Proposed changes to tax legislation

The 2020 Draft Taxation Laws Amendment Bill (“2020 draft TLAB”) and the 2020 Draft Tax Administration Laws Amendment Bill (“2020 Draft TALAB”) were published for comment on 31 July 2020.

These draft bills set out changes that National Treasury and the South African Revenue Services (“SARS”) propose making to South African tax legislation.

While the legislation is still in draft form and may be changed in certain aspects prior to enactment, it is worth pointing out clauses in the draft bills that may have an impact on you, our client:

1. Business travel (effective 1 March 2021):

If an employee is reimbursed for expenses in respect of meals and incidental costs incurred while on an obligatory day trip away from the office, these reimbursements will not be taxed in the employee’s hands. Similarly, to the overnight subsistence allowance, the amount must not exceed the daily threshold published by SARS.

2. Closure of loophole related to tax free bursary schemes (effective 1 March 2021):

Bursaries provided to relatives of employees will no longer be exempt from PAYE in terms of Section 10(1)(q) unless the bursary scheme under which the bursary is provided is open to the general public.

Further, the exemption is dependent on the fact that the employee’s remuneration package is not subject to an element of salary sacrifice.

3. Withdrawal of retirement funds upon emigration (effective 1 March 2021):

One of the changes to be implemented during modernisation of the foreign exchange control system is the phasing out of the concept of “emigration”. Currently, legislation makes provision for a payment of lump sum benefits when a member emigrates from South Africa and such emigration is recognised by the SARB for exchange control purposes. The intention is to delink the ceasing of tax residency from SARB emigration.

The 2020 Draft TLAB proposes that a new test be inserted which will make provision for the payment of lump sum benefits when a member ceases to be a South African tax resident and such member has remained non-tax resident for at least three consecutive years or longer.

Should this amendment be enacted without any changes, this will mean that a person will trigger exit charges (i.e. Capital Gains Tax) on ceasing tax residency but will be restricted from withdrawing any retirement funds until the expiry of 3 years from his/her tax residency ceasing.

4. Anti-avoidance rules for trusts (effective 1 January 2021):

The Act contains anti-avoidance measures aimed at curbing the tax-free transfer of wealth to trusts using low interest or interest-free loans, advances, or credits.

The draft proposals deem that the subscription price of preference shares in a company owned by a trust will be deemed to be a loan advanced in the hands of the individual subscribing for the preference shares. In addition, any dividends in respect of those preference shares shall, for purposes of these provisions, be deemed to be interest in respect of such a deemed loan under certain circumstances.

5. Sunset Clauses on special incentives (Effective Date: 28 February 2022)

As mentioned by the Minister of Finance in his Budget Speech earlier this year, certain incentives currently being offered to businesses would be eliminated in order to broaden the corporate tax base. In order to do this, it is proposed that the following allowances will no longer be available from 28 February 2020.

• a) Deduction in respect of rolling stock
• b) Deduction in respect of airport and port assets
• c) Deduction in respect of the sale of low-cost residential units on loan account

6. Estimated assessments and criminal penalties

The 2020 Draft TALAB proposes to:

• a) Reduce the burden of proof required by SARS to institute a criminal prosecution for tax related offences; and
• b) Allow SARS to raise an estimated assessment where a taxpayer fails to submit relevant material requested by SARS under section 46 after receiving more than one request.

PKF South Africa is in the process of submitting commentary to National Treasury and SARS detailing our thoughts and recommendations on the draft bills. National Treasury and SARS take into account comments submitted by the public in determining how the final legislation is enacted and we are proud to participate in this process.

Should you require clarification on the above tax proposals, please do not hesitate to contact us.