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February 2011
INVESTING OFFSHORE
By Sonja Frank,
Exceed |
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The
Minister of Finance, Pravin Gordhan,
announced during his Medium Term Budget
speech that the foreign capital allowance
for private individuals (resident
in South Africa) is increased to R4
million per resident per annum. This
allowance is of course subject thereto
that the resident obtains a tax clearance
from the South African Revenue Services
(SARS).
Three
Offshore Investment Options
In this article we will discuss three
offshore investment options available
to South African residents (SA residents)
and the income tax and estate
planning consequences of
each.
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| 1. |
The funds
can be invested in the individual’s
own name offshore. |
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SA residents
are taxed on their worldwide
income. Thus the resident will
have to declare all income earned
on this investment in his/her
annual tax return and will pay
income tax on it according to
his/her rate of tax.
If, for example interest income
is earned on the offshore investment
and a withholding tax is applied
in the offshore jurisdiction,
double taxation relief may be
available for the resident in
terms of the relevant Double
Taxation Agreement applicable
between South African and |
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the offshore country. In the alternative section
6quat of the Income Tax Act also provides for
unilateral relief from double taxation in such
a case.
When the resident passes away, there will be a
deemed disposal of the investment for capital
gains tax purposes in terms of para 40(1) of the
Eighth Schedule to the Income Tax Act. Tax on
capital gains (if any) will then become payable
at an effective rate (maximum 10% of the gain).
| 2. |
The funds can be loaned
and advanced to an offshore Trust. |
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In this case one must distinguish
between commercially funded and non-commercially
funded loans.
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Non-commercial funding: Interest-free
loans
Section 7 of the Income Tax Act which deals
with the so-called attribution rules, provides
that any income which was received or accrued
to an offshore discretionary Trust by virtue
of any donation, settlement or gratuitous
disposition, will, generally speaking, be
taxed in the hands of the person who made
that donation or disposition. It has been
decided by the Supreme Court of Appeal that
the forbearance of interest on a loan are
such a donation, settlement or disposition
for purposes of the attribution rules. Section
7 thus ensures that any income received
by the offshore Trust is deemed to be that
of the SA resident donor.
Similarly paragraph 70 of the Eighth
Schedule to the Income Tax Act provides
that where a person has made a donation,
settlement or other disposition in favour
of an offshore discretionary Trust, then
any gain attributable to that funding
will be brought to account in the hands
of the resident donor.
Should interest be levied on the said
loan at a very low rate, the provisions
of section 31 of the Income Tax Act have
to be taken into account. Section 31 determines
that should a South African resident make
a low interest loan to an offshore Trust
(and the Trust is a connected person in
relation to the resident), SARS can deem
the SA resident to have received a market
related interest on the loan.
Commercial funding of the offshore
Trust
Section 25B of the Income Tax
Act embodies the conduit principle and
provides that income which is received
by, or which has accrued on behalf of
a beneficiary of the a Trust, will be
taxed in the beneficiaries’ hands
and will retain its nature (e.g. dividends
or interest).
In terms of the provisions of the Income
Tax Act, both the interest and dividends
flowing from the offshore investment (made
in the name of the offshore Trust) will
be taxed as income in the hands of the
SA beneficiaries, as and when that SA
beneficiaries obtain a vested right to
such income in the offshore Trust.
Paragraph 80(3) of the Eighth Schedule
to the Income Tax Act, determines that
where a SA resident receives a vested
right to the capital of an offshore Trust,
the capital gain must be regarded as a
capital gain in the hands of the SA resident
in the year that the resident acquires
a vested right to that capital gain. |
The value of the loan will be an asset in the
estate of the deceased. Should the value of the
estate for estate duty purposes, exceed R3,5million,
estate duty will become payable at the current
rate of 20%.
The deceased will be entitled to bequeath the
loan to his/her heir. The exchange control consequences
of such a bequest must be carefully considered.
| 3. |
The funds can be donated
to an offshore Trust. |
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In the case of a donation
of the funds to the offshore Trust, the
resident donor will be liable for donations
tax at a rate of 20%, which will become
payable by the donor within 3 (three) months
after the donation became effective.
As the donor has now been divested of his/her
ownership, there will be no estate duty
consequences.
Your attention is drawn to the provisions
of section 25B(2A) of the Income Tax Act
which provides that when a resident acquires
a vested right to any capital of an offshore
trust, which represents accumulated income
of that Trust for previous years, that amount
must indeed be declared as income of the
resident. |
All of the above options need careful consideration
and must be evaluated against the resident investor's
personal circumstances.
Sourced From: Exceed |
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February/March 2011
SOUTH AFRICA'S
NEW SKILLS STRATEGY
By Carina de
Swardt, Exceed Human Resource Consultants |
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The
key driving force of this strategy
is improving the effectiveness and
efficiency of the skills development
system. The emphasis is particularly
on those who do not have relevant
technical skills or adequate reading,
writing and numeracy skills to enable
them to access employment.
Key Imperatives
The NSDS (New Skills Development System)
will be guided by, and measured against,
several key developmental and transformation
imperatives:
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race, |
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class, |
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gender, |
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geographic considerations
and |
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age differences, as well as
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disability and the HIV and
AIDS pandemic. |
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SETA Responsibilities
NSDS III addresses the scope and mandate of the
SETAs. SETAs are expected to facilitate the delivery
of sector-specific skills interventions that help
achieve the goals of NSDS III, address employer
demand and deliver results.
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They must be the authority
on labour market intelligence and ensure
that skills needs and strategies to address
these needs are set out clearly in sector
skills plans. |
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They must be recognised experts in relation
to skills demand in their sectors. |
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NSDS III provides a stronger base for
the SETAs and Department of Higher Education
and Training (DHET), through service level
agreements, to set targets that align with
sector skills needs - that is, there is
no one-size-fits-all - and ensures an improved
focus on the core mandate of SETAs. |
The Strategy
The strategy places great emphasis on relevance,
quality and sustainability of skills training
programmes to ensure that they impact positively
on poverty reduction and the eradication of inequalities.
It focuses on eight goals, each with accompanying
outcomes and outputs which will be used as the
basis for monitoring and evaluating NSDS implementation
and impact.
Goals
There is currently no institutional mechanism
that provides credible information and analysis
with regard to the supply and demand for skills.
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Goal 1:
Establishing a credible institutional mechanism
for skills planning |
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Goal 2: Increasing access
to occupationally-directed programmes, both
intermediate level as well as higher level
professional qualifications |
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Goal 3: Promoting the
growth of a public FET college system that
is responsive to sector, local, regional
and national skills needs and priorities |
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Goal 4: Addressing the
low level of youth and adult language and
numeracy skills to enable additional training |
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Goal 5: Encouraging better
use of workplace-based skills development |
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Goal 6: Encouraging and
supporting cooperatives, small enterprises,
worker-initiated NGO and community training
initiatives |
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Goal 7: Increasing public
sector capacity for improved service delivery
and supporting the building of a developmental
state |
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Goal 8: Building career
and vocational guidance. |
Prioritise Funding
The DHET is also undertaking a comprehensive review
on the spending priorities of the National Skills
Fund, in order to reprioritise its funding allocations
in line with the goals of NSDS III and our overarching
Human Resources Development Strategy for South
Africa.
Issued by: Department of Higher Education
and Training, January 13 2011
Sourced From: Exceed |
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