3RD QUARTER 2007 VOLUME 8

NATURAL BORN THINKERS

Each year Cameron & Prentice opens its doors to a handful of young graduates fresh from universities around
the country. As career season gets underway at South Africa’s top universities, Antonie van der Hoek takes a
look at the type of person he’s looking for to join the Cameron & Prentice team.

At Cameron & Prentice, we important of all is that they must be

don’t pretend to be one of the
big audit firms. We are a proud,
Cape Town-based, medium-sized
firm. What you see is what you
get – experience, integrity and
commitment. It’s a philosophy we
work by and expect our staff to
embrace and take into every aspect
of their work too.
However, we understand that it
takes a certain type of person to
work to this and achieve it. People
who are prepared to roll up their
sleeves, immerse themselves in
other people’s businesses, accept
responsibility and accountability,
learn from others, stand up and
be counted, jump in the deep
end, work in a team and have fun
while they are doing it. But most
alert and astute. We are looking for
natural born thinkers.
Trainees are at Cameron & Prentice
for a minimum of three years. And
it takes a certain maturity to accept
this three-year academic slog as
well. While Cameron & Prentice
provides the essential support for
academic success of their trainees,
they themselves have to dig deep to
produce the goods.
It’s not easy to work a full day and
hit the books at night. But that’s
what we expect. And we expect our
trainees to do it well. They represent
us – their thinking, their attitude,
their experience, their commitment,
their initiative. And for this, we
support them and reward them.

WHAT’S IN
PROVISIONAL TAX PAYMENTS
SARS enforces penalties

CLEANING UP THE ACT

Companies Act gets a facelift

CONGRATULATIONS
Trainees pass Part 1 of the Board Exam

SARS SNIFFS OUT UNDECLARED INCOME

Submit your assets & liabilities statements

SUPERMARKET WILLS
Will your Will stand up for
itself?

ED’S DESK
I have to admit, for Cameron &
Prentice, it has been an awesome
winter. Despite the strikes, the hikes
in fuel prices and interest rates
and the odd cold front, the year
continues to race ahead apace.
Our merger with Warneke & Co.
is fast proving to us to have been
a great strategic move. Our new,
expanded staff has found its feet
quickly in the building, systems have
been embraced and productivity and
performance have been impressive.
So too has the performance of
a few of our staff members who
have recently passed Part 1 of the
much revered Board Exam – a
very pertinent point as universities
around the country gear up for a
few months of the on-campus career
development season.
In this issue of Ampersand, SARS
very much takes the spotlight.
Dave Warneke looks at corporate
law reform and the importance of
ensuring that one’s statement of
assets and liabilities reconciles.
Chris Norris examines provisional tax
payments and associated penalties.
Peter Prentice shares a scary story
about a Will, and Antonie van der
Hoek gets to toast our latest Board
Exam heroes.
And although we may have a month
or two of winter to go, and there is
a good chance the interest rates and
petrol price will go up again, hang in
there. Our heads will be down, we’ll
be perfecting our well oiled machine
and ready for the last quarter of the
year. Can you believe it!
Until then.
Ed
IN BRIEF
Property valuations
Current accounting standards require that fixed properties owned
by companies should be valued on a regular basis. It is important
that clients obtain regular third party valuations of their properties to
ensure that audits are not delayed.
Annual returns for CCs
The effective date for the commencement of Annual Return
submissions by CCs was 1 April 2007. CIPRO has however advised
that it will not enforce the lodgement of and payment for Annual
Returns for CCs with effect from 1 April 2007 but envisages that, after
a mass marketing campaign to the public, annual returns for CCs will
have to be lodged with effect from the latter part of 2007.
About to buy a property from a non-resident?
With effect from 1 September 2007, any person who buys fixed
property, with a value of R2m or more from a non-resident seller, will
have an obligation (either personally or via the conveyancer or estate
agent) to withhold a certain portion of the purchase price payable from
the Seller and to pay it over to SARS.
Scams under the guise of SARS refunds
Clients are advised to be extremely cautious if anyone claiming to
be from SARS makes contact (either by fax, e-mail or personal visit)
with the purpose of asking for a repayment of a refund made in error.
We have recently experienced an increase in attempts to defraud
our clients in this manner. Clients should contact us immediately if
approached as above.
LET’S CELEBRATE!
Congratulations to Lara Forsyth and Gary Isbister on
passing Part 1 of the Board Exam. Antonie van der Hoek
explains why celebration is in order.
It’s a tough time for trainees, Exams are demanding, but the
but two of Cameron & Prentice’s results are clear. We are proud of
own have done us proud and the effort and commitment these
convincingly passed Part 1 of the two trainees have shown towards
Board Exam. their academic and professional
futures.
For the three years that trainees
are with us at Cameron & Prentice, Now to Board Exam Part 2!
the Board Exam pretty much
takes centre stage. It requires
intense commitment from them.
A full day’s work is often followed
by long evenings and weekends
poring over their books. While
they pick up enormous on-the-job
experience, Cameron & Prentice
ensures and supports a strict
academic procedure as well.
CORPORATE LAW
REFORM REFRESHED
The DTI has embarked on a process to completely overhaul and update the Companies Act. The process is
being executed in two phases. Dave Warneke explains the process and progress.
The first (and less complicated) phase was recently
completed on 11 April 2007, when the Corporate Laws
Amendment Act was signed into law.
This first phase addressed certain matters which were
seen as urgent, which are discussed in more detail
below. The second and more complicated phase is a
complete overhaul of the Companies Act, to include
the probable relaxation of the compulsory audit
requirement for certain categories of “limited interest”
companies.
This phase has culminated in the issuing of a Bill (The
Companies Bill) in February 2007, for public comment
by 19 March 2007. A large number of submissions
have been made regarding this Bill and to date a large
number of matters have not been decided on. We will
keep you updated on progress in this regard.
Matters dealt with in the Corporate Laws Amendment
Act are: relaxing the requirements for a company to
be able to provide assistance for the purchase of its
own shares, requiring a special rather than a general
resolution for the disposal of the greater part of the
assets of a company, giving legal backup to accounting
standards, dealing with auditor independence issues
and introducing definitions of “widely held” and “limited
interest” companies.
• A company is now permitted to provide financial
assistance for the purchase of its own shares,
provided that a special resolution is obtained and the
Board of Directors is satisfied that certain solvency
and liquidity criteria are met.
• A company is defined as “widely held”, inter alia, if
its articles provide for the unrestricted transfer of
its shares or if it is permitted by its articles to offer
shares to the public. Companies that are not “widely
held” are defined as “limited interest” companies.
• As mentioned above, the definition of a “widely held”
company includes a company where the articles
provide for the unrestricted transfer of shares. By
contrast, the articles of the newer private companies
generally expressly provide for the pre-emptive right
of the existing shareholders (thus meaning that,
unless these companies fall into the definition of a
“widely held” company for another reason they will be
“limited interest” rather than “widely held”). However
some older private companies did not include pre-
emptive rights in their articles and so technically fall
into the definition of a “widely held” company. Please
contact us if you keep the articles of your company
and you find that this is indeed the case.
• “Widely held” companies are required to appoint an
audit committee.
• The same individual may not serve as the auditor of
a “widely held” company for more than 5 consecutive
years
• The financial statements of “widely held” companies
must comply with Financial Reporting Standards
i.e. GAAP, whereas effectively “limited interest”
companies must comply with these same standards
for the time being, but the intention is to develop
differential standards for these entities.
SARS CRACKS
THE WHIP ON
PROVISIONAL
TAX PAYMENTS
Provisional taxpayers are
required to complete a
provisional tax return (IRP6) every
six months and submit payment
where necessary based on their
estimated taxable income for the
year. Chris Norris provides the low-down on provisional
tax payments and the penalties that go with it.

The first provisional tax return for
a tax year must be submitted six
months before the end of the tax
year and the second return on
the last day of the tax year. For
taxpayers with a February year-end,
the dates are 31 August and 28
February of each year.
Where the first provisional tax
payment is paid late, a 10% penalty
will be charged by SARS.
The second provisional payment
must be estimated based on the
last assessed income and the
amount payable would be the net
tax payable for the year, less any
PAYE for the year and any first
provisional tax payment made.
The penalties for underpaying on the
second payment or submitting the
provisional return late can be severe.
If a taxpayer wishes to make a
second provisional payment based
on an estimate lower than the basic
amount then this is acceptable but
SARS will levy an underpayment
penalty of 20% if this estimate is
less than the basic amount and is
less than 90% of actual taxable
income (including any capital gains)
for that year.
Where the second provisional tax
return is not submitted by the due
date, a further penalty of 20% will
be imposed by SARS. In addition,
if the provisional tax payment is paid
late, a further 10% penalty
will be charged by SARS.
These penalties are in addition to
interest charged on late payment of
provisional tax.
The substantial penalties payable
are best illustrated by way of an
example: A corporate taxpayer
has a basic amount, as assessed
for the latest year of assessment,
of R500 000. It estimates its taxable
income for the year to be R400 000
but, on assessment, the taxable
income for that year amounts to
R600 000. A first provisional tax
payment of R72 500 (based on
the basic amount of R500 000)
is made on time. However, the
second provisional tax return and
payment, which was based on a
R400 000, is submitted and paid
30 days late. The total penalties
(i.e 10% penalty for late payment,
20% for underestimate and 20%
for late submission) amount to
R33 350, which raises that
taxpayer’s effective tax rate
from 29% to 34.6%.
Although SARS may reverse
penalties charged, our experience
is that it is becoming more difficult
to get relief in this regard.
C&P sends out provisional tax
notifications in advance and it
is important that clients contact
us on receiving the notification
of provisional tax payable to
ensure that correct estimates
and payments are made, and that
payments are made by due date,
to ensure that penalties and
interest charges do not arise.
POTENTIAL UNDECLARED
INCOME UNDER THE SARS
MICROSCOPE
The reconciliation of personal statements of assets and liabilities is one of the key tools
that SARS uses to identify potential undeclared income. Dave Warneke examines just what
is involved in checking whether all income has been properly brought to account.
For the 2007 tax year, certain
individuals have to submit
statements of assets and liabilities
with their income tax returns. These
individuals are: all shareholders
in private companies, members
of close corporations, individuals
carrying on a trade on their own
or in partnership with others and
individuals who earned more than
R100 000 in investment income.
The concept is
straightforward: if you
take a taxpayer’s net asset
value (and for the purpose
of computing net asset
value on an income tax
return, assets are recorded
at original cost as opposed
to market values) as at 28
February of the current tax
year, and compare it with
the net asset value at 28
February of the previous
tax year, the difference
should be explainable by
after tax declared income
or capital gains.
For example, if a taxpayer’s
net asset value at the end
of the 2007 tax year
(28 February 2007)
was R2 million, and at the
end of the 2006 tax year
(28 February 2006) was R1.5
million, and for the 2007 tax year
the taxpayer only declared taxable
income from a salary of R300 000
(and had no declared capital gains
or non-taxable income), SARS would
suspect an omission of income.
Bearing in mind that the R300 000 from other sources, it will not be
of salary would have been subject able to take these amounts into
to employees’ tax of approximately account in its calculations. It will be
R72 000, this source of income interesting to see if this will lead to
would have left only R228 000 in a lot more investigations or at least,
after-tax income from which that direct enquiries by SARS of us or the
taxpayer would still have had to pay taxpayer concerned. In any event, it
all household expenses, instalments is important to ensure that there is a
and insurance premiums. How then proper explanation in place should it
was the taxpayer’s net asset value be called for.
able to increase by R500 000?
It should be noted that potential
There may of course be problems may also arise where the
a legitimate explanation. net assets do not balance in the
For instance the taxpayer other direction i.e. where there is
may have received an apparent untoward decrease in
funding from his the net asset value from one year
or her spouse or to the next. The potential problem
an inheritance, here is that the decrease may have
exempt income or been caused by an omission of
he or she may assets – implying that if the assets
have made a were to be brought to account in a
non-taxable subsequent year, they would give
capital gain. rise to an untoward increase in the
The 2006 net assets between that year and
income tax the previous year.
return form
required We consider it vital to ensure that
this type our clients’ statement of assets and
of income liabilities reconciles when compared
to be to their income and lifestyle. This
disclosed is probably our most effective
in a way of ensuring that income has
section properly been brought to account,
headed thereby protecting the client from
“amounts investigation.
that you
consider Complications often arise when
non-taxable”. Interestingly, dealing with capital gains in the
the new IT12C form for the 2007 reconciliation of the statement
tax year does not contain such a of assets and liabilities. For more
section. Therefore, unless SARS has information about this, visit our
information relating to this income website www.campren.co.za.
BEWARE OF SUPERMARKET WILLS
We are painfully aware that Wills are essential. Equally essential is acute
understanding of how and if a Will is actually valid and able to be realised.
Peter Prentice recounts a recent experience with an off-the-shelf Will that almost
went horribly wrong.

I recently had occasion to lodge
a Will, as agent with the Master
of the High Court on behalf of the
executrix of a deceased estate.
The Will was a typical pre-printed
shelf Will, or as I prefer to call it
a supermarket Will. It was neatly
set out leaving large gaps for the
testatrix to fill in her last wishes.
Unfortunately she was getting
on in years and was very short
sighted. Her daughter, the
nominated executrix diligently
completed the Will under her
mother’s directions and they
proceeded to the local police
station to sign and have the Will
witnessed in the presence of two
local police officers.
The mother, the daughter and
the police officers were not aware
of Section 4A of the Wills Act
which may disqualify anyone from
receiving any benefit from the Will
if that person writes out the Will
or any part of it. In this particular
incident, although the Will was
declared invalid the beneficiary
received her inheritance, not in
terms of the Will but according to
the Law of Intestate Succession.
Be warned, don’t be tempted
to use the pre-printed Will
variety without being aware of
the legalities surrounding its
completion.

Q: When will 2007 income tax returns be issued
by SARS?
A: SARS has indicated that 2007 income tax returns
for individuals and Trusts will be issued by the end of
August 2007 and income tax returns for companies and
CCs by the end of September.
Q: If SARS doesn’t need supporting documents
with the return, do I still have to send them to
C&P?
A: It is correct that SARS will not require supporting
documents such as IRP5’s, IT3’s, RA and medical
certificates or log-books to be attached to income tax
returns. However, SARS can request these documents
at any time for a period of five years after the tax
return has been submitted to SARS. Clients should thus
send us all documents as in the past so that these can
be retained and supplied to SARS if requested to do so.
Q: How long do accounting records and other
documents need to be kept for?
A: Generally, accounting records such as books
of account and annual financial statements are
required to be kept for a period of 15 years.
Supporting invoices and bank statements etc
should be kept for at least five years after the tax
return for that year has been submitted to SARS.
Statutory documents for companies and close
corporations should be kept indefinitely.
Q: By when will 2007 returns have to be
submitted to SARS?
A: SARS has indicated that tax returns for
individuals and Trusts should be submitted to
SARS by 31 October 2007. Companies and CCs
will be able to apply for an extension up to
12 months after financial year end.

(overheard)

SARS is going electronic.

Personal tax returns can now be submitted online.