The new amendment to the Tax Administration Act is now in place giving SARS the power to put you in jail if you are negligent with your tax return.

The amendment removes the concept of “intent” which in criminal law needs to be proven that you wilfully broke the law.

Removing this from the Tax Administration Act places you fully responsible for the compliance of your tax affairs. Ignorance and negligence are no more an excuse leaving you open to heavy fines and up to 2 years in jail.

Let’s have a look at some of the common errors 

Late returns – Add to this a late income tax return because you were away on holiday or ill in hospital for that matter.?

Lost documents – misplaced supporting documents like a receipt or log book needed to prove a deduction leads to a lower tax payable.

A misinterpretation of expenses –  could lead to understated taxable income. You thought you could donate some money to a needy family member not realising it was a donation from which SARS wants tax. No room for appeals or corrections.

Your responsibility from now onwards

As harsh as this new legislation seems SARS says it is inline with world standards commonly applied in many countries. So the onus is on you to make sure that you are up to date and fully in charge of your tax affairs.

The COVID Pandemic has pushed many of us out of the office and in to the home as the new workplace.This new way of working creates expenses to do your work which SARS may entertain as a deduction against your salary.

These expenses are claimed under ‘Other Deductions’ on your tax return. During COVID Lockdown in 2020 a claim could be considered if you can prove to SARS that you spent more than 6 months of the tax year working from home.

What you need to qualify

Your employer must authorise you to work from home in writing as you will have to prove this to SARS.

You must have spent more than half of your total working hours in your home office.

You must have an area of your home, which is used solely for the purpose of work. It must be fully equipped with all equipment and furnishing needed to perform your job.

What expenses can be deducted?

You can claim a deduction against:
Rent
Interest on the bond
Repairs to the premises
Rates and Taxes
Cleaning
Internet costs
Insurance on the home
Security

How to calculate the home office deduction

The percentage of the office space against the total square meterage under roof of your residence is applied to the total expenses above.                                                            For example, if your home office is 20 square metres and your total home (including the office) is 200 000 square metres then 10% is applied to the total expenses.

As working from home has become the ‘new norm’ for many of us, you will do well to start keeping records for the current tax year preparing for the next tax return for 2022.

With all the negativity around our struggling economy we still fair better than many other countries across the globe. Although a bit tongue in cheek these comparisons do shine some light on the upsides of our cost of living in South Africa.

The price of petrol                                                                                                         All countries have access to the same petroleum prices of international markets but then decide to impose different taxes. As a result, the retail price of gasoline is different. 

Price per litre of petrol                                                                                        Average of all countries – $1,12
SA – in spite of the taxes applied – $1,07 
Oil producing countries – pay much less                           Venezuela  –  $0,02 – Emirates – $0,54
Hong Kong – the most expensive – $2,47 
US – the biggest consumer – $0,84 

The Big Mac Index

The index aims to give an idea of how purchasing power parity compares across countries.The idea being that the same components come into play to make a Big Mac. So there is reliance to price.

Switzerland – the most expensive – $7,29

US – where it originates  – $5,66

South Africa – in spite of our high taxes – $2,16

Lebanon- the cheapest – $1,77

So, based on this index the Rand is undervalued by 61,9%.

Wine Prices World Wide

A comparison of mid range wines across the world show that SA is cheaper than most countries by far.

Quatar – the most expensive – $24,72

South Africa – the one of the cheapest – $5,09

Iran – the cheapest – $1,20

So from this somewhat superficial info we can still get a sense that South Africa still offers value being one of the cheaper places in the world where you can drive and get a Big Mac with a glass of wine. 

#Imstaying

Early to bed and early to rise makes a man healthy, wealthy and wise. A proverb which provides a strategy for the  – The perfect retirement plan.

If you find yourself overwhelmed by debt you need to take action quickly….
The problem doesn’t solve itself and will get worse faster than you wish.

The action plan to get out of debt and back on your feet is much easier to deal with than waiting for the inevitable consequences of ignoring the problem.

Here are your options….

Go it alone
If you want to avoid debt counselling, contact your creditors personally and bring your situation to their attention. The lender would probably be better off arranging a compromise with the payment arrangements extending the debt over a longer period and reducing the repayments. In some instances arrangements can be made to service the interest only for a period. What ever you do do not apply for more credit!

Contact a debt counsellor                                                                                          They are regulated in compliance withe the National Credit Act and this is the process to follow:

Step 1
You complete an application form and providing details of all your Credit Providers.
(Consultations are usually done telephonically and by e-mail, but can also be done in person.)

Step 2
The debt counsellor will determine whether you are over-indebted by establishing if your monthly expenses exceed your monthly income.
(You have to be over-indebted to qualify for Debt Review.)

Step 3
If you are over-indebted, the debt counsellor will inform all your Credit Providers and the Credit Bureaus that you are under Debt Review. Your Credit Providers will also be requested to provide a Certificate of Balance (COB) in respect of your accounts.

(You will immediately start to pay a single provisional reduced monthly installment in respect of all your Credit Providers which will be affordable to you. During the first 60 working days, legal action may not be taken against you in respect of the debts that are under review.)

Step 4
After receiving all the COB’s, the debt counsellor will restructure your payment plan and negotiate with your Credit Providers where necessary. After negotiations with your Credit Providers, your new restructured payment plan will be sent to all your Credit Providers and this payment plan will take effect.

(Your restructured payment plan will reduce your monthly debt repayments to an affordable amount, leaving you with sufficient money for your living expenses.)

Step 5
The debt counsellor will instruct a specialist attorney to apply to the court to make your restructured payment plan a court order. You will not have to appear in court yourself, as your Debt Counsellor will be the applicant in the matter.

(The process will now be completed and you must ensure that your monthly payments are made timeously in order to prevent Credit Providers from taking action against you.)

The counsellor is entitled to 5% of the structured repayments to a maximum of R450.

Retirement annuity contributions                                                                              

You can deduct up to 27,5% of your taxable earnings on contributions to retirement funding. So if you have a pension fund and you contribute 15% towards it you can invest an up to 12,5% more into a retirement annuity. This can be done with a lump sum adding it to your existing retirement annuity. It has to be invested before the 28th of February to qualify for a deduction in the 2021 tax year. The benefit is a tax deduction on your premium at your marginal tax rate. So if you are paying tax at a rate of say 40% then you effectively get 40 cents back for every rand you invest in a retirement annuity.

Tax free savings account                                                                                            

You should consider the opportunity of investing a lump sum into a tax-free savings account before the tax year-end. You are currently allowed R36 000 per annum. So you can top up to this amount before the end of February taking full advantage of the allowance and then be in a position to invest more in the next tax year from March onwards. The main advantage of this investment is that your funds are not taxed which substantially improves the performance over time.

Capital gains tax                                                                                                              

If you are disposing of any investments you could sell some in  February using your R40 000 exclusion off the gain in this tax year then sell again in March taking up your R40 000 exclusion for the new tax year.

Donation tax                                                                                                                     

If you are considering donating assets up to R200 000 to someone other than your spouse you should split the donation between February and March. This way you will take full advantage of the R100 000 per annum allowed per taxpayer for 2021 and then again in the 2022 tax year.

Planning opportunities exist in the month of February for the tax savvy. Work with the various tax breaks and take full advantage while you can.

The amazing performances of Bitcoin since 2010 have left many investors wishing they had gotten involved and others wondering if they should. The cyber currency performance has been nothing short of astounding, reaching around $20 000 in 2017 before crashing to $3 000 in 2018. At the end of 2020, Bitcoin found a new record just below $30 000 leaving some big questions.

Here are 3 reasons why you should not get involved with Bitcoin.

If you don’t understand what Bitcoin is
It’s too easy to get lulled into an investment through hype and speculation taking a chance not clearly understanding what you are buying. Bitcoin is very technical and takes a lot to get your head around. As it is a new concept to most and needs a lot of research before getting involved. One big question is, “How much is 1 Bitcoin actually worth?”. In 2017 the market thought $20 000 and then decided on $3 000 in 2018. So now the market thinks a bitcoin is worth $30 000?
If you think Bitcoin will increase as it has in the past
The outstanding past returns have no guarantee of continuing as past performance is not a predictor of the future. Sure there are many reasons given to buy Bitcoin, however, you need to understand that markets do not go up in straight lines. In fact from these levels the probability of this bubble bursting is huge.

If you use funds you cannot afford to lose
As the risks are extremely high. You rely on the speculative bet that all the hype placed on Bitcoin will play out. It defies conventional thinking as there is no tangible asset. A value in a wallet with huge swings up and down in value somewhere in cyberspace. If you are using ‘must have money’ which you can ill afford to lose you are asking for trouble. If you are using debt to bet you are in even bigger trouble.
Whilst Bitcoin is less conventional, conventional wisdom still applies. If it sounds too good to be true then it probably is. So be very aware and don’t allow your FOMO to take over. If in doubt, push out…..

What the tragic year 2020 has been? COVID-19 will leave a deep scar in our global history having devastated lives and livelihoods.

The worldwide lockdown created records in the financial markets which in turn left some big questions for your personal finance.

The Global Stock Markets recorded the fastest fall in financial history and the most devastating crash since the Wall Street Crash in 1929. In the same year, the S&P and the Dow reached record levels.

Should I invest in shares?
Shares are risky and should be well understood before investing. They tend to do better over time. However, the sharp fall experienced this year could be a precursor of things to come. A concern is how companies will make manage their way through our devastated economy to make profits to pay dividends.

Interest rates reached their lowest in nearly 47 years with the Reserve Bank cutting rates 3% in 2020.

Should I fix the interest rate on my bond?
The bank sets the rate if you decide to fix it. This will probably be at a higher rate than the current level. They anticipate future interest rate movements and cover themselves for probate outcomes. So you will probably pay more now for the foreseeable future until interest rates increase to the fixed rate.

The Rand reached the weakest level at R19 against the US Dollar in April this year.

Should I invest offshore?
The rand is volatile and 60% undervalued. Conventional wisdom is to invest abroad in other currencies to protect value. The problem is which currency and what investment? Interest rates offshore are zero. Property and stock markets are expensive and risky. The decision is difficult with the uncertainty of the pandemic still playing out throughout the globe. Paying off debt whilst interest rates are low is a certain option which should not be ignored.

These questions do not have quick answers and should research carefully.

Using your credit and debit cards more efficiently can save you a lot if you get to understand them a whole lot better.

Debit Cards                                                                                                                Debit cards are linked directly to your bank account. So when used to buy something
the money is immediately debited off the balance in your account. Pretty useful for those who are weary of overspending during the month.

Credit Cards                                                                                                              Credit cards work a bit differently. The bank allows you a limit to use the card during the month. However, you need to pay back the amount owing at the end of the month otherwise you pay around 20% interest on the balance. The bank gives you around 3 weeks from the statement date to make this payment before it levies the interest. So you need to be aware of the balance and make your payment in time to avoid the costs.

At the outset, it appears that debit cards are the way to go. Less hassle as you are spending your money and don’t need to worry about getting into debt which costs you interest.

But wait a bit……there are fees to consider

The debit card charges you for each transaction that you make whereas credit cards don’t. So here is where you can take charge and earn a bit extra.

If you plan your month more carefully setting aside an amount of money which you intend to use then you should use your credit card
for all transactions, saving you a fortune in transaction fees. Come to the end of the month you have the money set aside to settle the balance and avoid the interest.

So the outcome of using a credit card wisely is that you are using the bank’s money free of charge. You can get extra mileage if you keep the money in your access bond or an interest-bearing bank account. You could get even savvier by linking these accounts to your Internet banking profile so that you can keep an eye on the credit card balance and transfer the balance immediately when you need to.

Understanding the way these cards work can turn the costs into a benefit…..

Assume you make 20 transactions on your debit card in a month. You pay R4 per transaction which amounts to R80. Using your credit card will save you this R80. If you have a spend of R10 000 in a month and keep this in your bond @ 10% then you receive and extra R80. You then have made R160 for the month. If you reinvest this earning say 5% then you will have R10894 after 5 years.

So getting savvy with your cards can make a difference if you really set your mind to it. It takes focus and discipline.