Tax Laws Amendment Bill: some relief for the rich

Following the submission of public comment on the draft Tax Laws Amendment Bills 2010, several amendments to the original draft will render the impact slightly less onerous for High Net Worth individuals.

Hennie Van Deventer, Head of Tax in the Cape office of BoE Private Clients, which provides financial services exclusively to High Net Worth individuals, has applauded the National Treasury for taking into account the views of a range of professional organisations, including the SA Institute of Tax Practitioners (SAIT), the SA Institute of Chartered Accountants (SAICA) and the SA Institute of Professional Accountants (SAIPA), and says that the process proves the value of public participation.

He says that the most significant effect on High Net Worth individuals results from the reduction in the tax on company cars, from 4% of the value of the vehicle per annum as proposed in the original draft to 3,5% in the final version of the Taxation Amendment Bill.

“High Net Worth individuals are obviously more likely to enjoy the benefit of a company car. The new law stipulates that this perk shall be taxed at an effective rate of 80% of 3,5% of the value (now including VAT) of the vehicle, which is lower than the 4% contained in the draft bill. More importantly, the increase to 3,5% (previously 2.5%) as the basis for determining the tax value, brings the tax in line with the tax on car allowances,” he says.

In addition, whereas the Draft Taxation Laws Amendment Bill had stipulated that only interest from authorised financial institutions would in future qualify for the interest exemption, this provision has been removed from the final version. Van Deventer cautions, however, that the relief granted in terms of interest exemption is likely to be of temporary duration.

“It is common for High Net Worth individuals to grant loans to the likes of friends and family, or to a trust, often at a lower interest rate than what a financial institution might charge. Following submission on the draft Bills, the interest on such loans will, for the time being, still qualify for the interest exemption. The National Treasury has however indicated that it will be looking very closely at this provision, and we can expect that the benefit will be removed at some stage in the future,” he says.

He also notes that, following submissions on the draft Bills, the Commissioner retains some discretion in terms of section 89 (quat) regarding interest payable on outstanding tax.

“Previously the Commissioner could remit the interest charged where the taxpayer reasonably believed that an amount was not subject to tax or that an amount qualified as a deduction. The first draft of the Amendment Bill removed this discretion entirely. In the final version, the Commissioner does once again have discretion regarding interest payments on these amounts, but may only apply such discretion in very limited, exceptional, circumstances, such as an act of God. It brings the discretionary powers of the Commissioner into line with that contained in the administrative penalty provisions.” says Van Deventer.

Finally, he notes that the final Bill sets out the ‘voluntary disclosure programme’, but emphasizes that this does not amount to an amnesty.

“In terms of the voluntary disclosure programme, qualifying taxpayers will still be liable for payment of the taxes but penalty, interest or additional taxes might not necessarily come into play. SARS may consider relief but only where a full disclosure has been made, SARS was not aware of the default and a penalty or additional tax would have been levied had SARS discovered the default.

“Voluntary disclosure does, however, protect the taxpayer against any criminal prosecution.

“As always, High Net Worth individuals would be well advised to seek the assistance of a qualified tax adviser if they have any doubts regarding the impact of the Tax Laws Amendment Bills,” he concludes.