|In this newsletter:
Benchtest 03.2021, Namibia to learn from changes to SA reg 28, Namibia needs ‘thriving private sector’ and more...
Registered service providers
If you want to find out whether your service providers are registered, or whether you need to establish directly from NAMFISA because the service provider does not appear on the list, use this link...
In ‘Tilman Friedrich’s industry forum’ we present:
In ‘News from RFS’ -
In ‘News from NAMFISA, read about’ –
In media snippets, read –
As always, your comment is welcome, so open a new mail and drop us a note!
Monthly Review of Portfolio Performance
to 31 March 2021
In March 2021 the average prudential balanced portfolio returned 0.6% (February 2021: 2.6%). Top performer is Old Mutual Pinnacle Profile Growth Fund with 1.9%, while Investment Solutions Bal Growth Fund with -0.1% takes the bottom spot. For the 3-month period, NAM Coronation Balanced Plus Fund takes the top spot, outperforming the ‘average’ by roughly 2.6%. On the other end of the scale Stanlib Managed Fund underperformed the ‘average’ by 1.9%. Note that these returns are before (gross of) asset management fees.
The Monthly Review of Portfolio Performance to 31 March 2021 provides a full review of portfolio performances and other interesting analyses. Download it here...
Why the prudential balanced portfolio is the answer for pension funds
A typical statement made by fund members, in particular when markets are not doing so well, is that the Benchmark Default portfolio has been performing poorly over the past so many years and one should have rather been invested in the money market.
Well, when someone makes such a statement, one needs to establish what the commentator’s benchmark is for saying that the portfolio has been doing poorly. One also needs to understand what this portfolio aims to achieve before one can put such a statement into context. This statement is similar to saying ‘my Ferrari’s fuel consumption is horrific’. Really an empty statement when made out of context. The fuel consumption of a Ferrari will certainly be significantly higher than that of a 1.4 litre Golf TSI. Would you not have expected this, when comparing the technical specs of these two cars, particularly in terms of engine output? It’s simply an unreasonable comparison and a matter of ‘horses for courses’!
Read part 6 of the Monthly Review of Portfolio Performance to 31 March 2021 to find out what our investment views are. Download it here...
Proposed changes to SA regulation 28 – time to learn from SA
In SA changes to regulation 28 (the equivalent to Namibia’s regulation 13) are currently under discussion and are likely to be introduced soon. The proposed changes to regulation 28 give the pension fund industry more leeway and the opportunity to increase investment in infrastructure by increasing the proportion of funds they are allowed to invest in asset classes other than the traditional top three, namely shares, bonds and property up to 15%.
The proposed changes widen the opportunities to invest in infrastructure by referring to infrastructure as a separate asset class, instead of it currently being lumped together under a group of assets called ‘alternative assets’. Pension funds could choose to do so if they believe in the asset opportunities and would not be forced to invest into infrastructure.
Infrastructure shouldn’t only refer to public infrastructure but also private infrastructure such as schools, hospitals, housing, electricity installations, fibre networks, communications, cell phone towers and many other examples of assets that are needed to make economic activity possible…”
In Namibia, as in SA, regulation 13 recognises primarily equity, bonds and property, while the category “other assets” that would include infrastructure investments, is capped at 2.5%. Isn’t it time that the Minister of Finance considers making these changes to regulation 13 in order to increase investment in infrastructure and thus investment in the ‘real economy’? At the same time such a move is likely to raise the amount funds will invest in Namibia thereby preserving investment in our local economy instead of being invested outside Namibia.
FIMA bits and bites – Preservation option and the risk posed by indirect housing loans
We note a trend in the market of bigger funds re-introducing a preservation option to its members. This option is very useful where funds allocate the underlying investment returns directly to their members and where members are thus exposed to market fluctuations. Should the market have turned down at the time a member exits the fund, his/ her benefit will obviously be impacted by the decline and the pay-out of the benefit at that time will realise the loss. Where the member is given an option to preserve his/ her benefit in the fund, the member should be able to ‘ride out’ any temporary market decline in order to avoid realizing the loss.
Under FIMA trustees are likely to feel coerced to introduce in-fund preservation due to the fact that they are required to have a default preservation option and that they face risks should the fund offer alternatives that subsequently prove to have been flawed and not in the best interests of the members. Being faced with the fiduciary responsibility for the alternatives offered, in-house preservation will be considered the safer default option as it is under the trustees’ control whereas the alternatives are not.
When a member has a housing loan from a bank or from the employer, in respect of which the fund or the employer has issued surety to the bank, the fund is obliged to settle the loan upon the member’s exit from the fund. Since the member will no longer be employed, the amount the fund had to pay to the bank or the employer now needs to be recovered from the member’s fund credit as envisaged in section 37D and, after the introduction of FIMA, as envisaged in section 277. The amount settled represents a cash withdrawal by the member and, if greater than currently N$ 50,000, attracts income tax in accordance with a tax directive to be requested from and issued by Inland Revenue. (If the amount settled is less than N$ 50,000 no directive has to be obtained, but tax at the minimum tax rate per tax table has to be deducted).
Inland Revenue will only issue a tax directive for the amount of income tax to be deducted from the member’s fund credit, if the member’s tax returns are up to date and refuses to issue a directive where this is not the case.
Where no tax directive is forthcoming from Inland Revenue, and the rules allow the member to opt to preserve his/her benefit, the fund cannot refuse the member to preserve his/ her benefit in the fund. Since the fund has settled the loan, it should be able to offset the amount settled against the member’s fund credit leaving the balance to be preserved. The member however, still needs to pay income tax on the amount settled. In our experience it sometimes takes years for a taxpayer to clear arrears tax returns. The fact that tax in respect of the loan amount settled may still be outstanding at the time the member eventually retires many years later can easily be overlooked at the time, resulting in Inland Revenue turning on the fund to settle the outstanding tax.
To avoid a fund ending up in the position where it has to settle the unpaid tax and cannot recover it from the member again, funds offering members to preserve their benefit in-fund and offering housing loans, should consider providing in the rules that in-fund preservation will only be allowed for members without fund guaranteed housing loans. This suggestion should be considered even under the current Pension Funds Act.
Should you allow a disabled member to go on early retirement?
Many funds offer a disability income benefit to members, insured with an insurance company. When a fund member becomes disabled, the member would be entitled to an income benefit, paid by the insurance company that would effectively replace a certain percentage of the salary the member used to earn from employment prior to disablement; usually between 60% and 100% of his previous salary. The disabled member would remain a member of the fund. The insurance company usually also takes over the employer contribution towards the fund, in respect of the disabled member. The member will remain obliged to contribute to the fund as if he was still employed, but the contribution would normally be deducted from the income benefit payable by the insurance company and be paid over to the fund. As a member of the fund, the disabled person would also remain entitled to the death benefit the fund offers that is also usually insured with an insurance company.
The employer of this member would usually terminate the employment of the employee upon his disablement. As pointed out, the employer’s contributions would be taken over by the insurance company so the employer also no longer has any obligation towards the former employee in this regard. Where the rules of the fund (and the Income Tax Act) requires that membership of the fund must be a condition of employment, the termination of employment as the result of disablement, would then imply that the disabled member cannot remain a member of the fund unless the rules specifically provide that a disabled member will remain a member of the fund, notwithstanding the fact that he is no longer an employee of the employer, and most rules do provide for this. The relationship of the disabled member with the employer would thus be severed and the disabled member would now be a member of the fund is his own capacity as provided for in the rules. Usually, rules would link the conditions of the disabled member’s continued membership to the terms and conditions set out in the insurance policy under which the disability income benefit is being paid to the disabled member.
Fund rules would normally describe under what circumstances a member becomes entitled to a benefit, typically, termination of employment, death or retirement; all of these reasons being linked to the employee’s employment. For employed members, these would cover all possible reasons for termination of membership, other than disablement elaborated above. The retirement rule would normally provide for early, normal or late retirement where early retirement is normally at the discretion of the employee, normal retirement manifests the obligation of the employee to retire and late retirement is at the discretion of the employer.
As pointed out above, the terms and conditions applicable to a disabled member who is no longer employed are usually linked to the terms and conditions of the policy providing the benefit. Clearly in the absence of an employment relationship, there can be no termination of employment due to resignation, dismissal or retrenchment, yet the benefit has to cease at some stage. Rationally this is either death upon or normal retirement and this is usually also what the disability insurance policies provide for. Where the rules of a fund link the disability benefit to the insurance policy, fund membership of the disabled member can only terminate as provided in the disability insurance policy. Where the rules do not explicitly link the disability benefit to the disability insurance policy we would argue that the only reason for termination of fund membership remains the termination of payment of the disability benefit by the insurance company, which would be upon the earlier of recovery, death or reaching normal retirement age.
We are regularly confronted with requests by disabled members receiving a disability income benefit, to terminate their fund membership for whatever reason but more often than not the member being after the ‘pot-of-gold’ he has in the pension fund. This would not be in the interests of the disabled fund member or his dependants who will lose the continued contribution by the insurance company, the benefit payable in the event of the death of the disabled member and any investment returns on the money that will continue to be invested on behalf of the disabled member, until the earliest of recovery, death or retirement.
Besides the fact that the early retirement of a disabled member will seriously prejudice the disabled member, section 37A of the Pension Funds Act explicitly prohibits the member to sacrifice his benefits in stating that “…no benefit provided for in the rules of a registered fund (including an annuity purchased or to be purchased by the said fund from an insurer for a member), or right to such benefit, or right in respect of contributions made by or on behalf of a member, shall notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law, …, and in the event of the member or beneficiary concerned attempting to transfer or otherwise cede, or to pledge or hypothecate such benefit or right, the fund concerned may withhold or suspend payment thereof…”
The disabled member thus has a statutory right to the benefits offered by the rules to a disabled member which right cannot be disposed of by the disabled member or even allowed to be disposed of by the fund and these rights can be sued for by the disabled member and/ or his dependants at any time in future. Prescription will never apply to this right. Trustees are advised to ignore any request by a disabled member to be allowed to take an early retirement benefit.
Can your employees deduct voluntary contributions to the fund?
The contract of employment
One principle of the Income Tax Act is that expenses can only be claimed for tax purposes if they were incurred in the production of income (refer section 17(1)(a).
In the case of employees, Inland Revenue will not easily accept any claim for expenses incurred by the employee. An employee can only claim expenses that he is required to incur in terms of his employment contract. In other words the salary you earn is dependent on you incurring certain costs so these costs are incurred in the production of income as contemplated in section 17(1)(a).
If an employer can formulate the employment contract in such a way that a pension contribution in respect of the employee’s bonus is an obligation, the employee should be able to claim that expense. If the decision is left to each employee, the employer should find that it is not possible to formulate it in the contract as an obligation. This does not mean that every employee has to have the same contract of employment. So certain employee categories or certain employees can have a special provision in their contract of employment that others do not have, to make the contribution obligatory.
The fund rules
Most fund rules provide for voluntary contributions by members. We caution to use this clause as the heading is problematic, referring to ‘voluntary’. As pointed out above, the word ‘voluntary’ means it cannot be an obligatory contribution by the employee and would thus not be incurred as a condition of employment for the purpose of producing income from employment.
It is important that the rules of the fund mirror the employee’s employment contract. Thus, if a contribution calculated on a member’s bonus is a condition of employment, it should not be referred to as ‘voluntary contribution’ in the fund’s rules.
The Income Tax Act and fund contributions
The definition of ‘pension fund’ in sub-section (b)(i) requires that the rules of a fund provide that ‘…all annual contributions of a recurrent nature of the fund shall be in accordance with specified scales…’. The definition of ‘provident fund’ lays down the same requirement. Typically, this refers to the contribution percentages at which members contribute on a monthly basis. The definitions do not make any reference to any other contributions.
Section 17 of the IT Act deals with ‘General deductions allowed in determination of taxable income’. Section 17(1)(n)(i), sets out that the employee may deduct ‘…by way of current contributions [which are required to be in accordance with specified scales per definition of ‘pension fund’ and ‘provident fund’] in the year of assessment and directs that ‘…such contribution is a condition of employment…’ The IT Act contains no other specific provision that allows any deduction for contributions to a pension fund, and here we do not refer to a transfer of accumulated contributions to another fund.
As set out above, the principle of the IT Act militates against an employee deducting any expense that he was not required to incur in the production of income [and that can only be achieved through the contract of employment].
This sets out the dilemma of employers or funds wanting to allow staff to make additional contributions to their fund and indicates what route the employer and the fund should take to achieve their goal of having employees contribute to the fund in respect of their bonus.
We would caution employers and funds though not to create an impression towards employees that voluntary contributions are tax deductible, or worse, to offset voluntary contributions from an employee’s salary in determining the taxable income unless you have obtained comfort that Inland Revenue will allow these as a deduction for tax purposes. The employer runs the risk of these contributions being added back to the employees’ taxable income by the Receiver of Revenue! This could result in penalties and interest being levied against the taxpayer.
Namibia needs a thriving private sector
While on a recent visit to the Hardap region to engage and discuss matters pertaining to business development in the region and beyond, Lucia Ipumbu, Minister of Industrialisation and Trade expressed her view that a thriving private sector is a prerequisite for economic growth and development (reported in Market Watch of 10/3/2021).
Sounds good for us in the private sector, but does government really mean it or is the problem rather that Namibia is lacking coherent national development policies?
In the Benchtest 02.2021 newsletter I wrote on ‘Plans afoot to nationalise the pensions industry?’ making mention of plans to set up an umbrella fund for all SOE’s under the auspices of the GIPF, and to establish a National Pension Fund under the auspices of the Social Security Commission, with compulsory participation by all employed persons in Namibia. I cautioned that this may lead to the demise of the pensions industry, estimating that current membership of occupational pension funds is likely to reduce from 135,000 to only around 45,000. This would be barely enough to keep one fund administrator going. This would effectively unhinge the free market mechanism as far as the pensions industry is concerned as there will be no competitors in the market anymore.
In this light, the question begs to be asked how these plans can be brought into line with the thinking of Minister Lucia Ipumbu on a thriving private sector? It seems utterances by former minister Shangala and the President himself, who acknowledged that adopting socialism was a mistake, as reported in the media recently, hint in the same direction. Our proclaimed policies do not reflect our actions and are based on flawed thinking. We talk socialism but be act out capitalism. We do not want to be constrained by socialist policies when promoting our own goals in life but we do expect the rest to adhere to socialist principles.
And don’t get me wrong. I am not a proponent of capitalism, but rather a proponent of the free market mechanism. It is clear to me that government should formulate clear policies setting out what conditions must prevail for it to involve itself in the economy, and that should really be only as a last resort because the private sector did not get involved. Where these conditions do not prevail, it will refrain from itself engaging in the economy. I do not believe there can be much argument about government being a rather inefficient participant in our economy.
Old Mutual Investment Group changes its business model
Under ‘News from the marketplace’ below, we report on the announcement by Old Mutual Investment Group of a change in its business model.
This is a development to take note of by Namibian funds employing Old Mutual investment portfolios. Any change in the investment process that results from a change in the business model, is likely to impact investment returns, certainly in the short term. The impact can be either positive or negative. Of course, it is going to be very difficult to establish what the impact was, as this may only become evident over the long term. Given that over the long term, portfolios change in many different ways, the long-term impact on returns may not, or not only, have been due to the change in the business model.
What is important to realise though, is that the investment portfolios are likely to behave differently after the change in the business model to what it was before, meaning that one cannot apply the same criteria to an evaluation of performance after the change that one has applied before the change.
Compliment from payroll manager of a large company
Dated 7 April 2021
“I just want to say a special THANK YOU for the professional and swift manner in which you are handling our Pension fund. Your hard work and efforts are HIGHLY appreciated.
Below a little statistic that we can be PROUD of.
In October 2020 we introduced the Benefits stream. Period September 20 to November 2020 – It took an average of 61 days for pension to be paid out.
Period December 20 – March 2021 – It took an average of 31 days for Pension to be paid out, from Termination date.
I am PROUD to be part of this team ?.”
Read more comments from our clients, here...
Unique comfort factors offered to our clients
Retirement Fund Solutions is quite a unique service provider in the pensions industry in Namibia in many respects. Not only are we the only true Namibian, privately owned company that has no dependency on any foreign company, but we have all our expertise, unrivalled in the Namibian pensions industry, within one office and all our expertise is applied to all clients. The company is not managed by professional managers, but rather with heart and soul, personal conviction and dedication, by hands-on specialists in pension fund management. Naturally, this comes at a cost that can easily be quantified, but also with benefits that cannot readily be quantified. But the greatest benefit for our clients is that we offer rock-solid administration that let’s our clients sleep in peace! And, let’s face it - we do also make mistakes, because we are humans but we own up to our mistakes, transparently and sincerely!
Our executive committee – offering unrivalled expertise and experience, in pictures:
Our executive committee – offering unrivalled expertise in, facts and figures:
Our total staff complement boasts the following credentials:
Important administrative circulars issued by RFS
RFS has not issued any fund administration related circulars to its clients over the last month.
Old Mutual Investment Group changes its business model
“When Old Mutual Equities and Macro Solutions announced their merger earlier this year, the number of boutiques within the Old Mutual Investment Group (OMIG) fell to three. This is apart from the four other businesses within Old Mutual Investments –Futuregrowth Asset Management, Marriott Investment Managers, Old Mutual Alternative Investments and Old Mutual Specialised Finance. More recently, however, consolidation and rationalisation within the group have made it appear that the boutique model has for all genuine intents and purposes been abandoned. It is even debatable whether the term ‘boutique’, as it is used within OMIG, is truly reflective of the scale of these operations.
For new MD, Tebogo Naledi, where the group finds itself now is not, however, a repudiation of the intention behind the boutique model. “It’s been a long journey of learning and refining,” Naledi said. “I view it as an evolution. An evolution which I think perhaps wasn’t designed as such, but its intent was to get to where we are now. “I think that what we have now in terms of our structure and focus is what was actually intended by the boutique model. Each of the three boutiques has it own strong capabilities, and they are each very clear about which market need they are serving.” ~ Moneyweb
News from industry meeting of 24 March 2021
If you missed the industry meeting of 24 March 2021, you can download the presentation here...
Following is a brief overview of the content of the presentation:
Transacting with foreign vendors
Funds often acquire services and products from foreign vendors such as software, consulting services, training etcetera. Such transactions may have VAT and Withholding Tax implications read together with the provisions of any double taxation agreement in force between Namibia and the other tax jurisdiction, that need to be considered. Failure to comply with the VAT Act and the Income Tax Act, with regard to Withholding Tax will expose the fund to penalties and late payment interest.
As fund administrators we do not purport to be tax experts. Such expertise can typically be sourced from Namibian audit firms. In instances where invoices are presented to us for payment in respect of goods or services acquired from a foreign vendor, we presume that the fund has considered the potential implication of VAT (import or normal VAT) and of Withholding Tax the fund may be liable for, as well as any relief granted by the double taxation agreement between the two countries concerned.
The purchase of software from a foreign vendor in our understanding represents a VATable import and VAT should be paid at the same time payment is affected. The cost of attending training or seminars outside Namibia in our understanding does not represent a VATable import and VAT, if applicable in the foreign country, should be raised by the foreign vendor. Trustee fees and trainer fees payable to a foreign resident attract Withholding Tax unless relief is provided by the double taxation agreement.
Payment of pension benefits into jointly held accounts
The Pension Funds Act obliges the fund to ascertain that any benefit due to a member is paid to the member for his/her exclusive benefit. Typically, the fund administrator is responsible for making payment on behalf of the fund and is well advised to ascertain that it complies with the Act by verifying the ownership of the bank account into which payment is to be made.
Payment directly into a bank account that is not subject to a person’s exclusive authority and control may be regarded as being made in contravention of the Pension Funds Act.The Banks Act does not prohibit the maintenance of joint bank accounts by Namibian banks. It is therefore prudent that pension funds do not allow payment of pension benefits into a joint account as this may be a contravention of section 37A of the Pension Funds Act.
An indemnity by a member issued to a fund for making payment into a joint account at the request of the member will, may not protect the fund against a claim by the member and/or a prospective beneficiary and is will be more prudent to deny the member such a request.
Death benefits – a few basic facts
Mentally prepare for retirement: 21 tips – Part 4
In the previous newsletter, we brought to you the first 7 tips for mentally preparing for retirement. In this newsletter we present tips 8 to 11.
“Retirement is a major life change, that not everyone is prepared for. The following guide contains excellent tips how to mentally prepare for retirement. As it is a lengthy document, it will be presented in multiple parts over the next few newsletters, so make sure you don’t miss any of these. (Note: the source of this guide in not known.)
To Mentally Prepare For retirement, You:
8. Discover your new purpose in life
Having a job creates a purpose in life. It gives you direction. You need the pay check to pay the bills and save money for retirement, but also achieving goals and successes at work gives you a sense of fulfilment in life. Doing a job well gives you satisfaction and a worthy, useful, and accomplished feeling. And once you retire this, all goes away, and you need to discover a new purpose in life to make it meaningful.
Continuing to find fulfilment and satisfaction in retirement is essential to living a happy retired life. So that’s why it’s necessary to think about your new purpose in life before you retire. This way, you can directly start your purposeful life in retirement instead of struggling once you retire. But what is a purpose?
Your life purpose consists of the central motivational goals of your life — the reasons why you get up in the morning. Purpose can guide life decisions, influence behaviour, shape goals, offer a sense of direction and create meaning in your life.
You can find your purpose by finding your passion that leads to your purpose. What gets you excited and want to get out of bed in the morning? Is it helping others in need? Educating yourself? Being surrounded by family members? What is your heart telling you?
Maybe your purpose is evident to you, or you need to do a little exploring to find your purpose. When you know what your purpose in retirement is, it makes your transition much more comfortable. You’ll have a compass that guides you. And you can set goals and create action plans to achieve these goals in retirement. Which ultimately leads to feeling accomplished, satisfied, useful, and worthy.
You can draw up a personal mission statement that includes your purpose. This way, you can run all life decisions by your mission statement and see if they are compatible.
9. Replace work routines with new routines
Work gives you a purpose, identity, social connections, and a steady routine. The loss of structure and routine can bring up sadness and depression. And a lot of retirees miss the social contact and the stimulation the most in retirement.
To be successful in retirement means that you find fulfilling replacements for your work routines. You need to find happiness in (new) interests, relationships, and activities by creating new routines.
The enormous amount of freedom with retirement can feel a little bewildering at first, and you can feel lost. And by creating routines, it will help you:
10. Create a plan & set goals
Once you thought about how your retirement needs to look like, you can start creating a plan and set a goal(s) to set it into motion. But before you can create your plan, you need to set a goal first.
Make sure you write down your goal in the SMART way (Specific, Measurable, Attainable, Relevant, and Time-Bound) to make it more tangible. Work backward from your goal to set milestones in your plan and put your actions into a schedule. Create a timeline and break large tasks into smaller and more manageable chunks. This way, you plan to do small daily tasks that will ultimately lead to the accomplishment of your goal. And dividing your goal into small tasks will helps you not to get overwhelmed. And also makes the goal more mentally achievable.
According to a study writing your goal down on paper, you’ll have a better chance of achieving that goal then if you don’t. And creating a plan helps you to organize your retirement plans and gets you more prepared. You can adjust this plan along the way because your life is a constant’ work in progress,’ which continues to evolve in often unexpected ways.
11. Be open to get out of your comfort zone
The only way to grow as a person is to get out of your comfort zone. And transitioning into retirement is automatically going out of your comfort zone. Because the situation you’re going to be in is new for you and you’re in unknown territory.
Getting mentally prepared for retirement is knowing that you need to get out of your comfort zone. And there is no need to be afraid of this. See it as a learning experience and an opportunity to grow. It creates enough good stress to ramp up your focus, creativity, pace, and drive, and it helps you respond to life stress better when unexpected things happen…”
Further parts of this interesting guide will follow in the coming newsletters.
How to ensure that you don’t outlive your savings
“Did you know that it’s possible that you could live for another 30 years after you retire? How do you ensure that you will live out your golden years without having to worry about finances?
The earlier you start planning for your retirement, the better.
These are the five steps that will help you plan towards a safe, secure retirement.
Want to start investing: Here is what to consider
“Venturing into investments can be intimidating. Elke Brink of PSG Wealth discusses what to consider, outlines various investment vehicles, and shares some advice on how to build a share portfolio.
Basic tax principles will apply to cryptocurrencies
Although this article deals with the SA tax regime, readers need to be aware that the Namibian tax regime is very similar and the outcome for Namibian investors is the same as it is for SA investors in cryptocurrencies. Whether or not your profits are taxable in Namibia will depend on your intentions for buying and/ selling cryptocurrencies and if your intention was to make a profit, then such profit will be taxable.
“…A basic doctrine of the Income Tax Act is that the net amount (the taxable income) of the gross income received or accrued (excluding receipts or accruals of a capital nature) by any resident, in cash or otherwise, for any tax year, less any expenditure that is deductible for tax, less any specific exclusion, is taxable.
A non-resident will be taxed on any taxable income from a South African source, unless there is a specific exclusion…
SARS has the right to tax any profit, from any business venture, from the sale of any asset, tangible or intangible, provided it isn’t of a capital nature, and there isn’t a specific exclusion in the income tax act. Any undeclared taxable income will not prescribe.
In other words, SARS is not restricted by any time frame, and can go after any taxpayer for any undeclared income, many years later.
A cryptocurrency has a calculable value, which differs from time to time…
The distinction between what is a capital profit, which is subject to capital gains tax, and what is a revenue profit, has been developed by case law. A loose distinction is that of whether a taxpayer is carrying on a trade, and whether the profit resulted from a scheme of profit-making.
The taxability of the proceeds on the sale of cryptocurrency depends on the facts, and each matter will be decided on its own merits.
The taxpayer should retain evidence of intention at the time of purchasing the cryptocurrency, and the reasons for selling.
Holding an asset, whether a share or bitcoin, for an extended period, will not necessarily absolve the taxpayer from taxation if such share or bitcoin was sold in a scheme of profit making…”
Read the full article by Barbara Curson in Moneyweb of 17 March 2021, here...
Great quotes have an incredible ability to put things in perspective.
"If money is your hope for independence, you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.” ~ Henry Ford