Tax Ombud, Judge Bernard Ngoepe, was the first speaker at the Fiduciary Institute of Southern Africa’s sixth annual conference that was held on 25 August.
Tax Ombud Judge Bernard Ngoepe said the corrupt use of public funds gives tax payers an excuse not to pay tax.
He was speaking about ethical behaviour, at the Fiduciary Institute of Southern Africa’s (FISA) sixth annual conference that was held on 25 August at the Sandton Convention Centre.
Judge Ngoepe said revenue authorities are tasked with collecting maximum amount of tax due to the state and that the tax payers are obliged to comply with applicable tax laws and pay taxes due on time.
However, he added that it has been argued that one of the sources of a positive disposition on the part of the taxpayers is the force of good ethics. ‘An integral part of good ethics is honest, and a sense of civic duty,’ he said.
Judge Ngoepe said tax authorities have to have immense powers to fight fraudulent conduct and in doing so the tax payers would be hesitant to open up to a tax authority with a dubious and unethical track record.
Judge Ngoepe commended the South African Revenue Service (Sars) on ensuring that tax payer’s money is being used to benefit the society by building schools and infrastructure. He said it heightens a sense of civic and moral duty. He pointed out that the Tax Ombud can help tax payers if they are being exploited and abused by tax authorities.
Tax consequences of emigration
Attorney in the tax law and private clients department of ENSAfrica, Hanneke Farrand spoke about tax consequences of emigration.
Attorney in the tax law and private clients department of ENSAfrica, Hanneke Farrand, spoke about tax consequences of emigration.
Ms Farrand noted that she dealt with a lot of issues when people want to emigrate and added that legal practitioners must advise their clients to plan properly when emigrating. She further stated that attorneys must advise their clients of three important points, namely:
Ms Farrand said depending on whether or not you are a resident in a specific country, a specific jurisdiction brings a certain disclosure obligation.
Ms Farrand further said when one plans on ceasing to be a South African (SA) tax resident they need to know about the ‘exit charge’, and the one charge is a deemed disposal of assets on a date immediately before a day on which the person ceases to be a resident at expenditure equal to market value.
She said there are capital gains and losses that are included, in annual tax return for tax year ending on a date immediately before a person ceases to be a resident and added that subsequent tax years will only disclose SA sourced income and capital gains and that non-residents will be taxed on their South African sourced income and capital gains only as subject to relief in terms of applicable Double Taxation Agreements (DTA).
Lecturer at the private law department at the University of the Western Cape, Professor François du Toit, spoke about freedom of testation.
Freedom of testation
Professor François du Toit of the private law department at the University of the Western Cape made a presentation about freedom of testation in light of recent off shore developments. He said SA law holds freedom of testation in high regard and that a testator’s wishes must be carried out. ‘Freedom of testation entails that a testator is free to dispose of his or her property as they see fit and that a beneficiary who believes that they received less in terms of testator’s or a beneficiary who has been disinherited cannot approach the courts and ask the court to change the will of a testator who passed away,’ he said.
He also spoke about the discriminatory clause and explained that race, religion, gender and ethnicity are often the topics of such clauses. He referred to several cases where the courts found these clauses to be unacceptable but stressed that the courts – in all these case – reconfirmed that freedom of testation is a fundamental principle in our law.
Separation of control and enjoyment in trust
Lecturer of family law and law of trusts at the department of private law at University of Free State, Professor Bradely Smith, spoke about the separation of control and enjoyment in trust and said that legal practitioners must warn trustees and testators to be weary of veil piercing at face value. He said the core idea of the trust is that there must be a separation of ownership or control of trust assets, from enjoyment of trust benefits.
Lecturer of family law and law of Trusts at the department of private law at University of Free State, Prof Bradley Smith discussed separation of control and enjoyment in trusts.
Prof Smith referred to Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA) and said the principle was ‘reinforced’ by s 12 of the Trust Property Control Act 57 of 1998 (TPCA) that states ‘trust property shall not form part of the personal estate of the trustee except insofar as he as the trust beneficiary is entitled to the trust property.’ He stressed that it was vitally important for trustee-spouses to ensure compliance with the core idea of trust so as to minimise risk at divorce.
Abuse of trust in divorce matters
Attorney and member of the Law Society of South Africa’s Gender Equality Committee, Amanda Catto, spoke about a controversial issues that occur in family courts, dealing with abuse of trust in divorce matters. She focused on matters, which include a sham and alter ego in the context of the divorce.
According to Ms Catto, legal practitioners, when dealing with the abuse of trust, have to confine to determining whether the trust is a sham, and if the trust ever existed and considering the beneficiary ownership of the assets held in a trust validly established has vested.
Ms Catto said the concept of alter ego is messy and used interchangeably between the sham concept and the beneficially ownership concept.
Attorney, Amanda Catto, spoke about a controversial issues that occur in family courts.
Research on the TCPA
Lecturer in private law at the University of the Western Cape, Dr Latiefa Albertus, spoke about research she conducted on law reform in relation to trusts. She said her research, which was an academic exercise, was to identify aspects of trust law where statutory regulation is not in place.
However, she was required, to analyse the provisions of the TPCA and to make recommendations for legislative reform in this regard.
Her presentation focused on three aspects namely –
Dr Albertus briefly discussed her research into each of these aspects, the interviews she had with role players in the trust industry and the recommendations she made for reform.
Kgomotso Ramotsho Cert Journ (Boston) Cert Photography (Vega) is the news reporter at De Rebus.
Lecturer in private law at the University of the Western Cape, Dr Latiefa Albertus, spoke about research she conducted on law reform in relation to trusts.
Section 7C discussed
In a session at the FISA conference, charted accountant and FISA Gauteng Regional Head, Cheryl Howard, discussed s 7C of the 2016 Draft Taxation Laws Amendment Bill. In her presentation Ms Howard said the taxation of trusts had long been on the radar of National Treasury, however, when the Minister of Finance announced in February that the taxation of interest free loans was coming in, it was not what was expected.
Ms Howard discussed some issues that had come up at the workshop with the Department of Treasury on 16 August, the week before the conference took place. She added that the department explained the intention of implementing the section and said that there was a serious concern regarding the ‘inequality of a result of ownership of assets’ as opposed to the ‘inequality of income’. She said that Sars was very concerned about the inequality, solely from estate duty and donations tax and kept on the basis that people were hiding their wealth by putting them into trusts and the growth was not being taxed. Ms Howard said that workshop attendees pointed out that income was being taxed, which included, capital gains tax, but the department was adamant that this section was needed to fix the problem as far as the wealth side was concerned.
Ms Howard gave a brief explanation of s 7C and said it applied to –
FISA Gauteng Regional Head, Cheryl Howard, discussed s 7C of the 2016 Draft Taxation Laws Amendment Bill.
Ms Howard went on to give further points from the Department of Treasury’s point of view:
Ms Howard added that on promulgation, the section will come into operation on 1 March 2017 and will be applicable to years of assessment commencing on or after that date.
Ms Howard concluded by saying that clients should not overreact and rush to terminate their trusts. ‘Trusts that were set up purely for tax purposes will have to be reconsidered as the reason for their existence will probably fall away, but in all instances the cost and other benefits of having a trust need to be considered before a decision can be made to terminate the trust.’
Report from the Master of the High Court
Master of the High Court, advocate Lester Basson, discussed regulatory developments and statistics from his department.
Mr Basson said statistics show that there is a discrepancy between the number of deaths in South Africa and the number of deceased estates registered and noted that it was a concern that an approximate amount of 33% of deaths reported went through the master’s office or the magistrate’s office. Mr Basson said 66% bypassed the administration process and a possible explanation could be traditional arrangements, however, he could not say for sure, but added that traditional arrangements did not take care of bank accounts or any other item that needs to be registered in the government office.
Mr Basson said there was a lot more work that could be done in the deceased estate industry if a broader look is taken as there is a lot of potential in deceased estates.
Mr Basson said he was most excited about the degree of progress in the utilisation of the electronic systems, data and the way that deceased estates are processed. In 2012, 1,4% users utilised the Paperless Estate Administration System and that figure now stands at 78,5% for the January to June 2016 period. Mr Basson said the department is working hard to upgrade the processes and to make it better. The department was going to start addressing waste and get into a situation where a better service is delivered.
Master of the High Court, advocate Lester Basson, discussed regulatory developments and statistics from his department.
Mr Basson also advised of the number of estates registered with wills. In the period of January to June 2016, 74 693 estates were registered and only 17 273 were registered with wills, which amounts to 23%. Mr Basson said that this was an area that needed to be focussed on. ‘People die without wills. In 2015, 23% died with wills,’ he said. Mr Basson added that many estates could be sorted out quicker if there was a will in place and that the profession could use this as an opportunity for business.
Mr Basson also referred to reg 910 and said that work was being done to make certain legal changes that will allow the Minister of Justice to make regulation in terms of the Administration of Estates Act 66 of 1995 (Estates Act).
In reg 910, Mr Basson said that only certain institutions are allowed to administer deceased estates. From a governance point of view, it is too narrowly defined as it is confined to practising attorneys and auditors. ‘Charted accountants are not auditors and do not qualify under the regulation,’ he said.
According to Mr Basson, the current General Laws Amendment Bill that is serving in its final phase before being passed in Parliament is ‘enabling a provision in terms of s 103 of the Estates Act that allows the Minister of Justice to make regulations regarding the Estates Act. Where currently the origin of reg 910 is in the Attorneys Act [53 of 1979], which has then since been repealed and replaced by the Legal Practice Act [28 of 2014], which has no provision for a regulation around deceased estates administration. We want to amend the statutory provision to provide for a regulation in the Estates Act. We can just about tick that box, because that whole process has just about gone through Parliament. … The Minister of Justice will be in a position to make a regulation similar to regulation 910 as to govern who can administer estates. The criteria that we say should be used when the Minister accredits or allows people to administer estates to broaden the base, not excluding, but broader than attorneys. Where such a person or entity should have a tertiary qualification, must belong to a professional body and that this professional body must require continuous professional development from its members and where there is an indemnity and a backup in the event of wrong doing so that we can minimise the risk so that we can entrust the administration of estates to people who are competent, capable and guaranteed to be governed,’ Mr Basson said.
Kathleen Kriel BTech (Journ) (TUT) is the production editor at De Rebus.
This article was first published in De Rebus in 2016 (Oct) DR 13.
