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Key changes in the tax law

President Cyril Ramaphosa has given effect to the 2020 tax proposal by signing three tax acts into law. These acts were promulgated on 20 January 2021. There were 10 key changes. We have highlighted the five key changes which we feel are most relevant to our clients.

1. Withdrawal of retirement funds upon emigration

Under the current legislation, a person who emigrates from South Africa and has formalised their emigration using the ‘financial emigration’ process, can fully withdraw their retirement funds. This would include for example the withdrawal of a retirement annuity, prior to maturity of that fund. This has been useful for many South Africans who have left or are currently leaving, as often these funds are used to set themselves up in their new home country.

It also allowed for taxpayers to decide to remove their investment and invest in something more viable for their new circumstances.

South Africans who have already financially emigrated still have the opportunity to withdraw their retirement funds under the current regime.

Those that have finalised financial emigration, or have their full application submitted to SARB prior to 28 February 2021, will now have the opportunity to withdraw their retirement funds under the old dispensation until 28 February 2022. Government has therefore provided a one-year extension on what was previously announced, to withdraw those funds with financial emigration.

However, without financial emigration, and from 1 March 2021, taxpayers will only be able to access their retirement benefits if they can prove they have been non-resident for tax purposes for an uninterrupted period of three years.

2. Anti-avoidance rules bolstered for trusts

The anti-avoidance rules aimed at curbing tax-free transfers of wealth to trusts have been strengthened to prevent persisting loopholes.

The amendment is directed at structures where individuals subscribe for preference shares with no, or a low rate of return in a company owned by a trust connected to the individual.

Ongoing changes to these rules again bring into question the thinking that trust structures are tax efficient.

3. Estimated assessments

The terms under which SARS may issue an assessment based on an estimate has been expanded. SARS may now issue an estimated assessment where the taxpayer fails to respond to a request from SARS for relevant material.

The amendment also bars the taxpayer from lodging an objection against the estimated assessment until the taxpayer responds to the request for material.

4. SARS can withhold your refund if you are under criminal investigation

In terms of the Tax Administration Act, SARS is entitled to withhold refunds owed to taxpayers in certain circumstances.
The TALAA expands these provisions to determine that if you are subject to a criminal investigation in terms of the Tax Administration Act, SARS is entitled to withhold any refund it owes you, pending the outcome of the investigation.

5. Criminal sanctions for minor tax offences

In future, taxpayers may be criminally prosecuted for minor tax offences, even if it was due to negligence. This new rule is also part of the South African Revenue Service’s (SARS’s) campaign to curb non-compliance.

In the past, a taxpayer could only be criminally prosecuted for a tax offence if they wilfully committed the offence, but this provision has now been scrapped from the legislation.

Due to the fact that intent is no longer required, if you are non- compliant as a result of ignorance of your obligations you may be found guilty of a criminal offence face receiving a fine or up to two years of imprisonment.

Taxpayers are encouraged to speak to their advisers to understand these changes and special heed must be paid to the changes that are now law. The most important change that applies to all taxpayers is the one that criminalises negligent non-compliance. These changes serve as a cue for everyone to take ownership of their tax affairs.

At Chartered Tax our main objective is to keep our clients compliant and up to date on the current tax laws, so please contact us if you need any clarity regarding the new tax laws.