2nd QUARTER 2008 VOLUME 11
WHEN IT PAYS TO PAY
The outsourcing of key services is becoming an increasingly popular
practice across a broad spectrum of industries. Antonie van der Hoek
explains why.
As a general rule of thumb, outsourcing cuts costs and
reduces the workload on “in-house” employees, it results
in a more focused strategy and it generally improves work
accuracy in terms of given objectives and deadlines.
The realm of Chartered Accountants is no exception.
Many small and medium sized businesses simply don’t
have the capability, or resources, to employ a full time
heavy-weight Chartered Accountant (CA). Furthermore,
it is not always essential to have a qualified CA on
board for 100% of financial management duties, but it
is imperative to have an experienced CA for the critical
25% of the function in order to keep your business on the
right track. And this is where Cameron & Prentice comes
in. Within this critical 25% we are able to provide the
following services:
Facilitate annual strategic planning meetings to
ensure that the company’s management is aligned to
their business objectives.
Assist with the setting of budgets / targets that are in
keeping with both the short-term and long-term
strategic objectives.
Attend monthly management meetings to review
results and to ensure that the strategic momentum
is maintained.
Facilitate management input and creativity in
maintaining the strategic plan.
Facilitate business risk assessment.
Facilitate continual improvements to the business by
way of revaluation of objectives and improving
business methodologies.
Promotion of “out of the box” thinking and the
extraction of creative ideas from the role players in the
business.
Contact us at Cameron & Prentice on 021 530 8444
if you would like to discuss our outsourcing services
further.
WHAT’S IN
PROS & CONS OF A TRUST
The best vehicle to hold fixed property?
GONE FOR GOOD
Why do CA’s head overseas?
INTEREST ON LAND
There are cracks in the law.
WHAT IS REASONABLE MAINTENANCE?
Understand this tricky little bill before you file
for divorce.
TOUGH TIMES AHEAD
Don’t cut the marketing budget.
WHAT IS REASONABLE MAINTENANCE?
A tricky little Bill, all of two pages, was passed in 1990 which
effectively puts paid to any man’s plans for disinheriting his wife.
Peter Prentice takes a bird’s eye view of an Act that may see some
turn in their grave.

The Maintenance of Surviving Spouse Act No 27 of
1990 came into operation on 1 July 1990. In terms of
clause 2 the survivor has a claim against the estate of
the deceased spouse for the provision of reasonable
maintenance needs up until death or remarriage in so
far as she is not able to provide therefor from her own
means and earnings.
Secondly, the expected earnings capacity, financial
needs and obligations of the survivor. And lastly, the
standard of living of the survivor during the subsistence
of the marriage and her age at the date of death.
Bear this in mind though - “what is good for the goose is
good for the gander.”

What is reasonable? Ask Heather Mills McCartney.

No, in fact clause 3 determines reasonable maintenance

in vague terms and stipulates that the following factors
should be considered : firstly, the amount in the
deceased estate available for distribution.

Q: What is the significance of falling under the A self employed taxpayer, contributing for example
new Companies Act definition of ‘Widely Held R2 500 per month to a medical aid for himself and three
Company’? additional dependants, thus receives a tax deduction
amounting to R1 750 per month or R21 000 per annum.
A: Recent amendments to the Companies Act make a
If this taxpayer was in employment and the employer was
distinction between widely held companies and companies
responsible for the full contributions to the medical aid in
that are not widely held (i.e. limited interest companies).
respect of his employment, then R1 750 per month would
A widely held company must have an audit committee
not be taxed as a fringe benefit. If the employer was
consisting only of non-executive directors and must also
not responsible for the full contributions and contributes
comply with certain other onerous requirements. A private
less than R1 750 per month in respect of the employee’s
company may be widely held if its Articles of Association
membership, with the employee contributing the
provide for unrestricted transfer of shares. The directors
difference, then the employee will receive a tax deduction
of all private companies should assess the relevant
in respect of the difference. The employer may take this
provisions of their Articles of Association to ensure that
difference into account in calculating the employee’s PAYE
they know where they stand in this regard.
deductions.
Q: How do the monthly medical aid tax deduction The excess contribution made by a taxpayer over and
limits work? above the capped amounts (i.e. R750 per month in the
above example) can be taken into account in calculating
A: Whether a taxpayer is self-employed or works for
whether any further medical costs deduction may be
an employer, the taxpayer effectively receives a tax
claimed under the “excess of 7.5% of taxable income”
deduction for medical aid contributions, subject to certain
formula.
maximum limits. As mentioned in Ampersand 10, the
limits are currently R530 per month for the member plus
R530 per month for the first additional dependant, and
R345 per month for each dependant thereafter.

Local guru, Dave Warneke,

speaks out each week on tax matters
on www.realestateweb.co.za (overheard)
 IN BRIEF
VAT registration threshold - an update
We reported in Ampersand Volume 10 that the compulsory VAT reg-
istration threshold would be increased from R300 000 to R1 million,
but that this change was not yet effective. SARS has clarified that the
increase in the VAT registration threshold is linked to the introduction

ED’S DESK
According to the calendar hanging
in our offices, we are officially more
than half way through the year and
half way through the winter. But if
you ask me, the mornings are still
far too dark and cold for comfort.
However we hope that this issue of
Ampersand will shed some welcome
light on a few pressing matters at
hand.
We’ve rolled up our sleeves and
examined why it pays not to
cut the advertising budget in an
economic downturn and how best
to communicate and reassure your
clients in these difficult financial
times. David Warneke exposes an
apparent gap in the workings of
two sections of the Income Tax Act
regarding tax-deductible interest
on land. Lara Forsyth outlines a few
reasons why so many young South
African CAs seem to have spread
their wings and migrated to foreign
climes (sunshine aside).
of the simplified tax package for very small businesses and that this
is likely to be implemented only sometime during 2009. VAT vendors
whose current taxable supplies are more than R300 000 but less than
R1 million per annum cannot deregister for VAT at this stage. Similarly,
businesses whose current taxable supplies have exceeded or are likely
to exceed R300 000 per annum must register for VAT purposes.
Annual returns for CC’s - on again, off again!
We have provided updates on the on-again, off-again process for CC
annual returns in a number of past volumes of Ampersand, and it
seems as if this topic is becoming a regular feature! CIPRO has now
announced that the introduction of annual returns for CC’s will be not
be effective from 1 May 2008 but will be delayed until later in 2008 –
possibly 1 September. We have issued credit notes to all our CC clients
whom we have invoiced for annual returns to date.
2008 tax filing season
SARS has announced that the 2008 tax filing season for individuals will
run from 1 August 2008 to 21 November 2008 (for manual submission)
and 23 January 2009 (e-filing submission). The process for the issuing
of IRP5 certificates by employers has been changed this year. Employ-
ers are now required to ensure that IRP5’s are issued and the EMP501
reconciliation process is completed, by 29 August 2008. SARS will only
issue tax returns to employees once their employer has completed its
submission of the EMP501. SARS is suggesting stiff penalties for em-
ployers who do not meet the 29 August deadline.

Lastly we get to grips with the

question of “what is reasonable
maintenance?” An interesting two-
page bill that can come into play
when filing for divorce - as recently
demonstrated by Heather Mills
McCartney. It’s enough to send SELLING YOUR BUSINESS?
shivers down your spine.

Renwick Business Brokers, the

But if all this talk of acrimonious
second-largest business broking
separation is making you jittery let
firm in South Africa has recently
me quickly put your mind at rest
appointed Cameron & Prentice
and reassure you that at Cameron &
as a franchisee in the Western
Prentice we’re not going anywhere.
Cape. If you know of anyone
We hope to continue to partner you
looking to sell or buy a busi-
for a long time to come.
ness, please contact David on
021 530 8444 or email
Until next time, keep warm and take
david@campren.co.za
heart, the sun will shine again soon.

Ed
INTEREST ON LAND FALLS
THROUGH THE CRACKS
Say a taxpayer is currently conducting a certain trade e.g.
manufacture. If that taxpayer purchases land on credit in
order to house a building that will be used for the same trade,
a major tax disincentive exists. David Warneke exposes the
cracks in the law.

At issue is the interest incurred
on the land, prior to the date on
which the building is brought into
use. This interest is currently not
tax deductible. However, interest
incurred on the building will be tax
deductible and from the date on
which the building is in use, interest
on the land as well as on the
building will be tax deductible.
For example, say the taxpayer is a
manufacturer who owns a factory
and purchases land on which to
build a warehouse. If the warehouse
is financed with a mortgage, the
effect is that the bond interest
on the portion that relates to the
land, prior to the date on which
the warehouse is completed and
brought into use, currently may not
be deducted under any section of
the Income Tax Act. However, the
interest component that relates to
the warehouse will be deductible
both before and after it has been
brought into use.
This is due to an apparent gap in
the wording of two sections of the
Income Tax Act, sections 11(bA)
and 11A.
Section 11(bA) allows the taxpayer
a deduction for so called ‘pre-
production interest’. While a
qualifying asset, such as a building,
is being constructed, the section
holds that interest is accumulated
and deducted in a lump sum during
the year in which the building is
first brought into use. Problem –
although the list of qualifying assets
includes buildings, it does not
include land. So the section does
not apply in the example above.
On the other hand section 11A
allows a taxpayer, who has not yet
commenced trading, to accumulate
expenses incurred prior to the
commencement of trade and to
deduct these expenses, also in a
lump sum in the year in which the
trade commences.
The problem is that the section does
not apply where the taxpayer has
already commenced that trade, as
in the example above i.e. in our
example the taxpayer was already
trading as a manufacturer prior to
the incurral of the interest.
The net result is that there is
currently no section in the Act, in
terms of which the taxpayer may
claim a deduction for the interest
on the land prior to bringing the
building into use.
There is a view that the interest
may be deducted as it is incurred
with the purpose of earning
income. This view is, in my opinion,
unconvincing, as it seems to
imply that section 11(bA) is an
unnecessary section in the Act.
Once the building is in use, the
taxpayer may however claim the
interest incurred from that point
onwards.
IN SHORT SUPPLY
There is a shortage of Chartered Accountants
internationally. Lara Forsyth takes a look at the CA
situation in South Africa and just what it is that motivates
a South African CA to spread his or her wings.
In matric I knew that I wanted to
become a CA. At that stage, I of
course did not realize what the
process entailed exactly! As I
started my studies at Stellenbosch
University, and became more
exposed to what my academic
career as a CA would entail, I gained
a huge amount of respect for a
CA, and decided then that I had to
go the distance, stick it out, make
whatever sacrifices, and qualify as
soon as possible.
I must admit that I have had my
fair share of hurdles en route. Now
that I am qualified, I can honestly
say that it was worth it, and I'd
do things the same way if I had
to relive my last 7 years (heaven
forbid!).
One of the tragedies that our
country is currently faced with is
the outflux of recently qualified CAs
to The Cayman Islands, the UK, or
some other foreign destination of
choice. The reasons vary: exposure,
money, peer influences, new career
opportunities... It may not be their
ideal home forever, but a 2 year
contract for a 26 year old, earning a
salary in a currency other than the
Rand, doing almost the same work
as what they've been used to in SA
for the past 36 months, is rather
appealing.
Another factor to take into
consideration is the increasingly
onerous auditing regulations
imposed on audit practices.
It weighs heavily on the practitioner,
and in turn requires that much more
from the trainee accountant
during their training contract.
Pressure is being placed on
trainees to gain an understanding
of the technical aspects of auditing
at a faster pace, and to master the
skill of preparing a fully compliant
audit file before they reach level C
of their contract.
Furthermore, the skills shortage
is worsened by the fact that large
corporate entities are demanding
the services of experienced CAs,
due to compliance with interna-
tional accounting standards. We are
made aware of the fact on a regular
basis that CAs sit on the boards of
listed companies, and make ever-
successful CEOs etc. With all of this
to aspire to, in their own backyard,
our 26 year old financial gurus are
still hopping on a plane; their sights
firmly set on distant shores.
All of the above has had a significant
impact on the number and quality
of CAs that our country is delivering
each year. The South Africa Institute
of Chartered Accountants (SAICA)
is doing their bit, but SAICA alone
cannot overcome this crisis. They
need to rely on the co-operation
of the individual, the aspiring CA
university graduate, even the grade
10 scholar in the process of making
his or her subject choices.
A WORD OF ADVICE
WHEN THE GOING GETS TOUGH,
THE TOUGH GET MARKETING
When faced with an economic
downturn, cutting advertising
and marketing budgets tends
to be a traditional reaction by
companies around the globe.
But studies conducted over the
years demonstrate that marketing
managers should, in fact, maintain
their advertising during a slump.
In other words, businesses that
maintained their marketing spend
demonstrated a steady overall
growth. The studies suggest that
the firms who adopted "long-
term" approaches to marketing
management across economic
cycles tended to attain superior
performance when compared to
short-term reactionary practices.
Previous recessions have delivered
some valuable lessons on how best
marketing managers can weather
the recession storm:
Interrogate your marketing
strategy. Consumers make basic
decisions about whether or not
they will pay a premium price
for their favourite brand - so
protect your company/product
by building a powerful case for
what makes it unique.
Rethink your marketing
messages. It's highly unlikely
that your current messages will
work during a recession. Shift
your focus from that of
aspirational, optimistic and
light-heartedness to one that
offers reassurance, emphasises
value and empowers consumers
with information.
Focus your efforts. Concentrate
only on those audiences with the
highest potential of yielding
results and direct your energies
only on them.
Your existing customer base is
your biggest asset, so now is the
time to strengthen the
relationship between your brand
and customers so they remember
you when times get better.
Source: www.bizcommunity.com
WHAT IS THE MOST APPROPRIATE VEHICLE IN WHICH TO
HOLD RESIDENTIAL INVESTMENT PROPERTY
The question of which vehicle is the most appropriate for holding
fixed property has to be one of the most frequently encountered in
practice as a tax consultant. Dave Warneke explains why there is
no ‘one size fits all’ answer to this question.

The correct answer depends entirely on the Disadvantages

circumstances of the investor. However, having said that,
we find that the most common recommendation we Although Estate Duty at 20% and CGT at
make where the investor is a private individual and the 10% on the death of an individual are saved by
property is a residential investment property i.e. not a holding the property in a trust, if the trust disposes of
primary residence, is for the property to be bought into the property and does not distribute the resulting
a trust. Where the property is to be a primary residence, capital gain, CGT is payable at the rate of 20% of the
then by holding the property in a juristic vehicle such capital gain, compared to a maximum CGT rate of
as a trust, the R 1.5 million primary residence exclusion 10% for an individual investor.
for CGT will be lost when the property is disposed of.
This can make this option less attractive, as the primary If rental profits are retained in the trust and not
residence exclusion results in a maximum saving of distributed to beneficiaries, the rate of tax in a trust is
R 150 000 in CGT. a flat 40%, compared to a sliding scale for individuals
that only peaks at a rate of 40% on taxable income
The advantages and disadvantages of trusts above R490 000 per annum.
as vehicles for holding residential investment
property are as follows: Transfer Duty is at a flat rate of 8% on the value of
the property purchased by a trust. This compares with
Advantages a sliding scale for individuals that only peaks at a rate
of 8% (on so much of the value of property as
Compared to holding the property in the hands of an exceeds R1 million).
individual, Estate Duty is saved - at the rate of 20% of
the market value of the property at the date of death. There are some compliance issues which also involve
Although an exemption from Estate Duty applies costs. The trust has to be set up, annual financial
where the property is left to a surviving spouse, this in statements and income tax returns (annual and
effect amounts to a deferral of the Estate Duty provisional) need to be submitted and meetings of
problem rather than a true saving, as Estate Duty is trustees need to be held.
payable on the death of the surviving spouse.
An element of control over the property can be lost
Compared to holding the property in the hands of an as the investor has to abide by the wishes of the
individual, CGT on death is saved - at a maximum rate trustees. However, most trusts are so-called
of 10% of the market value of the property at the ‘dog-collar’ trusts in that the trustees are initially
date of death less base cost. Although roll-over relief selected by the investor from persons that he /she
exists where the property is left to the surviving trusts (and the investor would usually be one of the
spouse, this amounts to a deferral of the capital gain trustees).
rather than a true saving, as CGT is payable on the
death of the surviving spouse. Since a trust cannot enter into a pre-incorporation
contact, the trust must first be set up (average time
Growth in the value of the property is protected from taken one month), before the offer to purchase
creditors of the investor. document is signed.

The primary residence exclusion from CGT will be lost.
Relatively low compliance costs: trusts are not subject
This amounts to a maximum saving of R150 000 in
to statutory audit.
CGT on disposal of the primary residence.
Flexibility: a discretionary trust allows the trustees
It’s imperative to weigh up the pros and cons, and
to allocate rental profits from the property to
talk to a professional who understands your unique
whichever beneficiaries they choose. The same applies
circumstances.
to distribution of capital gains if the property is sold.
This can achieve income tax savings and give effect to
the wishes of the founder.