CAMERON & PRENTICE

C H A R T E R E D A C C O U N T A N T S ( S A )

3RD QUARTER 2006 VOLUME 5

NEWS, VIEWS AT T I T U D E S O F A 2 1 S T C E N T U R Y F I R M

THE FRIENDS WE KEEP

This year Cameron & Prentice celebrates ten years of pro bono work
with the Friends Of Valkenberg Trust. Trustee, Antonie van der Hoek
takes a look at the non-profit organisation and the rewarding
relationship that has been built.
It’s all too easy to get bogged down in the comfort of day- volunteers, the hospital now operates a hair salon, clothing
to-day business. To not look beyond our front door and shop, and is able to purchase key equipment that is so
acknowledge the communities that exist in our society, that desperately required. The Trust is active in securing donations
are so desperate for help in one way or another. The Friends from a range of companies to ensure the purchase of this
Of Valkenberg Trust is one such organisation that we at key equipment.
Cameron & Prentice are proud to support and provide our
It is a rewarding relationship. It’s an opportunity for a firm
accounting skills to, free of charge.
like Cameron & Prentice to add value, to supply much
needed accounting and other services to ensure the Trust
The Friends of Valkenberg Trust is an amazing organisation
operates in good governance. While Cameron & Prentice is
that works to support Valkenberg Hospital. Its objectives
active in supplying their services free of charge, other
are aimed at assisting patients and their needs when the
companies and professionals such as social workers, lawyers,
hospital is unable to. Thanks to the Trust and the many
doctors etc are doing the same in their respective capacities.

WHAT S IN
TAKING RESPONSIBILITY
Our way of giving back

WHEN YOU RE GONE

Cashing in your estate

WHAT STUDENTS WANT

We re all ears

ZERO RATED OR 14%

VAT under the spotlight

CALLING A TRUCE
Amnesty for Small Businesses

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ED S DESK
So the World Cup is over for another
four years. The office seems quieter
after the weeks of wall-to-wall soccer
fever. Though, I’m sure, some are still
trying to guess those words that
eventually sent Zinedine to the bench
on final night. Odds are, despite all the
translation, you’ll make far more sense
of the words that grace these pages.
And to be honest, it’s more relevant
and, in our books, more interesting.
We are after all, mere accountants.
However, in the true spirit of World Cup
2006 controversy, we’ve tried to add a
little controversy to our own Ampersand
pages. We’ve chosen to discuss a few
subjects that will provoke clear opinion.
Be it Trevor Manuel’s amnesty for small
businesses or whistleblowing
irregularities. VAT, however, is pretty
black and white, and hardly
controversial, but it does warrant a
page of clear explanation.
So grab that cup of coffee and bury
yourself for the next 90 minutes in the
news and views that affect your
business. And by the way, there is a
little extra time (if you need it).
Enjoy.
Ed
Lara, Gary and Antonie at the
UCT Careers Fair 2006
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IN BRIEF:
Reminder for Provisional Tax Top-ups
Clients are reminded that provisional taxpayers whose taxable income
exceeds R50 000 are advised to make top-up tax payments by 30 September
(for February year’s of assessment) to minimize SARS interest charges.
Please contact us for assistance if you are unsure of your tax position in
this regard.
New Transfer Duty Rates
With effect from 1 March 2006, the threshold at which transfer duty becomes
payable for individuals has been increased from R190 000 to R500 000.
The rate on transfers between R500 000 and R1 million has been set at
5% with the value above R1 million attracting transfer duty of 8%. The
flat rate for companies and trusts has been reduced from 10% to 8%.
Small Assets Write-off
The threshold for small assets that may be written off in full in the year
acquired has been increased from R2 000 to R5 000 with effect from
1 March 2006.
Subsistence Allowances
With effect from 1 January 2006, where a subsistence allowance has been
paid to an employee, but that employee has not by the end of the following
month spent the envisaged nights away from his usual place of residence,
then the payment is deemed to have been paid for services rendered and
not as a subsistence allowance. This means that the payment must be
treated as normal remuneration and PAYE must be withheld from the
employee and paid to SARS.
GRADUATING TO A HIGHER
PROFILE ON CAMPUS
Now in our second year of greater graduate recruitment activity on
campuses around the country, Antonie van der Hoek is serious about
securing top students to become top employees at Cameron & Prentice.
Recently at the UCT Careers Fair the and had a real chance to learn and
demand for good accounting graduates master.”
in the workplace became acutely
And that’s what is proving quite a hook
apparent. Most big name audit firms
for many graduates interested in doing
were very much out in force in recruiting
their learnerships at Cameron &
mode. And yes, we were there too.
Prentice.
What is interesting, however, is just
“Many are looking for the opportunities
how seriously graduates are
to experience all aspects of the job in
approaching their years of learnership
a smaller, not so corporate environment.
with a firm. What makes them gravitate
They are essentially a greater calibre,
towards one firm and not another. Sure,
more well rounded student than we
bursaries and international exposure
have experienced previously. They are
always crop up as key benefits, but so
demanding proof of credible experience
too do the real issues of “what am I
to be gained.”
really going to walk away with once my
learnership is over?” With winter as recruitment season,
Antonie and his team of young Cameron
“Graduates today are wanting a
& Prentice graduates can be found
learnership that proves that they rolled
presenting and interviewing at top
up their sleeves and got their hands
universities in the Eastern and Western
dirty,” says van der Hoek. “That they
Cape.
were empowered through responsibility
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FINAL AMNESTY FOR
SMALL BUSINESS
The Act providing details
of the small business tax
amnesty announced by
Trevor Manuel in his
budget speech earlier this
year was promulgated
recently. Chris Norris explains the amnesty
and examines the implications.
The rationale behind the amnesty is a
further initiative to broaden the tax-
base among small businesses, many
of whom operate in the informal sector.
Taxi operators have been specifically
included since one of the requirements
to participate in the taxi recapitalisation
programme is that applicants need to
produce a tax clearance certificate.
Although some law-abiding taxpayers
may feel aggrieved by the introduction
of yet another tax amnesty, we at
Cameron & Prentice wholeheartedly
support Treasury’s and the Minister
of Finance’s efforts to broaden the tax
base which will ultimately spread the
overall tax burden.
The amnesty effectively applies to all
taxpayers except listed companies and
in order to apply the requirements are
that:
• The applicant must have carried on
a business (i.e. salary and non-
business related investment income
earned would not qualify);
The amnesty covers both unregistered
taxpayers and taxpayers who are
registered but whose income from,
supplies made or employment taxes
due in respect of their business activities
have not been declared or have been
understated during any year preceding
the 2006 year of assessment.
Taxpayers wishing to apply for amnesty
must complete a 4 page application
form and must ensure that the form is
submitted to SARS before 31 May 2007.
The application for amnesty must be
accompanied by an income tax return
for the 2006 tax year and a statement
of all assets and liabilities as at the end
of the 2006 year of assessment.
Once amnesty approval has been
granted, the applicant will be granted
relief from the payment of:
• Income tax on undeclared income
or years preceding the 2006 year;
• PAYE underpaid during the qualifying
period;
based on the applicant’s taxable income
for 2006. The percentage payable
ranges from 0% up to a taxable income
of R35 000 to a maximum rate of 5%
on taxable income exceeding R500 000.
In order to ensure that approval for
amnesty is not withdrawn, any levy
payable must be paid within 12 months
of approval.
The amnesty does not apply to any
amounts that have already been paid
by the applicant, or are payable as a
result of any return submitted to SARS,
prior to the submission of the
application.
This amnesty, which has once again
been billed as a “final amnesty”,
provides a unique opportunity for
taxpayers who under declared their
income in prior years, to regularise
their tax affairs.

• The turnover of the business for the • VAT underpaid in respect of any supply
2006 tax year must not be more than or importation of goods or services
R10 million; during the qualifying period;

• In the case of a company or CC, all • STC on any dividend or deemed

the shares or members’ interest must dividend in any year preceding 2006;
have been held directly by individuals
• UIF in respect of remuneration during
throughout the 2006 year of
the qualifying period; and
assessment;
• Skills development levy during the
• In the case of a trust, all the
qualifying period.
beneficiaries throughout the 2006
year must have been natural persons. On approval, an amnesty levy is payable

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VAT IS IT ALL ABOUT?
Often a cause for confusion in the VAT system is the distinction between
taxable supplies, whether at 14% or zero rated, and exempt supplies and
the effect such supplies have on the claiming of input tax credits. Chris
Norris explains that the distinction is crucial both from the point of view
of the vendor making the supplies and the recipient of those supplies.
Taxable supplies are treated in one of
two ways, either standard rated
supplies, where VAT is charged by the
supplier at the current rate of 14%, or
zero-rated supplies, where VAT is
charged by the supplier at 0% (such
as for example exporting goods or
providing services to non-residents
under certain circumstances). Supplies
such as providing financial services,
the letting of residential
accommodation, educational services
or bus transport, are specifically exempt
from VAT and no VAT is thus charged
by the supplier on such
services.
One of the fundamental
principles of the VAT
system is that a VAT
vendor may only claim
input tax credits to the
extent that the goods or
services concerned have
been acquired for the
purpose of making taxable
supplies. Where an enterprise
(other than NPO’s which have special
rules) makes only exempt supplies,
then that enterprise would not be
entitled to register for VAT purposes
and would not be entitled to claim any
VAT input tax credits on expenditure
incurred. All VAT paid thus becomes
a cost in such an enterprise.
Where an enterprise makes both taxable
supplies and exempt supplies, then the
VAT position becomes a little more
complex. A full input tax credit is
allowed only where the goods or
services have been acquired by the
vendor wholly for the purpose of
making taxable supplies. Thus, where
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a vendor makes both taxable and
exempt supplies, an apportionment of
the input tax may need to be made
and, if this is the case, part of the input
VAT incurred will not be claimable by
the vendor. Many businesses make
exempt supplies without being aware
that they are doing so. Providing staff
loans or housing to employees are
exempt supplies as is the investing in
a bank account of excess funds.
Financial institutions and the landlord
of a mixed use building (i.e with both
a residential and commercial
component) are some examples of
vendors that make both taxable and
exempt supplies.
Some relief is provided for vendors in
the form of a de minimus rule. Where
the intended use of the goods or
services acquired is at least 95% for
making taxable supplies, then no initial
apportionment needs to be made. This
provision assists vendors whose level
of exempt supplies is minimal (such as
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in the staff loans example).
However, in situations where the de
minimus rule does not apply (such as
with a mixed use building), an
apportionment must be made. The
question is, how should the
apportionment be calculated?
Firstly, a “direct” apportionment must
be done. In other words, all input tax
credits that relate solely to the taxable
activity must be identified and claimed.
Similarly, all input tax credits that
relate solely to the exempt
activity must be identified and
may not be claimed.
Thereafter, all remaining
input tax credits (e.g. in
respect of general expenses)
must be apportioned in the
ratio of taxable turnover to
total turnover. Where this
method does not give a fair
result, SARS can be
approached to provide a ruling
on an alternative method
preferred by the vendor.
As mentioned above, taxable supplies
are treated as either standard rated or
zero-rated supplies. The making of
zero-rated supplies does not in itself
affect the vendor’s ability to claim input
tax credits on expenses incurred to
make those supplies. Thus a vendor
whose business is solely the exportation
of goods that qualify for zero-rating
will always be in a VAT refund position.
Vendors that make both taxable and
exempt supplies should therefore ensure
that their systems are in place and that
VAT is not overclaimed, as the penalties
for such transgressions are harsh.
info@campren.co.za
BLOWING THE WHISTLE
ON IRREGULARITIES
However, auditors face
With the new Auditing the prospect of criminal
Profession Act (APA) now in prosecution, with a fine
or imprisonment not
place, Antonie van der Hoek exceeding 10 years, or
examines Section 45 of the both, should they fail
to report an irregularity
new Act. And explains, to the IRBA. In a way,
blow-by-blow, the it is forcing directors
ramifications of the changes ahead. and management to
face up to the
challenges of corporate
It’s a complex and controversial subject, but Section 45 of
governance and to
the APA introduces the concept of a reportable irregularity
implement the
which became effective on 1 April 2006. This concept requires
appropriate controls to
the auditor of an entity to submit a written report, without
prevent irregularities
delay, to the Independent Regulatory Board for Auditors
from happening.
(IRBA) when that auditor is satisfied or has reason to believe
that a reportable irregularity is taking place or has taken The IRBA have an
place in respect of that entity. obligation to report any
irregularities brought to
Management of the entity must be informed, in writing,
its attention to other appropriate regulatory bodies, including
within 3 days of the report being submitted to the IRBA.
SARS.
This is very different to the requirements under the old Act
(PAAA) which granted management a 30 day period in which Section 45 would only apply where the registered auditor
to rectify the irregularity after which the auditor could has been appointed as auditor to the entity. In other words,
reassess the need to report it. where the registered auditor is only performing a compliance
function such as accounting officer to a CC or only performing
This may put strain on the relationship between auditor and
consulting services then Section 45 would not be applicable.
client as the auditor may be seen as a “whistleblower”.

“Reportable Irregularity” means any unlawful
act or omission committed by any person
responsible for the management of an entity
which:
• has caused or is likely to cause material
financial loss to the entity or to any partner,
member, shareholder, creditor or investor of
the entity in respect of his, her or its dealings
with that entity, or
• is fraudulent or amounts to theft, or
• represents a material breach of any fiduciary duty
owed by such person to the entity or any partner,
member, shareholder, creditor, or investor of the
entity under any law applying to the entity or the
conduct of management thereof.
Objectives of the new Act include:
• Protecting the public in the Republic by regulating
audits performed by registered auditors;
• Providing for the establishment of an Independent
Regulatory Board for Auditors (IRBA);
• Improve the development and maintenance of
internationally comparable ethical standards and
auditing standards for auditors that promote
investment and as a consequence employment in
the Republic;
• Setting out measures to advance the implementation
of appropriate standards of competence and good
ethics in the auditing profession;
• Providing for procedures for disciplinary action in
respect of improper conduct.

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THE IMPORTANCE OF It is extremely important to consider
the amount of cash your executor will
LIQUIDITY IN YOUR require when winding up your estate.
ESTATE PLANNING
So often not accounted
for, Peter Prentice alerts
to one of the biggest pit
falls in estate planning —
the importance
of liquidity.
Q: Can I pay my provisional tax in instalments?
A: It is possible to pay provisional tax in instalments.
However, SARS must be approached beforehand and
an application form must be completed and submitted
to SARS for approval. The application process is however
fairly onerous in that it requires extensive personal
information to be submitted to SARS before SARS will
approve a payment plan. Interest will be charged by
SARS on the instalments at the official rate, which
currently approximates prime. If payments are made
in instalments without approval then penalties and
interest will be charged. Given that such penalties and
interest are not deductible for tax purposes, and in view
of the invasive nature of the SARS application form, it
may be preferable to utilise overdraft facilities and other
finance wherever possible.
Q: What are the current criteria for claiming home
office expenditure against salary income?
A: Until the 2006 tax year, the provisions of the income
tax act did not allow a salaried employee to claim home
office expenses as a deduction against salary income.
Changes to the legislation were made with effect from
1 March 2005, which now assist taxpayers that are forced
by their employers to maintain a home office, and who
mainly use that office as their main business location.
Clients should be aware that non-residential use of their
primary residence has negative CGT implications.
(overheard)
Tax evaders now face
criminal action!
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realise? Are there proceeds from
insurance policies?
Your executors may require substantial
It is also
important to give
amounts to cover estate liabilities,
estate administration, capital gains tax,
thought to the
estate duty and executors
source of cash.
remuneration.
Will your
executors have to It is not always possible to predict a
realise assets? precise cash requirement but a little
What assets planning may prevent the sale of estate
assets that would be preferable to leave
should they
in the hands of your beneficiaries.
just ask...
Q: Must capital gains be taken into account in
calculating provisional tax?
A: All provisional taxpayers should take capital gains into
account in their estimates when calculating their provisional
tax payments. Since 25% of a capital gain is included in
an individual’s taxable income, and 50% in the case of a
company or CC, leaving capital gains out of the provisional
tax calculation could result in unexpected penalties being
levied on taxpayers who submit their second payments on
an amount lower than their basic amount. We request that
our clients keep us informed regarding any capital gains
that they may have realised in order that their provisional
tax estimates take capital gains into account.
Q: Can I give my staff an interest free loan without
fringe benefit tax implications?
A: Interest free loans that have no fringe benefit implications
can be provided to staff members under the following
circumstances:
• Casual loans that do not exceed R3 000 at any time. This
provision is intended to apply to short-term loans granted
at irregular intervals and does not automatically apply to
all loans that are less than R3 000;
• A loan granted to an employee to enable that employee
to further his own studies.
Where a low interest or interest free loan is a taxable fringe
benefit, the fringe benefit value must be calculated as the
difference between interest at the official rate and the
interest actually paid on the loan.
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