Proposed tax changes and VAT guide
25 June 2013
Posted by: Author: FISA
Author: FISA (Fiduciary Institute of South Africa)
Proposed tax changes
A meeting was set up with National Treasury and the South African Revenue Services to obtain a better understanding of their intentions with regard to local trusts and offshore foundations, as well as to discuss the effect that the proposed changes may have on these entities. The meeting was attended by representatives of the Fiduciary Institute of Southern Africa (FISA), Financial Planning Institute (FPI), Law Society of South Africa, South African Institute of Charted Accountants (SAICA), South African Institute of Tax Practitioners (SAIT) and Society of Trust and Estate Practitioners (STEP).
Although there are many questions to be asked around the proposed tax changes, it is important to stress that this was just an exploratory meeting. It was clear that National Treasury did not come with any preconceived ideas, nor were they intransigent on the tax proposals. They used this meeting to gather information from the delegates and not to put forward any proposals or solutions. As they asked whether trusts are being used for tax avoidance purposes, the delegation explained all the uses of trusts, over and above the possible tax benefits. We also stressed that although a capital gain can be passed down to beneficiaries to make use of a lower rate, this is not so widely used as they thought, nor is it such a simple solution, as the asset then has to vest in the beneficiaries’ hands and loses the protection of the trust. It was further pointed out that there is also anti-avoidance legislation which can be enforced to prevent this without having to change legislation. We also made mention of the fact that trusts are more heavily taxed than any other vehicle, and SARS has so much anti-avoidance legislation at their disposal that trusts are not tax efficient vehicles, nor are they generally advised to clients on the basis of tax saving. There was a long discussion on this point, and it will no doubt need to be addressed again.
Delegates were asked how many clients use foundations, the reasons for using a foundation, the differences with a trust, and how many clients are taking money overseas and using offshore structures. The response was that a very low percentage of clients actually set up structures offshore and that a working group can be formed to discuss offshore trusts and foundations.
There was also a lengthy discussion about interaction with the Master’s Office. Delegates proposed that the Chief Master’s Office should be approached to request trustees to disclose better and that SAS should ensure they complete annual tax returns with more detailed information. The Master should also be in a better position to track what is going on inside trusts. All supported the idea that tax returns and other paperwork should be tightened up to make for better disclosure.
As Estate Duty’s budgeted contribution to the fiscus in 2013/2014 is R900 million, which represents less than 0.01% of the budgeted state revenue, the delegation asked why it is not being done away with. National Treasury stressed that it is more a policy decision to keep Estate Duty than a financial one. They also advised that it is not clear why Estate Duty takings are so low. This could possibly be because of avoidance through trusts.
Overall, the meeting was perceived to be very positive. National Treasury has not finalised any tax changes and they stressed that any amendments will first be discussed in depth, put out in a discussion paper for comment, and are not likely to happen in the short term.
SARS is reviewing the VAT Guide and requested us to provide them with comments and/or concerns regarding deceased estates and insolvencies. Please forward us your comments.