Fidelis Vox recently attended a webinar in which the retired Judge Dennis Davis gave an update on the new High Net Worth division in the South African Revenue Service (“SARS”) and the effects of the implosion of the offices of the Master of the High Court. The honourable Judge joined SARS on a more permanent basis to help with the implementation of its strategies, specifically strategies aimed at closing the tax gap and the wealthy.
We set out a few important points from the webinar below:
Judge Davis confirmed that SARS is not against proper tax and estate planning and structuring, i.e. planning within the confines of South African tax laws. They are, however, against tax avoidance and evasion, and intend focussing on non-compliant taxpayers, related financial institutions (e.g. banks) and their advisors where these objectives are aided and abetted. It is therefore not worth doing anything wrong or illegal when it comes to tax and estate planning. Conversely, if your tax affairs are in order with full disclosure made to SARS, you have nothing to fear.
The honourable Judge Davis warned against offshore pension schemes and requested taxpayers to be very careful when considering these schemes as an investment vehicle. With reference to Erf 3183/1 Ladysmith (Pty) Ltd and Another v Commissioner for Inland Revenue (527/94) 1996 (“the Ladysmith-case”), he highlighted the “substance over form” principle: if it does not look like a usual pension scheme, then it may well not be a pension scheme. He also warned against offshore pension funds in the “protected cell company” or PCC-format.
When asked about when domestic trusts would be able to hold offshore assets, Judge Davis responded that this would not be on the horizon until SARS has oversight of trusts in general. With the Master of the High Court’s electronic records only dating back to 2012 and no umbrella system for SARS to access the Masters’ database, SARS can only work with what trusts declare to them resulting in SARS not receiving their due portion of taxes which should be declared. To put it into perspective: there are approximately 160,000 trusts registered with the Master, of which only a small percentage is registered as taxpayers with SARS. Until SARS has a better understanding of registered trusts’ tax compliance, the Judge said that holding offshore assets would not be a feasible consideration. The honourable Judge also invited the industry to request an expeditious enquiry into the affairs of the Master of the High Court with recommendations to be made within 2-3 months to get it to function as it should.
With the recent “brain drain” in SARS, Judge Davis also made mention of skills being scarce within SARS especially with concepts codified in section 7C and 7(8) of the Income Tax Act not always being applied or understood correctly, but that he has been given permission to appoint skilled staff members. Conversely, he praised the SARS litigation unit for their discernment when it comes to tax disputes, i.e. knowing when to proceed with a matter and when to settle or walk away from it. Judge Davis also alluded to a dedicated Trust unit within SARS to speed up the work to be done as well as looking at offshore trusts where the protector of the trust is a South African tax resident.
Lastly, lifestyle audits, similar to a few years ago, will be a renewed means to close the current tax gap. In other words: Be careful if you drive a luxury car, but don’t declare (all) your taxes – SARS may just snap your vehicle’s registration in the parking lot and run it through its database to see if it correlates to what has been declared to them. They will also look on social media and the likes to see what you brag about, but do not declare to them.
Fidelis Vox is here to help you with both fiduciary and tax advisory matters. Should you require our assistance, please do not hesitate to contact Marteen Michau (marteen@fidelisvox.co.za) or Suzanne Smit (suzanne@fidelisvox.co.za).
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)