Save for your golden years

Finance News , , ,
Saving for retirement can prove to be a very complex task, however, this does not have to be the case. Many people are not making the necessary provisions for retirement. When you start a new job or enter the workforce for the first time, the last thing you think about is saving for retirement, however, you should start saving for retirement as soon as possible, to ensure that you live comfortably in your old age.

It does not matter how far away you are from retirement, you should start saving and not spend this money on other things. As a rule of thumb, it is recommended to save 15% of your gross income, over a period of 40 years, between the ages of 25 to 65. Remember, you will also need to develop a financial plan for major life events – expected and unexpected. This could include anything from medical needs to changing family dynamics.

When thinking about your financial future, it’s important that you make retirement planning a top priority. Today, it’s even more important to start planning for retirement early, as fewer employers are offering pensions and retirement savings. This means that retirement is now more challenging than ever, as traditional pension plans are becoming few and far between. Recently, the responsibility of saving for retirement has shifted from the employer to the employee.

Another reason why it is important to start saving for retirement as early as possible is that longer lifespans have led to people outliving their savings. For example, if you live up to 78 years old, you will be in retirement for a long time. Longer life expectancies also lead to more money spent on healthcare.

If you have not started saving for retirement yet, it’s not too late. Make sure to work with your financial advisor or a trusted financial professional to help you to set out new savings goals so that you can get back on track. With the proper preparation and planning, you can have a comfortable retirement.

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)

What are bitcoins?

Finance News , , ,
1.1 Background to Bitcoin

Bitcoin, Ether and Litecoin. These are some of the most prominent cryptocurrencies on the market today. Bitcoin is by far the best-known cryptocurrency due to the substantial increase in the price that was experienced in the past couple of years.

Bitcoin is a cryptocurrency – a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. Bitcoin was developed by an anonymous creator – Satoshi Nakamoto – to enable society to operate with a digital cash system, without the need for third-party intermediaries which are traditionally required for digital monetary transfers.

Should you wish to read the original paper used to introduce bitcoin to the word, please follow this link:  https://bitcoin.org/bitcoin.pdf.

1.2 Tax consequences of cryptocurrencies

For the most part, South Africans have only been able to enter the crypto market locally for a short while, which has drawn the attention of the South African Revenue Service (SARS) to cryptocurrencies.

SARS released a statement on the 6th of April 2018, declaring its stance regarding the taxation of cryptocurrencies. The following is an extract from the statement:

“The South African Revenue Service (SARS) will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.”

The statement further indicates that for purposes of the Income Tax Act, SARS does not deem cryptocurrencies to be a currency (due to the fact that wide adoption has not been reached in South Africa and crypto can’t be used on a daily basis to transact), but rather defines cryptocurrencies as assets of an intangible nature.

The definition has the effect that cryptocurrencies will be treated as any other investment for tax purposes. The onus lies on the taxpayer to declare all cryptocurrency-related taxable income in the tax year which the taxpayer received or accrued.

Should a taxpayer thus trade in bitcoin, the trades will be deemed to be income in nature and the profit and loss on the trades should be included in the taxpayer’s taxable income. However, if the taxpayer holds the bitcoin as a long-term investment (the same way some investors hold a share portfolio for long-term investing), the income derived from the disposal of the bitcoin will be deemed to be capital in nature, resulting in capital gains tax needing to be declared on the disposal.

1.3 Conclusion

Whether you are for or against cryptocurrencies, it is evident that cryptocurrencies have formed a part of the modern era and will likely remain relevant. This new form of currency/investment has caused quite a stir at SARS and taxpayers are advised to familiarise themselves with the tax treatment of these currencies to prevent any unexpected tax consequences.

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)

Rendering of transport services by employers

Finance News, Tax , , ,

Paragraph 2(e) of the Seventh Schedule to the Income Tax Act[1] deems an employer to grant a taxable benefit to an employee if any service has, at the expense of the employer, been rendered to the employee for his or her private or domestic use.

 

The taxable benefit which arises in this instance is valued under paragraph 10 of the Seventh Schedule and is included in paragraph (i) of the definition of “gross income” and therefore subject to income tax.[2] The taxable benefit will further be included in the employee’s remuneration[3] and the employer will be obliged to withhold employees’ tax on these amounts.[4]

 

Where an employer, that is engaged in the business of conveying passengers for reward by sea or air, enables an employee (or relative) to travel overseas for private or domestic purposes, the cash value of the taxable benefit is an amount equal to the lowest fare less any consideration payable by the employee or relative.[5]

 

The cash value of a taxable benefit with regards to the rendering of any other service is the cost to the employer in rendering that service or having that service rendered.[6] These services may, therefore, be rendered by the employer or some other person.

 

Paragraph 10(2)(b) of the Seventh Schedule, however, states that the taxable benefit will attract no value if a transport service is rendered by the employer to its employees in general for the conveyance of such employees from their homes to the place of their employment (and vice versa).

 

Some uncertainty existed as to the application of the no-value provision. The South African Revenue Service (“SARS”) therefore issued two binding general rulings under section 89 of the Tax Administration Act[7] as well as the recent Interpretation Note 111 to provide clarity on these issues.

 

In BGR 42 (issued on 22 March 2017) it was considered whether the word “homes” should be restricted to the exact position of an employee’s specific dwelling or whether an employer may arrange for employees living within a certain radius to be collected from or dropped off at a common area or central point between the employees’ homes and place of employment.

 

In this regard, it was confirmed that the no-value provision would apply to transport services provided to employees to and from any collection or drop-off point en route to or from the employees’ homes and place of employment or any part of that trip.

 

[1] No 58 of 1962

[2] Section 5(1) of the Income Tax Act.

[3] Paragraph (b) of the definition of “remuneration” in paragraph 1 of the Fourth Schedule.

[4] Paragraph 2(1) of the Fourth Schedule.

[5] Paragraph 10(1)(a) of the Seventh Schedule.

[6] Paragraph 10(1)(b) of the Seventh Schedule.

[7] No 28 of 2011

 

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)

Can I obtain financing if I don’t own immovable property as security?

Finance News , ,

The article gives a brief overview of what a notarial bond is, the requirements that need to be complied with to register a notarial bond and give tips regarding clauses that will prove to be useful in a notarial bond. It also deals with the situation where a debtor disposes of an asset listed in a notarial bond, contrary to the provisions thereof.

 

A very useful way of obtaining financing to start a new business, is to register a notarial bond over the movable property belonging to the business. For instance, notarial bonds are regularly utilised in transport companies – a notarial bond is registered over the vehicles forming the core of the business, but the vehicles do not need to be in the physical possession of the creditor, thus the business can fully operate.

 

What is a notarial bond?

 

A notarial bond is a general or special bond where the movable assets of a debtor are used as security for a debt. In terms of the notarial bond, the debtor undertakes to pay his debt towards the creditor, failing which the creditor will be entitled to sell these movable assets and to utilise the proceeds thereof to satisfy his claim against the debtor. There are 2 types of notarial bonds:

  • General notarial bond: all the movable assets on the debtor’s property serves as security for the debtor’s debt.

  • Special notarial bond: specific movable assets identified in the bond will serve as security for the debt.

     

How does a notarial bond differ from a pledge?

 

A pledge requires the delivery of the movable asset pledged. A notarial bond does not require the delivery of the movable assets identified in the bond, but in terms of section 1(1) of the Security by Means of Movable Property Act 57 of 1993, the movable property listed in the notarial bond will be deemed to have been pledged to the creditor as effectually as if it had been delivered to the creditor. The fact that the creditor is deemed to be in possession of the property thus places him on equal footing with that of a pledgee. The creditor, upon registration of the notarial bond in the deeds registry, acquires a real right of security in the movable property specified in the bond.

 

Requirements:

 

  1. Existence of a principal debt;

  2. Assets which serve as security must be movable, including corporeal and incorporeal assets.

     

Corporeal assets include furniture, vehicles, the goods of a business, animals and the future offspring of animals and stock in trade.

 

Incorporeal assets include an unregistered long-term lease of immovable property, a short-term lease of immovable property, a liquor license, a water use license, site permit, shares in a company, goodwill of a business, book debts etc.

 

What if more than one creditor uses the same asset as security for their debt?

 

A bond which was registered first enjoys priority over a bond registered thereafter.

 

Important clause to insert in the bond:

 

To prevent the debtor from disposing of assets which serve as security in terms of the notarial bond, a clause should be inserted disallowing the debtor to sell, alienate, dispose of, transfer or permit the removal of the asset from the debtor’s place of residence or place where he carries on business, without the prior written consent of the creditor.

 

What happens if a debtor disposes of the asset identified in the notarial bond, contrary to the stipulations in the notarial bond?

 

The creditor will be able to apply for provisional sentence summons against the debtor, provided that the notarial deed meets the requirement of being a liquid document. A liquid document is a document which indicates, without having to consult extrinsic evidence, an acknowledgement of debt, of which the amount is easily determinable. A notarial bond will in general qualify as being a liquid document.

 

A creditor will also be able to claim back an asset which has been sold, contrary to the provisions of the notarial bond, to a bona fide third party, from such third party. The reason for that is the fact that a notarial bond, which has been registered in the Deeds Registry, creates a real right, which is a right that attaches to property, rather than a person.

 

It is not easy to obtain credit in the economic environment in which our country currently finds itself. However, there are ways to get your business off the ground and registering a notarial bond over the property of your business is a recognised method of securing your business’ debt. If notarial bonds can be utilised more frequently, it can help a lot of new businesses get the financing they need to buy equipment, vehicles and machinery necessary for the operation of the business.

 

Reference List:

 

  • Explanatory Notes Part 1: Course in Notarial Practice, compiled by Gawie Le Roux, Erinda Frantzen and Ilse Pretorius
  • The South African Notary, sixth edition, M J Lowe, M O Dale, A De Kock, S L Froneman, A J G Lang

 

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)

When should financial statements be audited, reviewed or compiled?

Finance News , ,

The Companies Act of South Africa (the Act) requires all companies to prepare financial statements within 6 months after the end of its financial year. A very popular question among business owners with regards to financial statements is whether the statements should be independently audited, reviewed or compiled. In determining the engagement type, the Act prescribes the following criteria to be applied:

 

Audited financial statements

 

  1. Any profit or non-profit company that, in the ordinary course of its primary activities, holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  2. Any non-profit company, if it was incorporated:
  • directly or indirectly by the state, a state-owned company, an international entity or a company; or
  • primarily to perform a statutory or regulatory function in terms of any legislation, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function;
  1. Any other company whose public interest score in that financial year is:
  • 350 or more; or
  • at least 100, but less than 350, if its annual financial statements for that year were internally compiled.

 

How to calculate your public interest score, to determine if you exceed 350 points or not:

  1. a number of points equal to the average number of employees of the company during the financial year;
  2. one point for every R1 million (or portion thereof) in third-party liabilities of the company, at the financial year end;
  3. one point for every R1 million (or portion thereof) in turnover during the financial year; and
  4. one point for every individual who, at the end of the financial year, is a member of the company, or a member of an association that is a member of the company.

 

Independent review of financial statements

 

The Act prescribes that an independent review of a company’s annual financial statements must be performed if the following apply and the company does not select to be voluntarily audited:

 

If, with respect to a company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is not a director of the company, that financial statements should be independently reviewed.

 

A company and its directors may choose to be voluntarily audited or reviewed if they wish to engage in an assurance engagement, although it has not been prescribed by the Act.

 

Compiled financial statements:

 

If none of the above-mentioned requirements has been met, the financial statements may be compiled.

 

With compilations, or compiled financial statements, the outside accountant converts the data provided by the client into financial statements without providing any assurances or auditing services.

 

If you need any assistance with your engagement in financial statements, do not hesitate to contact our friendly staff.

 

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)

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