Financial Data
Updated 17 Dec 2017


The Income Tax Act has changed, is your commercial property business still compliant?

You don’t want the tax man knocking on your door because you incorrectly submitted your tax after the tax laws changed. Know what the changes mean for your commercial real estate enterprise at the start of tax season. 


Nicole Crampton, 30 September 2017  Share  0 comments  Print


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The changes in tax legislation will affect your commercial real estate business if you have non-executive directors. You’ll need to implement these changes or risk being noncompliant with the tax man this season.

In previous years, there has been uncertainty within the current tax legislation about non-executive members and VAT. Last year, SARS sought to clarify these aspects, and these changes came into effect on 1 June 2017. At the start of the tax season, you may need to know if you’re paying enough or too much tax on your commercial property business.

Related: Corporate income tax and small business taxes to know


THE NEWS

In the 2016 budget speech it was announced that the uncertainties about non-executive directors paying tax and income tax act would be dealt with and clarity would be provided. The resulting binding rulings came into effect 1 June 2017, which means you need to comply with them or risk costly penalties from SARS.


To ensure that you are tax compliant or/ to understand how these changes may affect your tax submissions, here is a breakdown of the changes and what you need to do this tax season:

Non-executive director fees

Previously, in the Income Tax Act there was uncertainty whether a non-executive director’s fees are subject to employee tax. Non-executive directors aren’t generally on the payroll and don’t earn a salary, as defined in the 4th Schedule to the Income Tax Act. No. 58 of 1962.

SARS considers non-executive directors as a director who isn’t involved in day-to-day management or operations of a business, but attends board meetings and provides objective judgments and votes.

There was further uncertainty in the definition of an enterprise from proviso (iii) as the definition of an “enterprise” as contained in Section 1(1) of the VAT Act, 89 of 1991, excludes an employee from VAT, but not an independent contractor. 

Changes to the Income Tax Act

Income -Tax -Act

The two binding rulings that provide clarity are:

  • Binding General Ruling 40, which focuses on whether non-executive directors are subject to employee taxes.
  • Binding General Ruling 41, which focuses on whose activities are exclude/include VAT. 

SARS found that non-executive directors don’t earn a formal salary, making them independent contractors, so payments made to them are not subject to employee tax. On the other hand, in terms of the second binding ruling, non-executive directors may claim expenses that normal employees can’t claim, such as travelling costs and home study expenses, but only if they meet the requirements of Income Tax Act, No 58 of 1962.

If your non-executive director receives director’s fees of more than R1 million in a 12 month period, they will need to register for VAT, and must charge VAT on the fees.

Related: Tax 101 for small businesses

What you need to do this tax season

Now that you know what’s changed, you need to know the practical requirements for your commercial real estate business and how to remain compliant during this tax season. Firstly, all your non-executive directors still need to provide Annual Financial Statement to SARS confirming fees charged as they conduct their trade, when they submit Tax Returns. Secondly, when fees earned exceeds the limit, your non-executive directors will then need to register for VAT and submit VAT returns bi-monthly.   

For further information on VAT please visit here.

For more information on the current Tax Season please visit here.

Deadline for tax return submissions

​Channel

​Deadline

Type of Taxpayer​​

Manual – post or at SARS branch drop boxes​

​22 September 2017

​Non-provisional and provisional

eFiling or electronic filing at SARS branch ​

​24 November 2017

​Non-provisional

eFiling​

​31 January 2018

​Provisional


KEY TAKEAWAYS

  • It was previously unclear whether non-executive directors were subject to employee tax, or who could claim VAT.
  • Now, non-executive directors aren’t subject to employee tax, but if they earn enough from the company they must apply for VAT.
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Nicole Crampton


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