Pay the Piper

Last week, an article titled ‘Treasury simplifies tax amnesty draft’ was published in Business Day. The much anticipated clarification from SARS on the upcoming special voluntary disclosure (“amnesty”) has finally arrived. The amnesty was designed to make it simpler for taxpayers to declare any foreign income and assets they had not yet revealed to SARS.

The third draft of the bill on voluntary disclosure states that the new ‘legislation will tax only 50% of the value of the capital that an applicant for amnesty had built up abroad and failed to disclose’ and, furthermore, ‘anyone who is already being investigated for tax or exchange control contraventions will not be eligible for the amnesty’.

That being said, there is a further round of industry comments due by 8 August 2016, so the legislation may change again.

Now that you’ve been alerted and have possibly read the original article, this is what I would advise:

1. Do not emigrate. South Africa is and always will be a beautiful country in which to live, prosper and build a better life for all.
2. Make the decision to disclose and get on with it. Life is too short to procrastinate.
3. Seek advice from a specialist tax adviser and run the numbers.
4. Take comfort that you have made a very wise decision as the penalties will be far higher when found out through automatic information sharing effective September 2017. Criminal prosecution is an arrow in SARS’s quiver. However, I believe that they have no interest in your spending time in jail and would far rather dramatically increase the penalties, potentially by up to 200%.

In summary the taxes / penalties are as follows:

Reserve Bank

Those who choose to keep their assets offshore will have to pay a 10% levy on the value of these (or 12% if they want to pay the levy using out-of-SA funds), or a 5% levy if they opt to bring the assets back to South Africa.

SARS

The new draft legislation will, in effect, tax 50% of the value of the capital that an applicant for amnesty had built up abroad and failed to disclose. Those assets will have to be valued at the peak year-end market value, translated into Rand at the year-end spot rate, over the five-year period from 1 March 2010 to 28 February 2015. The amount will be added to a taxpayer’s taxable income in the 2015 tax year for individuals, and taxed at their maximum marginal rate.

Example

If GBP200k equivalent was taken offshore and its maximum year-end value was GBP220K between March 2010 and Feb 2015, you will include GBP110k in your 2015 tax return, which will be taxed at 41% (assuming you are in the highest tax bracket).

The net effect is a 20.5% SARS tax (50% x 41%) + a 5%, 10% or 12% SARB penalty.

As the 2015 tax year is passed due, you should also expect some interest charges from SARS.

For those individuals who are in contravention of SARS and not SARB (South African Reserve Bank), you may well be better off by making disclosure through the current voluntary disclosure program. Please seek advice in this regard from a qualified tax adviser.

Anthony Palmer CA (SA)

International Adviser and Group Training Manager

Anthony is a qualified chartered accountant and prior to joining Carrick as an International Adviser and Group Training Manager, was managing director of the Alternative Risk Markets Group for Deutsche Bank on Wall Street where he managed a global team in New York, London and Singapore.

Disclaimer: Carrick Wealth are not tax advisors and the information above is for illustration purposes only and is not to be relied upon. It is advisable to seek guidance from registered tax attorneys for your specific circumstances.