New draft tax and finance regulations have been included in recent South African legislation by President Cyril Ramaphosa. These new regulations include several new administrative and technical issues which need to be taken into consideration by taxpayers. In terms of these new regulations taxpayers will be held to a higher standard of negligent non-compliance, as they can face criminal consequences if they do not adhere thereto.

This article will briefly outline a few of the new tax and finance regulations which taxpayers should consider.

Trusts to be subject to further anti-avoidance provisions

A proposal has been made to address the perceived abuse of preference share funding structures for trusts by adding anti-avoidance rules to address the use of such preference shares for purposes of circumventing the provisions of section 7C of the Income Tax Act No. 58 of 1962 at the 2020 budget speech.

The new amendments have been effected, strengthening the anti-avoidance provisions in respect of loans or credit advanced to trusts, curbing the abuse of trusts by individuals who subscribe for preference shares with no, or a low rate, of return in a company owned by a trust connected to the individual.

Withdrawal of retirement funds

As from 01 March 2021, the normal procedure for withdrawal of retirement funds upon emigration will be amended. Subsequently financial emigration whereby taxpayers access their retirement benefits upon completion of the emigration process through the South African Reserve Bank will no longer be permitted. After this date, taxpayers will have to prove they have been non-residents for tax purposes for an uninterrupted period of 3 (three) years before they will be able to access their retirement benefits. However, if taxpayers filed their financial emigration application before 28 February 2021, they will still be able to access their retirement benefits under the previous requirements.

Tax residency test days temporarily reduced

The so-called 183-day rule serves as the most simple guideline for determining tax residency. However, due to the COVID-19 pandemic, the number of days requirement for the foreign employment exemption has been temporarily reduced in aggregate to 117 days, providing relief for expats. It is important to note that this only applies to the aggregate number of days and the requirement that more than 60 of the days spent outside South Africa must have been consecutive remains applicable. This amendment will only apply from for the years of assessment ending from 29 February 2020 to 28 February 2021.

Business travel expenses not subject to tax

Employees who receive an advance or reimbursement for meals and incidental costs where they are required to spend a night away from home for business and only if the employer’s employment policies make provision for this, will not be taxed on such advance or reimbursement. The amount received by the employee must however not exceed the amount published in the Government Gazette.

Refunds can be withheld by South African Revenue Services

The South African Revenue Services is entitled to withhold refunds owed to taxpayers under certain circumstances. The Tax Administration Act No. 28 of 2011 (“Tax Administration Act”) has now expanded its terms to include the withholding of refunds if the taxpayer is subject to a criminal investigation, pending the outcome of the investigation.

Criminal liability for non-compliance

Taxpayers will now under the new amendments, be guilty of a criminal offence for intentional and negligent non-compliance under the Tax Administration Act. Previously the intention of non-compliance had to be present in order for a taxpayer to be found guilty, however taxpayers are now being held to a higher standard and their negligence can result to a fine or imprisonment of up to 2 years.

As previously mentioned, it is now crucial for taxpayers to take note of the new regulations and to consult with a tax expert to ensure they comply with these new regulations in order to avoid being subject to a fine or imprisonment.

VDMA’s team of experts are available to assist you and your business with all of your tax legal related queries to ensure you understand the scope of the new regulations and how it will affect you and your business.

Published 4 February 2021