Working From Home and Tax Implications

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While working remotely has become a norm for many companies it does come with certain complications such as a scattered workforce and its various tax implications. While many offices are equipped to help employees work efficiently, working from home for long periods of time can become challenging, the need for equipment and supplies therefore becomes substantial.

If you are an employee who works from home, here are some important points to take notes of.

  1. Reimbursements

  • These amounts have the benefit of not being taxable, as they do not constitute remuneration.
  • The employee must bear the office expense first and keep all invoices and receipts to be able to claim the amount from the employer, and the expense must be incurred because of your rendering services to your employer.

  1. Advances from employers

  • The amount received from your employer to be used for your home office expenses.
  • Has the same benefits as reimbursements.
  • The expense must also be related to the rendering of your services to your employer.
  • All invoices and receipts must be kept.
  • If the advance is excessive and not fully utilised by the employee, the employer will claim the excess from the employer.
  • If the advance is deficient, the employee will claim a reimbursement from the employer.

  1. No reimbursements

  • Section 23(b) of the Income Tax Act states that a tax deduction for home office expenses may be allowed if the following requirements are met:
    • The space used as a home office is regularly and exclusively used for the purposes of the taxpayer’s employment. And the space is specifically equipment and set up solely for the purpose of working.
    • If your salary is only remuneration, your duties must be mainly performed in this part of your home. More than 50% of your duties must be performed in your home office.

Examples for home office expenses include:

  • Rent paid for your home.
  • Interest on a bond for your home.
  • Cost of repairs to your home
  • Expenses in connection to your home

In addition to these expenses, other typical home office expenditure may include:

  • Phones
  • Internet
  • Stationery
  • Rates and taxes
  • Cleaning
  • Office equipment
  • Wear-and-tear

The tax deduction for home office expenses is calculated on a pro-rated basis which is based on the square meters of the area of home office versus total square meters of your home. Only expenses relating to the premises must be apportioned based on floor area (such as for example rent, interest on bond, rates and taxes, cleaning, etc.) Expenses that do not relate to the premises (such as wear and tear on equipment and furniture) do not need to be apportioned based on floor area.

This article was written by: Renisha Arjoon, Professional Accountant (SA)

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Now read: Termination of an employee contract

 

PATC Welcomes Two New Appointments

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Dear Clients, Staff and all Interested Parties

As you know, we pride ourselves on only appointing employees of the highest calibre to ensure that you receive the best possible attention and service. This is why I am proud to announce the appointment of two new employees that have joined our PATC team.

Please join me in welcoming:

Nick Arumugam, who recently completed his articles and will soon be writing his board exams. You can reach Nick on nick@patc.co.za

and

Natasha Kruger, who is a qualified professional accountant. Natasha’s details are natasha@patc.co.za

Both Nick and Natasha join our team in alignment with Christopher Naidoo’s appointment (Promoted to Head of Department). We are confident that these appointments will help us reach new frontiers following Rose Ngubane’s recent departure. We wish Rose well with her future endeavours.

For reference, we are sharing the department structures with you as outlined below: 

  • Cindy with Darusha and Rejoice and Joann
  • Renisha with help from Gavin and Juniors
  • Victor with help from Gavin and Juniors
  • Mandy with Victor and Gavin’s help
  • Luell with his Associates and contacts
  • (New) Christopher Naidoo with Nick and Natasha (with effect from 3.5.2022) and assisted by Seluleko and Jubilee-Amber (taken over from Rose’s department)
  • Gavin, Head of the Company and overseeing PATC and its affiliate Partnerships

Please join me in welcoming Nick and Natasha to our team. If you need any assistance, have referrals, or need help with anything, please continue to use your normal communication channels.

Thank you for continuing to support PATC.

Onwards and upwards!
Gavin Bacon

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Termination of an Employee Contract

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termination employee contract

Notice of termination of an employee contract must be given in writing.

If an employee who receives notice of termination is not able to understand it, the notice must be explained orally by employer/representative to the employee in an official language the employee reasonably understands.

Notice of termination of a contract of employment given by an employer must not be given during any period of leave to which the employee is entitled to, and not run concurrently with any period of leave to which the employee is entitled to except sick leave.

Payment made to employee for notice period

Instead of giving an employee notice in terms of section 37, an employer may pay the employee the remuneration the employee would have received, calculated in accordance with section 35, if the employee had worked during the notice period.

Payments due on termination of employee

On termination of employment, an employer must pay an employee:

  1. for any paid leave that the employee is entitled to in terms of section 10 (3) or 16 (3) that the employee has not taken,
  2. remuneration calculated in accordance with section 21 (1) for any period of annual leave due in terms of section 20 (2) that the employee has not taken; and
  3. if the employee has been in employment longer than four months, in respect of the employee’s annual leave entitlement during an incomplete annual leave cycle as defined in section 20 (1)-
    1. one day’s remuneration in respect of every 17 days on which the employee worked or was entitled to be paid; or
    2. remuneration calculated on any basis that is at least as favourable to the employee as that calculated in terms of subparagraph (i).

Severance payments

  1. An employer must pay an employee who is dismissed for reasons based on the employer’s operational requirements or whose contract of employment terminates or is terminated in terms of section 38 of the Insolvency Act, 1936 (Act 24 of 1936), severance pay equal to at least one week’s remuneration for each completed year of continuous service with that employer, calculated in accordance with section 35.
  2. An employee who unreasonably refuses to accept the employer’s offer of alternative employment with that employer or any other employer, is not entitled to severance pay in terms of subsection (2).
  3. The payment of severance pay in compliance with this section does not affect an employee’s right to any other amount payable according to law.
  4. The employee who refers the dispute to the council or the CCMA must satisfy it that a copy of the referral has been served on all the other parties to the dispute.
  5. The council or the CCMA must attempt to resolve the dispute through conciliation.
  6. If the dispute remains unresolved, the employee may refer it to arbitration.

Certificate of service

On termination of employment an employee is entitled to a certificate of service stating the employee’s personal particulars, address, job title, commencement and dismal/termination date and reason of termination if requested.

This article was written by: Christopher Naidoo, PATC Trainee Accountant

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Now read: What is an appeal to SARS

 

What is an appeal to SARS?

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sars appeal

What is an appeal to SARS? If you do not agree with SARS after you did an objection, you have the right to appeal to the decision.

The appeal needs to be lodged with SARS within 30 business days after SARS delivered the notice of disallowance or partial allowance of the objection.

  • This period may be extended by 21 business days if a senior SARS official is satisfied that reasonable grounds exist for the delay, or
  • This period may be extended up to 45 business days if a senior SARS official is satisfied that exceptional grounds exist for the delay.

You can submit an appeal by submitting a notice of appeal (DISP02) which can be submitted on E- filing or at the nearest branch.

When the appeal is submitted late, after the prescribed due date, the taxpayer must provide grounds (reasons) for the late submission. The grounds for the late submission will be considered first and only if a senior SARS official is of the view that reasonable or exceptional grounds existed, will the late submission be condoned.

No appeal can or will be allowed to be submitted more than 3 years after the date of the decision to disallow the objection.

Grounds for the appeal: 

When completing the dispute form the taxpayer must take care in ensuring that the grounds for the appeal are detailed and include the following:

  • Which of the grounds of objection specified in the prescribed objection form are being taken on appeal.
  • The grounds for disputing SARS’s basis of the decision to disallow the objection as set out in the notice of disallowance i.e., why does the taxpayer not agree with the decision made by SARS.
  • Any new ground on which the taxpayer is appealing, which may not be a ground that constitutes a new objection against a part or amount of the disputed assessment not objected to.

Alternative Dispute Resolution: 

By mutual agreement, SARS and the taxpayer making the appeal may attempt to resolve the dispute through Alternative Dispute Resolution (ADR) under procedures specified in the rules. This procedure creates a structure with the necessary checks and balances within which disputes may be resolved or settled. The ADR process is less formal and inexpensive than the court process and allows disputes to be resolved within a much shorter period. Furthermore, it creates a more cost-effective remedy for resolving tax disputes. The taxpayer must indicate in the appeal whether he/she wishes to make use of the alternative dispute resolution procedures, should these procedures be available.

Tax Board: 

The tax board is established under the Tax Administration Act No. 28 of 2011 (TAA) and consists of an advocate or attorney as chairperson. Such advocate or attorney is appointed to a panel of suitable advocates or attorneys by the Minister of Finance in consultation with the Judge-President of the relevant Provincial Division.

The tax board is administered by a clerk of the board, who is a SARS official at the SARS Branch Office responsible for the administration of the tax board in that area and acts as convener of the tax board.

An appeal against an assessment must in the first instance be heard by a tax board, if—

  • The tax in dispute does not exceed the amount the Minister determines by public notice – currently R500 000;
  • A senior SARS official and the taxpayer so agree, and in making such decision the official must consider whether the grounds of the dispute or legal principles related to the appeal should rather be heard by the tax court; and
  • The chairperson prior to or during the hearing, considering the grounds of the dispute or the legal principles related to the appeal, does not believe that the appeal should be heard by the tax court rather than the tax board. If the chairperson so believes, he or she may direct that, the appeal be set down for hearing de novo before the tax court.

Tax Court: 

A tax court does not have the same status as the High Court but is a tribunal created by statue that only has the powers afforded to it by law. The tax court has jurisdiction over:

  • Tax appeals lodged under section 107 of the TAA;
  • An interlocutory application related to the tax appeal;
  • An application in a procedural matter relating to a dispute under Chapter 9 of the TAA as provided for in the Dispute Rules.

The tax court consists of:

  • A judge or an acting judge of the High Court, who is the president of the tax court and is nominated by the Judge-President in the area where the tax court is constituted;
  • An accountant selected from a panel of members appointed under section 120 of the TAA;
  • A representative of the commercial community selected from the panel of members appointed under section 120 of the T AA.

What can I expect from SARS when I appeal?

 The appeal may be referred to:

  • Alternative Dispute Resolution (ADR) at either the SARS Branch Office or SARS Head Office level,
  • The tax board (administered at SARS Branch Office level), and/or
  • The tax court (administered at SARS Head Office level).

SARS endeavors to:

  • Consider if a matter is suitable for ADR within 30 business days from the date the request was received,
  • Set down the appeal before the Tax Board within 30 business days of receipt of the Notice of Appeal, where no ADR procedures are pursued.

What can I expect when the appeal is finalised?

 SARS endeavors to:

ADR:

  • Finalize the ADR proceedings within 90 business days.
  • Where an agreement is concluded, issue an assessment to give effect to the agreement within a period of 45 business days, after the date of the last signing of the agreement.

Tax Board:

  • The Chairperson to issue a decision by the tax board within 60 days after the conclusion of the hearing.
  • The clerk to deliver a copy of the decision to the parties within 10 days of receipt of the decision.
  • Issue the assessment to give effect to the decision of the tax board within 45 days after the receipt of the decision of the tax board.

This article was written by: Christopher Naidoo, PATC Trainee Accountant

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Now read: SARS is done asking nicely

 

SARS is Done Asking Nicely

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This article first appeared on BusinessTech on 28 August 2021.

The National Prosecuting Authority (NPA) is issuing summonses to taxpayers with outstanding tax returns as part of a continued compliance drive by the South African Revenue Service (SARS).

SARS commissioner Edward Kieswetter has pledged that the tax body will make life difficult for non-compliant taxpayers, a promise he has kept, said specialist firm Tax Consulting SA.

“Those who decided to ignore his words of caution may soon be summoned to appear in court on criminal charges, even if they have left South Africa,” the firm said.

“From the summonses we have seen, it is evident that SARS and the NPA treat this form of delinquency very seriously.”

The charge sheets are prepared carefully, and every instance of non-compliance, for every tax type, counts towards a separate charge, Tax Consulting SA said.

Some taxpayers face up to 30 counts of contravening the Tax Administration Act. “The gravity is underscored by the fact that it appears that the Hawks have been involved in investigating some of these cases, who serve these summonses on the taxpayer personally.”

Enforcement by example

SARS has undertaken to make it a costly exercise for taxpayers who flout their tax obligations, Tax Consulting SA said. “A key part of this initiative is to make an example of delinquent taxpayers.

“For South African abroad, SARS and National Treasury are on record that they are aware of the pervasive non-compliance among expatriates, which was one of the main drivers for the enactment of the “expat tax”.

Tax Consulting SA said that the tax body has made it clear that this is a key area of enforcement for the institution, and it will only be foolish to assume that you are beyond the NPA’s reach.

If you are unsure of your obligations, it will be prudent to diagnose your tax affairs, the firm said. “If you are found to be non-compliant, it will be wise to rectify your position before you receive an invitation from the NPA to return to South Africa.”

What if I live abroad?

There is a sentiment among South Africans who have left our shores that their South African tax obligations are in the rear-view mirror, Tax Consulting SA said.

“Perhaps this because they believe that SARS cannot be bothered to enforce against taxpayers who no longer reside in South Africa.

“It is important to understand that the failure to file returns constitutes a criminal offence under South African law and nothing precludes the NPA from summoning a taxpayer to face criminal charges in South Africa long after they left the country.

“Criminal proceedings may still be instituted up to 20 years after the offence was committed.”

Jail time

SARS issued a press release earlier this week, pointing to a man who defrauded several taxpayers, who was sentenced to 48 years direct imprisonment after being found guilty on charges of theft, fraud and contravention of the Prevention of Organised Crime Act (POCA).

The Boksburg Magistrate’s Court heard how SARS had received a complaint from a taxpayer that his personal income tax refund was paid into an incorrect bank account. SARS said it conducted an investigation and found that the refund was paid into an FNB account in the name of Khathutshelo Mashau.

It was also found that several refunds for other taxpayers were paid into the same account. The affected taxpayers denied knowing the FNB account that received the refunds. They also stated that they did not request that their personal information and bank accounts be changed to Khathutshelo Mashau.

Mashau also had another bank account with Capitec, into which four fraudulent personal income tax refunds were paid. No recoveries were made as all monies were withdrawn when the investigation started.

SARS commissioner Edward Kieswetter warned taxpayers to use only registered tax practitioners to assist them with their tax affairs.

“Persons who have no tax qualifications and who promise taxpayers huge refunds are likely to be engaged in fraudulent activities which will harm the taxpayer. Taxpayers must report such persons immediately so that other taxpayers can be protected from these criminals.

“SARS makes it clear to taxpayers and provides certainty on which channels to use to transact with SARS, and these are the only channels to use. If these channels are not sufficient to deal with a taxpayer’s needs, they should use the services of a recognised tax practitioner,” commissioner Kieswetter said.

The link to the original article can be found here.

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Now read: Personal Taxation on Cryptocurrency

 

Personal Taxation on Cryptocurrency

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Understanding personal taxation and cryptocurrency

Q: What info is required to be submitted to SARS regarding Cryptocurrency transactions and in what format?
A: You will need to treat it like transactions and keep a detailed report of all your transactions. For example: the date you purchased cryptocurrency, the cost amount spent on the asset, the date you sold the cryptocurrency, the amount you sold it for and the profit / loss you made.

Your purchases of cryptocurrencies will be reported on the balance sheet (asset). Treat it exactly the way you would treat the purchase of stock, and your profit will be reported on your income statement. Only  once you have sold your cryptocurrency will the profit be realised by you and declared as profit to SARS.

Example: On 17/03/2020 you bought cryptocurrency at a cost of R50 000 and on 23/06/2020 you sold it for
R85 000. The Profit you made will then be R35 000. Only the Profit is taxable.

However, if you trade regularly, and it is part of your income, it can be seen as revenue, and therefore be treated as revenue (tax). If you have a full-time job and you only trade with cryptocurrencies as a hobby your profit will then be treated as capital gains tax. SARS will accept any format as long as they can read what is on the document and what currency you bought. If it is a Word document, PDF, Excel or handwritten on paper, as long as all the information is visible and clear, they will accept it. When you buy or sell, it needs to be a detailed record in any format for SARS to accept. This includes short and long-term trades, staking and interest bearing savings accounts on exchanges, as well as de-fi opportunities. Generally short-term trades are seen as revenue; therefore, you pay full tax on the profit. Generally long-term trades are seen as capital gain; therefore, you will pay capital gains tax on the profit. Only the buy and sell of cryptocurrencies is in this case important to SARS.

Q: What deductions are permissible for cryptocurrency transactions i.e. Cost of advisory services, ISP costs, area of dwelling, rent/bond, electricity, laptop etc.
A: Any expense “incurred in the production of income” is tax deductible. So, to answer your question,  you can deduct advisory costs, ISP costs area of dwelling, electricity and your laptop. However, if you deduct your laptop, it depreciates over a period of 3 years.

If you want to claim your area of dwelling, SARS generally requires the blueprints of your property, where you highlight the area that you use mainly for work, if it is reasonable. Example: If your property is 200m² and you only use 16m² as your main office, this is how you will calculate the percentage of interest deductible on your bond: 16/200 = 8%. This means you can claim 8% if it is reasonable.

Q: How do they want you to report earnings from any cryptocurrency that you are earning interest on, on a crypto platform i.e., 4.4% on Ethereum, 10.7% on Tron, 5.8% on Chainlink?
A: You will need to pay tax on any interest received on any type of cryptocurrency, irrespective of the platform. Example: If your crypto is R60 000 and within months the interest you received accumulates to R66 000, you will need to pay tax on that R6000 interest that you received.

Q: Do they just want the annualised earning per token per year?
A: Yes, per financial year from Mar to Feb.

Q: Is it a taxable event when you realise and re-capitalise your investment on a monthly or quarterly basis?
A: Monthly is taxable. Any transaction made by you if it is per day or per week, it is taxable. Per transaction per day is taxable.

Q: Do they want the interest earned itemised per token or collated into a single amount?
A: SARS will be happy with a single amount, if it was prepared by a 3rd party, meaning they will then issue you an IT3b certificate, showing that single amount. If it is prepared by yourself, SARS generally requires a breakdown of the itemised earnings per token.

Q: If you have funds that you have put into a De-Fi project on an overseas platform that is paid interest for staking, the interest is payable in the token daily and re-invested for compounding purposes, how is this reported?
A: When it is capitalized or not, you will need to pay tax on any interest received or profit gained from a transaction. Your token daily income / profit will also need to be paid tax. You will need to keep a detailed report of all transactions and interest received.

Q: If one wants to legally transfer token from SA to an overseas platform, what are the permissions required to do this? As SARS has now deemed this to be a criminal offence.
A: You will need to get a tax clearance per transaction every time for investment purposes. So, if you have 60 transactions, you will need a tax clearance for every transaction made, which totals to 60.

Up to R1Mil SARS sees it as discretionary allowance, meaning they don’t ask questions and you can do what your heart desires with that R1m. After that, the next R10Mil, will need a specific breakdown, where you want to invest, why you want to invest, and when you want to invest, any important reasons for investing they will require.

SARS allows R1Mil per person, per calendar year to invest in overseas platforms, as discretionary allowance, if you have a tax clearance for all transactions made.

Q: Who do we need to contact to complete any documentation required for Reserve Bank permission.
A: Your personal bank.

Q: I understand the difference between investing, for the growth of wealth (capital gain) and trading, to derive a short term profit (income stream), and that they are reported on different sections of the tax return forms.
A: Yes, that is correct.

Q: Does SARS allow for the expenditure required for these independent ventures i.e.

  1. Area of residence used in the pursuit of income: Yes
  2. Cost of ISP: Yes
  3. Subscriptions to Consultative Services: Yes
  4. Depreciation of hardware i.e. Laptop: Yes
  • Furniture depreciates over 6 years
  • Equipment example: printer depreciates over 5 years
  • Laptop depreciates over 3 years

Q: Are there a specific number of trades per annum that need to be conducted to qualify for these deductibles? Is it based on the Rand Value profit from these endeavours?
A: No, only when you made a profit, will you be allowed to make these deductions. You are allowed to pile up your deductions over a long period and once you made a transaction that made profit, you can deduct one big amount. But it all depends on if it is reasonable to SARS. If, for example, you only made 3 transactions per year, SARS will then divide those 3 transactions with every day of the year: 3/365. This will intitle them to make a conclusion of what you can deduct, depending on the time spent on every transaction. (ie a very few transaction will be frowned upon if you try claim you third bedroom as an expense.

Q: Historically, I have had the deductibles refused, but the profits still taxed, and told the volume of trades did not justify the deductions.  How can they still tax this as a revenue stream them?
A: Section 11A of the Income Tax Act entitles you to claim any expenses. If you are not happy that SARS disallowed your deductibles, you can do an objection, which then requires an agent working at SARS, to go through everything thoroughly.

Q: SARS, in their documentation, refer to Source Codes when completing the tax return. Where does one get the prerequisite Source Codes for income earned, or capital gains realised?
A: On your tax return on eFiling, under your income statement they will show the code next to the figures that needs to be captured. When you hover your curser over the number it will pop up a description for what figure needs to be captured. You don’t need to know the codes by heart. You can also google Source Code SARS.

This article is intended for information purposes only. Each case should be evaluated on its own merit and is subject to a consultation.

Source and credits:

Position Paper on Crypton Currencies (Crypto Assets Regulatory Working Group) – https://www.resbank.co.za/en/home/publications/publication-detail-pages/media-releases/2021/IFWG-CAR-Working-Group-position-paper-on-crypto-assets
South African Revenue Services (SARS)
Tax Tim
Sanlam

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Now Read: Understanding the Principles of ISCQ1

Understanding the Principles of ISQC 1

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Business meetingThe objective of the firm is to establish and maintain a system of quality control to provide it with reasonable assurance that:

  • The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and
  • Reports issued by the firm or engagement partners are appropriate in the circumstances.

(more…)

Implementing Liquidation Procedures for The Business

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LawThe liquidation process can be defined as the process in which a company voluntarily proceeds to declare itself as being insolvent or where a creditor of the company brings an application to court in order to have the company declared insolvent. The result thereof is that the company may no longer proceed to operate its business. Sections 79 to 83 of the Companies Act No 71 of 2008 (hereinafter “the Act”) provides the procedure to be followed when winding up a company, either voluntarily or through a court order (i.e. involuntary liquidation). (more…)

Finalising and Signing Off the Financial Statements

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Man signing a documentOnly one director is required by law to sign the balance sheet on behalf of the board but, in the case of companies with shares traded on a market, it is quite common to see the balance sheet signed by two directors, for example, the Chairman and the Finance Director. To some extent this is probably a hangover from the days, prior to the Companies Act 1989, when the balance sheet had to be signed by two directors. (more…)

Using Break-Even Analysis To Make Business Decisions

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In the graph, the point at which total fixed and variable costs are equal to total revenues is known as the break-even point. At the break-even point, a business does not make a profit or loss. Therefore, the break-even point is often referred to as the “no-profit” or “no-loss point.” Anything above this point would be a profit for the business and vice versa. (more…)