as having sold the shares at the same amount as its base cost, effectively disregarding any loss that it would otherwise have been able to book on the sale of the shares and utilise against other capital gains. Secondly, the purchaser must add the seller’s realised capital loss to the purchase price of the reacquired shares. The loss is therefore not totally foregone, but the benefit thereof (being an increased base cost of the shares acquired) is postponed to a future date when paragraph 42-time limitations do not apply.

Unfortunately, taxpayers do not receive guidance on complex matters such as these on yearly IT3C certificates or broker notes, since these are generally very generic. Therefore, taxpayers wishing to fully capitalise CGT exposure on market fluctuations are advised to consult with their tax practitioners prior to the sale of shares.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied on as legal or other 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)

20 Mar

From Xero to Hero

Kirsten Van Tonder

Accounting, Finance News

The internet and modern communications technology has changed everything, including the way that businesses keep their records up to date; one new approach we recommend has at its heart the cloud based accounting software, Xero.

In a nutshell, Xero allows you to update and view the financial state of your business in real time, from almost anywhere. And, as your appointed advisors, because we can see exactly the same information you can, we can give you the advice you need, when you need it.

Why do we like Xero so much? Because it’s so easy and convenient for our clients to use. Nobody knows more about your sales and purchases than you do. So it makes perfect sense for you to record your business transactions, as they happen, rather than months after the event.

With Xero, you don’t need to worry about data backup or software updates – it’s all in the cloud, so everything is always secure and up to date. And rather than paying for us to just typing in your data, you are able to pay us for providing you with valuable advice and guidance that will help you to make your business a success.

Contact Zuydam Konsult to see how we can help you implement Xero today.

20 Mar

The importance of having a good accounting system

Kirsten Van Tonder

Accounting

If your business doesn’t have an effective accounting system in place, you run the risk of making serious errors in your finances. Furthermore, a good accounting system simply makes life easier and allows you to focus more on growing your business.

• It helps you evaluate the performance of your business: A good accounting system gives you a thorough overview of the financial performance of your business. If you don’t have an accounting record, how will you know if your business is growing or shrinking? So, your account records help you know if your business is growing, stagnant or slowing down.

• It helps you manage cash flow and meet deadlines: Cash flow management means knowing what you do with the cash that comes into the organisation. Your accounting system helps you know areas that need cash. For instance, cash may be needed to finance your debts, or make major renovations or order for new stocks, and it is your accounting system that will help you know this. In short, no business will growth further without a good cash management system. Also, your accounting books help you know when bills like your rent needs to be paid.

• It’s needed for business goal setting: Your accounting system will help when setting new business goals for the week, month or year, as seeing the business performance for the last financial year will help you project and set goals for the New Year and plan ahead for the business.

20 Mar

5 tips for managing your small business payroll

Kirsten Van Tonder

Accounting, Finance News

Payroll is typically the number one concern for many small business owners worried about getting it right. But it needn’t be difficult – here are 5 top tips to make payroll easier.

1. Know your big deadlines

Dealing with accounting deadlines and employee returns is much less stressful when you know what you need to action well in advance. Make sure you have a good system in place that alerts you to important dates and if you need to do anything. Working ahead gives you time to sort out any concerns or problems.

2. Invest in a payroll software

Payroll systems such as Sage Instant Payroll or Sage One Payroll will automate the whole process for you, taking care of things like NI and tax calculations, generating payslips for employees, keeping up with legislation and providing information for end of year tax returns.

3. Keep up with payroll legislation

Changes in regulation may affect how you need to run your payroll, so it pays to keep abreast of major new laws. Benefits and tax change frequently and while you don’t necessarily need to know all the details, it’s worth staying informed and getting advice when you’re not sure.

4. Have a financial back-up plan

Keeping on top of payments is crucial in any growing business. Setting up a good credit control system, sending out invoices promptly and always chasing late payments firmly as soon as they become due will help avoid cash flow disruption.

5. If all else fails… outsource

If managing payroll yourself is proving a real headache, consider outsourcing to a payroll company. They’re experts at what they do, and can save you the hassle of managing everything yourself and staying on top of regulations and paperwork.

Reference:

“8 Tips For Managing Payroll | Small Business Advice | Sage Singapore”. Sage.com. N.p., 2017. Web. 29 June 2017.

13 Mar

Accounting best practices for small businesses

Kirsten Van Tonder

Accounting, Finance News

When it comes to looking after the welfare of a business, accounting tops the list as being the most important. Without proper accounting, a business runs the risk of losing everything. The following are a few best practices that are essential for businesses to take note of.

1. Check it off your list first

Proper accounting should be a priority from the start. Not only is keeping accurate books crucial to your company’s financial health and success, but it will only get more complicated down the road if you keep putting off until later.

2. Focus your time and energy where it’s needed

Though there may be a period when you’re responsible for a wide variety of roles, take time to evaluate where your skills are most needed and best used. The chances are this isn’t the accounting department… identify what you need to do to make sure your time is spent effectively and efficiently.

3. Get the right software

Without the right software, it will be difficult to keep track of what’s going on in your business. There are plenty of services out there to help you keep your finances, including payments, invoices, payroll and taxes, organised and in check. Identify which tools you need for your business activities and look into different options by taking into consideration your company size, growth rate and location.

4. Never overspend

Just because a software package is the most sophisticated and expensive, doesn’t necessarily mean it’s the right software for your company as many small businesses won’t need enterprise-level services. Furthermore, more complicated software doesn’t do you any good if you don’t know how to fully utilise it.

5. Hire a professional

If you are not familiar with accounting processes and are sure you don’t know what you’re doing, then it is the best option to hire a professional to get the job done for you. This is one area where you cannot afford to learn by trial and error.

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