Cautious Approach to Dealing With Abuse of Trusts is Welcomed
09 July 2013
Posted by: Author: Amanda Visser
Author: Amanda Visser (BusinessDay, bdlive.co.za)
The delay in sweeping changes to the tax treatment of trusts proposed by Finance Minister Pravin Gordhan in his February budget speech has been widely welcomed by industry players.
The Treasury’s and the minister’s concerns about the possible abuse of trusts are well known. The misuse of trusts has been a problem for tax enforcement in many countries.
Last week the Treasury published the Taxation Laws Amendment Bill and the Tax Administration Laws Amendment Bill for comment until August 5. The bills give effect to most of the proposals announced by Mr Gordhan.
Ismail Momoniat, deputy director-general for tax and financial sector policy, said last Friday that the Treasury had found a great deal of complexity in some of the issues after engaging relevant industry players. Trusts had been one such issue and, therefore, most of the proposed changes had been postponed to next year.
"We feel there is a need for a discussion paper on trusts before the proposals are put into legislation. Trusts have been around for a long time. Most people have trusts for various reasons, aside from tax reasons. All we are trying to do is make them (trusts) tax neutral and ensure greater transparency," he said.
David Warneke, a tax director at BDO, welcomed the delay in reforms to the trust regime.
"I have always felt that it will be a fundamental change to a regime that had been with us for many years. Our worst fear was that it might be pushed through."
The Treasury also announced that proposals that require specific legislation will be published later this year, while the controversial carbon tax proposals have been pushed out to next year.
Nazrien Kader, leader of tax services at Deloitte, said proposals to treat hedge funds under the Collective Investment Schemes Control Act is an attempt to regulate an industry that has never been regulated before. The practical implications were yet to be tested, she said.
Izak Swart, a director at Deloitte, expressed concerns that proposed changes to research and development incentives had been made retrospective to last October. Significant changes to the definition of "research and development" were bound to cause uncertainty and may narrow the opportunities for firms to qualify for the allowances, he said.
The Treasury said the reason for the proposed changes was that the language in the provision has led to "uncertainties in the interpretation of the legislation" that led to blockages in the adjudication process. A new withholding tax of 15% on cross-border consultancy, management and technical fees, announced in the budget, had also been included in the draft legislation.
Beatrie Gouws, personal income tax and savings director at the Treasury, said it was in line with international trends pertaining to developing countries.
However, South Africa will only tax fees from a South African source while other developing countries tax fees rendered to their tax residents irrespective of the source.
"There will still be a lot of consultation, workshops and engagement with taxpayers before it becomes law.
"The proposed effective date is January 2015. Although it is not a major threat to the fiscus, you always need to check your tax net and if there is a gap, you need to fix the gap," she said.