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Onerous new duties have recently been imposed on all trustees of all trusts – by government through legislative amendments, and also by SARS – in addition to their existing fiduciary duty to act in the best interest of all the beneficiaries and “with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.

The legislative amendments follow South Africa’s grey listing by the global financial watchdog, the Financial Action Task Force, and the subsequent changes to the Trust Property Control Act (TPCA) and the Financial Intelligence Centre Act (FICA), among others.

The new trustee duties will require extensive and time-consuming additional administration, and have impossible deadlines, while non-compliance can result in hefty penalties. This makes professional trust administration assistance crucial for trustees, now and in the future.

Who is affected?

All trustees – not only independent trustees – are affected by the imposition of these new trustee duties.

In addition, all trusts are affected, regardless of the nature of the trust or the value of the assets in the trust, including family trusts, commercial and business trusts as well as public benefit trusts. Not even dormant trusts are specifically excluded.

The new regulations will also affect companies that provide services to trusts. Under FICA, the scope of ‘accountable institutions’ has recently been expanded to include trust service providers, company service providers, legal practitioners, crypto asset service providers, and clearing system participants, among others. These accountable institutions must conduct customer due diligence on their clients, including verifying identities, assessing the risk of illicit activities, and reporting suspicious activities. This will require significant resources, time and expertise from both trustees and accountable institutions.

What are the new duties and deadlines?

The legislative changes to the TPCA have given rise to trustee duties relating specifically to beneficial ownership registers and records of accountable institutions. In addition, SARS has issued new reporting requirements.

1. Updated beneficial ownership registers – trustees are now required to collect, record and maintain detailed information and specific records of the beneficial owners of the trust – who are now far more broadly defined to include founders, trustees, beneficiaries, donors and protectors. In addition, trustees must lodge a register of the prescribed information with the Master’s Office, with only a trustee or a person with power of attorney allowed to use the Master’s portal to do so.
2. Updated records of interactions with accountable institutions – trustees are now required to collect, record and maintain details pertaining to accountable institutions with which trustees have dealings, including, for example, accountable institutions acting as agents to perform trustee functions and accountable institutions providing any services to trustees. As noted, the definition of “accountable institutions” has also widened considerably.
3. Submitting an IT3(t) for each beneficiary – SARS recently issued a draft notice requiring trustees to submit an IT3(t), which provides details of any amount vested in a beneficiary including income (net of expenditure), capital gains and capital amounts distributed by the end of September so that beneficiaries’ tax returns can be pre-populated.

What are the penalties?

Failure to comply with the obligations as contained in the TPCA is an offence and, on conviction, trustees are liable to a fine not exceeding R10 million, or imprisonment for a period of five years or both.

Trustees are already non-compliant with the TPCA, as the new regulations were published after business hours on Friday 31 March 2023 and became effective on the next day, Saturday 1 April 2023. This means that trustees were simply unable to comply with the regulations by the deadline, both due to the timing of the gazette and delays in establishing the requisite online electronic register on the Master’s ICMS Web Portal.

SARS’s IT3(t) deadline seems more doable, but in reality, the 30^th of September is not that far away. Various stakeholders are submitting comments regarding the implementation of this requirement to submit an IT3(t) for each beneficiary, but probably no more than a delay could be expected.

Considering the extent of the new duties, the deadlines, and the hefty penalties involved, trustees are certainly well-advised to seek professional assistance to comply with these additional obligations and to ensure compliance.

• 5 May – Monthly Pay-As-You-Earn (PAYE) submissions and payments
• 30 May – Excise Duty payments
• 31 May – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable.

In the 2023 Budget, the lack of a reliable electricity supply was highlighted as the country’s biggest economic constraint. South Africans have been subjected to loadshedding every day of 2023, often at stage four, five or six. Recent research by the Bureau for Economic Research revealed more load-shedding in the first two months of 2023 than in all of the previous four years. It is a situation expected to deteriorate even further as demand rises with the winter months approaching.

To encourage businesses and individuals to invest in renewable energy and to increase electricity generation, government announced two tax measures in the 2023 Budget in February. The first will provide R5 billion in tax relief to companies through an expansion of the renewable energy incentive, and the second will provide R4 billion in tax relief for households that install solar panels. Both entail a number of conditions and requirements, as well as tight timelines, which are summarised below.

The expanded tax incentive for businesses

To encourage rapid private investment to alleviate the energy crisis, this is a temporary expansion of the existing tax incentive Section 12B of the Income Tax Act, which provides for capital expenditure deductions for assets used in the production of renewable energy.

It originally allowed businesses to deduct 50% of the costs in the first year, 30% in the second and 20% in the third for qualifying investments in wind, concentrated solar, hydropower below 30 megawatts (MW), biomass and photovoltaic (PV) projects above 1 MW, and provided an accelerated capital allowance of 100% in the first year for solar PV energy projects of less than 1MW.

This incentive has now been temporarily expanded as outlined below.

Highlights of the expanded incentive

• Under the expanded incentive, businesses will be able to claim a 125% deduction.
• Moreover, that deduction can now all be claimed in the first year.
• Businesses will be able to reduce their taxable income by 125% of the cost of renewable energy assets used for electricity generation.
• The adjusted incentive will only be available for investments brought into use for the first time between 1 March 2023 and 28 February 2025.
• The deduction applies to all renewable energy projects.
• There will be no thresholds on the generation capacity size of the projects that qualify.
• The expanded incentive is only available for two years from 1 March 2023 to 28 February 2025 to stimulate investment in the short term.

Example: business renewable energy tax incentive

For businesses with a positive taxable income, the deduction will reduce tax liability. For example, a renewable energy investment of R1 million would qualify for a deduction of R1.25 million against taxable income.

Using the current corporate tax rate (27%), this deduction could reduce the corporate income tax liability of a company by R337,500 in the first year.

Tax rebate for individuals  

This is a new tax incentive available for a very limited period to encourage individuals to install rooftop solar panels to increase electricity generation and reduce pressure on the grid. Individuals can claim the rebate against their personal income tax liability.

 

Highlights of the individual tax rebate

• This incentive will be available for one year between 1 March 2023 and 29 February 2024.
• Individuals who install rooftop solar panels will be able to claim a rebate of 25% of the cost of the panels, up to a maximum of R15 000 per individual.
• The rebate can be used to reduce tax liability in the 2023/24 tax year. PAYE taxpayers can claim the rebate on assessment during the 2023/24 filing season, while provisional taxpayers can claim the rebate against provisional and final payments.
• There is no ownership limitation, so installations by either landlords or renters are eligible, but only the party that pays for the solar panels can claim the rebate.
• The rebate applies only to new and unused solar PV panels with a minimum capacity of 275W per panel (design output), installed as part of a new system, or as an extension of an existing system, which must be connected to the mains distribution of the residence (i.e. no off-grid installations qualify).
• The rebate is only available for solar PV panels (excluding portable panels), and not for other components of a system such as batteries, inverters or fittings. Installation costs do not qualify.
• The solar panels must be purchased and installed at a private residence used mainly for domestic purposes (i.e. dual-use residences such as a guest house or Airbnb used more than 50% for trade, will be excluded).
• A certificate of compliance for the installation must be issued between 1 March 2023 and 29 February 2024 and the certificate must confirm the date the solar panels purchased were brought into use for the first time.
• To claim, taxpayers will need a VAT invoice that indicates the cost of the solar PV panels separately from other items, along with proof of payment.
• There will be no recoupment if the residence is sold after claiming the rebate, but there will be a claw-back if the panels themselves are sold within one year.
• SARS has issued draft third-party regulations for comment that will require solar installers to report to SARS the complying installations they have completed together with the details of the purchaser.
• Like other rebates, it may only be claimed against tax payable and only to reduce the tax payment to nil. If the tax payable is less than the rebate, the balance is forfeited.

Example: tax rebate to individuals  

An individual who purchases 10 solar panels at a cost of R40,000 will be able to claim 25% of this R40,000 cost – or R10,000 as a rebate. This means that the individual’s personal income tax liability that is payable for the 2023/24 tax year can be reduced by R10,000.

Another individual who buys 20 panels at a cost of R4,000 per panel, will have invested a total of R80,000. The calculation of 25% of R80,000 amounts to R20,000, but only R15,000 can be claimed against income tax liability for the 2023/24 tax year, as the deduction is limited to R15,000 per individual. If the tax payable is less than R15 000, the rebate is reduced to the amount of tax payable. The balance of the rebate is thus forfeited.

Given the many conditions and requirements, as well as the tight timelines, professional tax advice is recommended before installing solar power or renewable energy alternatives, to ensure the full benefit of these time-limited tax incentives can be realised.

Writing a business plan can feel like a daunting process, and making mistakes is part of the package, even if you follow the online guides and templates.  To make this process simpler, we have made a short list of common errors that somehow keep creeping into these vital documents.

Making it too long

As Amazon founder Jeff Bezos once said, “You know the business plan won’t survive its first encounters with reality. It will always be different. The reality will never be the plan.” He did, however then go on to stress that writing a business plan is essential to understanding what will make your business tick. It’s important to realise that your business plan will never be able to cover every contingency and every possible incident that can occur and should rather be focused on revealing the core business. Once you understand your core business implicitly, you will be able to write it down in a much more succinct fashion. A long business plan is therefore only evidence that you don’t yet understand what’s going on.

Understand your target market

No product is for everyone. Understanding who you are selling to and what will motivate them to buy is the first thing any investor will look for, and the most fundamental thing you will need to understand to be successful. It will shape who you hire, what your marketing looks like, and even what your startup’s logo will be. Simply believing you will market to everyone is putting your business on the path to failure.

Ignoring competitors

It is extremely common for companies to exclude business competitors from their business plan. Many believe that their new product is so superior, cheap or well-supported that competitors won’t stand a chance once it is marketed correctly, or simply don’t have as much understanding of the market they are entering as they think they do.  Having a sound, realistic competitor analysis shows investors you understand the market and know where your unique differentiators lie.

Neglecting a financial forecast

Many business plans ignore financial forecasts as they either don’t have the experience necessary or don’t believe they are important – of what use is guessing things that don’t exist? The truth is that a good financial planner or accountant should be able to help with these forecasts which need to include profit and loss, but also, essentially, cash flow and balance sheet. This area of the business plan will reveal to potential investors whether your plan has been carefully thought out, and takes realistic rates of growth into account, or whether it’s simply pie in the sky. No investor is going to work with someone who believes they will sell a million items in the first three months.

Being too strict

The business plan should always be viewed as a guide and not as a set of hard and fast rules. Any business plan that locks a business into a specific course of action is a bad one. You should always have the ability to pivot and make changes as necessary based on the latest feedback. Your ability to research new information and change direction will make it much more likely that your business will meet its long-term goals and needs.

The urban development zone (UDZ) tax incentive, provided for in section 13quat of the Income Tax Act (the Act), was introduced 20 years ago in 2003, as an accelerated depreciation allowance for property investments in certain central business districts. It aims to promote investment by the private sector in the construction or improvement of commercial and residential buildings, including low-cost housing units, situated within demarcated UDZs.

In the most recent 2023 Budget, this incentive was extended for another two years, to allow for the completion of a review of the incentive, which has yielded some successes, by motivating investment in South Africa’s cities. We briefly overview below what the tax incentive entails and the criteria that must be met, where it applies and other issues to take note of when deciding if it could benefit your business before it expires at the end of March 2025.

What the UDZ tax incentive entails

Individuals and companies investing in residential or commercial property in South Africa’s urban zones from which to carry on a trade, should carefully consider the UDZ tax incentive before deciding where to buy.

This tax allowance, when deducted, can substantially reduce the taxable income of a taxpayer, and – because the allowance is not limited to the taxpayer’s taxable income – can create an assessed loss.

However, five specific criteria must all be met before the allowance is granted. In addition, only certain costs can be considered for the purposes of the allowance. These are listed below, along with the UDZs listed by SARS, and some further issues to take note of.

Five criteria to be met

 

1. Building requirement – The building must meet certain requirements, and only the cost of the erection, extension, addition to or improvement of the building, covering either the entire building or a floor area of at least 1,000m² qualifies. Land costs are excluded.
2. Urban development zone requirement – The building must be located within a UDZ.
3. Trade requirement – A taxpayer will qualify for the allowance only if the relevant commercial or residential building or part of the building is used by the taxpayer solely for the purposes of trade, and only once the building has been brought into this use.
4. Owner requirement – The building or part of the building that was erected, extended, added to or improved must be owned by the taxpayer deducting the allowance. Where the building or part of a building was purchased directly from a developer within three years after completion, an allowance may be deducted, provided the developer did not deduct any allowance, among other criteria.
5. Date requirements – There are specified dates to which the allowance applies, including a commencement date requirement and a trade date requirement.

Costs that may be considered – and those that are not

 

• Construction work
• Architect and approval fees
• Sidewalks
• Parking for the building
• Landscaping as part of the development (including earthworks, greenery and irrigation)
• Drainage
• Security (fences, cameras and surveillance equipment)

Costs specifically excluded are the purchase price of the land, VAT and transfer duty, financing charges, agent’s commission and transfer and related legal costs.

Where does the UDZ tax incentive apply?

 

• Buffalo City
• City of Cape Town
• Ekurhuleni
• Emalahleni
• Emfuleni
• eThekwini
• Johannesburg
• Mangaung
• Matjhabeng
• Mbombela
• Msunduzi
• Nelson Mandela Bay
• Polokwane
• Sol Plaatje
• Tshwane Metro

Source: SARS

Other issues to take note of

 

• Depending on the type of development involved – new, improved or low-cost – the allowance is calculated at a different rate of depreciation, providing for 20 – 25% of the costs allowed to be deducted in the first year, and the remainder over one to ten years.
• When purchasing a building or part of a building from a developer, 55% of the purchase price of a new building, or 30% of the purchase price of a building improved will be allowed as costs for purposes of the UDZ incentive.
• The UDZ incentive is an accelerated depreciation allowance, and not an additional tax allowance. A taxpayer claiming a UDZ deduction may not claim any other deductions on that building or part of the building.
• For each building or part of a building on which the allowance is being deducted, you will need the necessary UDZ forms (UDZ 1, 2, 3 and 4 forms), as well as a location certificate and, where applicable, a certificate of occupation.

Taking advantage of this tax incentive, if it applies to you, could mean a difference of millions of rands to your future tax bill. However, this is a very complex tax incentive and there are many issues to be considered.

It is highly recommended that business owners consult with their accounting and tax practitioners to find out if they would qualify for the maximum allowance when investing in a UDZ, and to do so while still ticking all the compliance boxes.