Category Archives: Finance

Learn More About Emigration and Taxation

Q: My son has been working in Hong Kong for the last nine years. He remitted R3 million to South Africa over a few years to build a property here. He has not emigrated formally and has not submitted any tax returns to the South African Revenue Service (Sars) for nine years.

In 2008, my son requested that his tax practitioner contact Sars to terminate his tax number as he was going overseas. He was under the impression that all was in order. He has a bank loan of R3 million in South Africa, secured by a property worth R6 million. He tried to repatriate some of the funds back to Hong Kong but Sars would not issue a clearance certificate. He also tried to apply for a clearance certificate to invest the R2 million offshore but Sars insisted on him submitting tax returns for the last nine years. He has since applied for and been granted a Hong Kong passport and has relinquished his South African residency and citizenship.

As he is no longer a South African resident or citizen, we would like to know how his property investment in South Africa will be treated, i.e. will this investment and his funds be blocked in South Africa forever, or will he be permitted to move some funds out the country in future without having to submit tax returns to Sars for the past 9 years?

A: South African taxes are based on residency, which becomes extremely important when determining what taxes are due. Although your son has relinquished his South African passport and citizenship in favour of Hong Kong and no longer resides in SA, he has a property in SA and remains a registered taxpayer with the South African Revenue Service and has not formally emigrated. Sars views this as “world-wide wanderings” with the intention to return to South Africa at some stage. The fact your son purchased a property in South Africa whilst in Hong Kong reaffirms this.

Your son would need to look at the South African residency test  –“ordinarily resident” which must be interpreted under our common law and suggests that you are “ordinarily resident” in the place you would regard as your permanent “home” … the place you would tend to return to after your world-wide wanderings. Therefore if you left SA with the intention to come back after a period of time, you would still be “ordinarily resident” in South Africa and subject to world-wide tax in South Africa, no matter how long you lived “temporarily abroad”.

Fortunately foreign earnings from employment will be exempt from taxation in SA provided you are out of the country in aggregate of more than 183 days, of which more than 60 days were continuous. However, all your other income and any capital gains would be subject to taxation in South Africa, even if taxed in the country where you are living. You will get some relief from double taxation only if the country in which you live has a Double Tax Agreement with South Africa.

Therein lies the issue and why Sars will not issue a tax clearance certificate, especially as his tax returns for the last nine years have not been submitted.

Although your son has been working in Hong Kong for the last nine years, earning an income and paying his taxes in Hong Kong, he was at the same time still registered as a taxpayer at Sars. As long as he remains a registered taxpayer with Sars he is still obliged to submit tax returns annually irrespective of the fact that he was not earning an income in SA, and would only become a non-resident taxpayer once he formally emigrates.

However, as he has an asset in SA being the property he purchased, and due to SA exchange controls, I suggest he remains a taxpayer to allow flexibility to move these assets at a later stage should he wish to do so.

South Africa’s current exchange controls allow for individual taxpayers to transfer up to R10 million per annum offshore with a tax clearance certificate and R1 million per annum without tax clearance as part of your annual travel allowance or gifts and entertainment.

This in effect means that your son can move R1 million out of the country every calendar year without any tax clearance required.

However, any amount above R1 million would require an application to Sars for tax clearance. Assuming your son was not earning any income from the property or any other source of income in SA over the last nine years, he could simply submit nil tax returns for every year, bringing his tax returns up to date which in turn should solve his problem and to ensure Sars issues the required tax clearance certificate for his offshore investment.

The only reason why Sars is not issuing the tax clearance is because he remains a resident taxpayer who’s tax returns are not up to date. I believe once he has brought his taxes up to date he would be granted the tax clearance.

I wouldn’t formally emigrate unless he had no assets in SA or didn’t plan to have any future assets in SA.

More Information About Pension fund and RA

Q: I am a 54-year-old male member of the Transnet Pension Fund. I recently responded positively to my employer’s advice for increasing monthly premiums. I have realised that Sars does not consider pension fund contributions for tax relief when submitting yearly returns. I am therefore thinking of reversing my decision, rather increase my Retirement Annuity, which I have with a financial institution, for tax returns purposes.

Please advise if it is a right decision.

A: As of March 1 last year, irrespective of whether you have a pension, provident or retirement annuity (RA), you will qualify for a tax deduction of up to 27.5% of your taxable income (subject to a maximum of R350 000 per year). This limit applies to the total contributions you make to all retirement funds in the tax year.

Prior to March 1 2016, members could get a deduction of up to 7.5% on their own contributions, and no deduction on their employer contribution. Post 1 March 2016, you will now pay fringe benefit tax on the employer contribution, but at the same time get a deduction on both your own and your employer’s contribution by way of a reduction in taxable income, subject to the limits referred to above. This will leave you in the same position as before March 1 2016, as long as your contribution is below the limits mentioned above. By increasing your contribution to the employer pension fund, you get the benefit of the effective tax deduction monthly and you won’t have to wait until you file your tax return (as is the case if you contribute to your own RA).

I would advise you to speak to someone in your HR/payroll department as you should be receiving the full tax deduction for the total contributions if they are below the limits mentioned above. Any contributions in excess of these limits will be carried into the next tax year.

Recruiting Financial Execs

Today we’re chatting to Grant Robson and Richard Angus from The Finance Team. The Finance Team is a professional consultancy specialising in the provision of experienced financial executives on a part time, interim or project basis. Last year The Finance Team ran a survey entitled mind the gap, gaps in resourcing your finance department. We’re here with Grant and Richard to talk through the survey and see what we can learn from some of the key insights.

GRANT ROBSON: As you mentioned in your introduction, The Finance Team is a professional consultancy, we’re not really a recruitment company as such. We employ our own professionals who we then utilize in the market to provide an interim part-time financial executive solution. So we were very interested to go to the market and find out the elements that we believe are very important in terms of how companies go about making these selections.

There were only five basic questions, to ensure that we were on the right track in terms of our reading of what we think the market finds very important when it comes to placing top notch, experienced financial executives. So that was the rationale behind why we conducted the survey.

JESSICA HUBBARD: Where was this survey run and who were your respondents?

GRANT ROBSON: The survey was run in conjunction with Moneyweb. Moneyweb sent out a link to the survey in the Moneyweb Morning Coffee (recently rebranded as MoneywebNOW) newsletter and then we also conducted the survey at the Finance Indaba in October 2016, which I think drew about 5 000 financial professionals to the event and whoever wanted to come through and do the survey was more than welcome to come through. Readers and listeners of Moneyweb were also invited to come and complete the survey.

JESSICA HUBBARD: So let’s dive into some of the key findings that came out of it, anything particularly surprising or unexpected?

GRANT ROBSON: I think before we even go into the results it’s really important to just note that the majority of the respondents were from SME companies, so smaller companies with turnover of less than R500 million and less than 200 employees, so I think that’s a really important element. You can expect to get different results from larger companies and I think at a later stage we will do another survey targeted at those larger corporates. But for now, it’s mainly smaller companies that answered, there were different categories, which I’ll ask Richard to go through. And because it was open to a large range of individuals, we then limited the results of the survey to those who we believe are the ones who make the call in terms of who gets employed in the company. Richard, if you can just go through that quickly.

RICHARD ANGUS: In terms of those roles, we looked at the chief executive role, the chief financial officer, then also the group financial manager role because they’re often charged with filling holes in a bigger organisation and then also financial managers themselves, because they often have to plug gaps in their team or across associated people and other teams. Then we also had a very small percentage, as Grant indicated earlier, of human resource managers, we only had about 4% of them, just due to the nature of the survey and where it took place.

Interestingly, of the people who responded, 44% were in the chief executive officer role, so we are talking to people who are actually the key decision-makers. So we’re talking about the people who are actually making the calls for their own businesses and for that mid-corporate size – staff below 200 and turnover below R500 million.

JESSICA HUBBARD: What were the five questions that you were asking?

GRANT ROBSON: Let’s go through the five questions and we can do a bit of commentary on each one as we go through them. The first question was:

On average, how long does it take to fill a vacancy in your finance department?

The majority of respondents, close to 70%, suggested that it’s less than 60 days. That wouldn’t be very surprising from a smaller SME company, so if you look at that result and you look at the larger corporates it’s actually more than 60 days. So a very straightforward question and the basic answer to that is the larger the organisation the longer it tends to take to employ good financial people.

JESSICA HUBBARD: Which is intuitive, you would have expected that.

RICHARD ANGUS: If we look at question two:

Do you have an HR department that you delegate the sourcing of candidates to?

That had a surprising response because we actually didn’t expect this, 60% of the respondents said yes, they have an HR department. We actually thought that in the world of 60/40 that probably only 40% would say they have HR departments, 60% actually have the skillset inside their companies. We believe that’s driven fundamentally by two elements, the first is the complexity of the legislative framework in terms of employment law, processes and so on, so compliance is obviously important. Then the reality is that companies are also moving in nature, we’re moving away from manufacturing and heavy industry into more service oriented and technology-oriented environments and that is more people-intensive, so people are now becoming more significant in the world of an entity and a company. The chances are that they are going to spend more time employing people than they are making capital investment decisions in bulk equipment or something like that. So HR is increasing in its stature and importance in the company.

JESSICA HUBBARD: It shows that people are finally placing value on their staff.

RICHARD ANGUS: It’s the age-old story that your people are the most important asset.

GRANT ROBSON: We certainly see it, we effectively employ our own associates at The Finance Team and without good people we just don’t have a business, we don’t have people out there representing the brand correctly and providing a great service. Probably 40% of our time that we spend on a daily basis is going into evaluating who we are going to bring on board to represent our brand and I don’t think there’s any other great company out there that doesn’t think the same way.

JESSICA HUBBARD: Let’s move onto the third question:

When sourcing candidates for vacant finance roles, what is the best source of candidates?

This is a fascinating question.

GRANT ROBSON: It is, the majority of respondents, close to 36%, still go through placement agencies, which is not surprising. In fact, we would have actually expected that to be a higher number, so 36% for us was a bit on the low side.

What we did find quite interesting is we look at internal applicants (19%), direct applications on an unsolicited basis (19%), responses for adverts on traditional media and job sites (17%) and then responses to adverts on social media (9%) – if we had done the same survey five years ago, that might have been 1% and it’s gone up to 9%, 10% now.

So there’s no doubt that companies, HR professionals are plugging into social media sites like LinkedIn, Facebook and other media that’s out there and that’s really becoming a good source for companies.

What I personally find interesting, and people out there who might be listening and interested in approaching a company that they want to work for, 19% was direct external applications on an unsolicited basis. That’s people who have taken the time to write an email to the HR department or the head of HR or the CEO or the CFO to say: I really like your business, this is who I am and can I have a shot. Twenty percent of placements are being made in that way, which I find quite fascinating.

JESSICA HUBBARD: Yes, I suppose it also shows you are proactive and hungry if you do that.

GRANT ROBSON: It does and I think that’s one of the tick boxes that you want to tick when you take people on board.

JESSICA HUBBARD: How do you see the social media element playing out in the coming years, is this going to be a very prominent element in recruiting going forward?

GRANT ROBSON: Absolutely, I think if you look at the traditional recruitment companies that are out there, a lot of them are taking strain because this element is becoming much more of a player in the market. So this cutting out the middle man, if you want to call it that, through the likes of LinkedIn and other social media is definitely having a huge impact on recruitment companies out there. It can only get bigger and bigger, I think if we look again in another two or three years it will probably be closer to 20%. It does tell an interesting story as to where this industry is going.

JESSICA HUBBARD: Let’s look at question four, which is very revealing for me:

What are your three most important considerations when recruiting financial staff?

RICHARD ANGUS: I think it goes without saying that those elements of candidate experience, qualifications and the ability to evaluate somebody’s track record are critical elements and those came out on the forefront of that.

Interestingly, we had planted one category into this survey that we were very interested to understand, given the context of South Africa, and that was the question of a candidate’s employment equity profile and that continues to be topical. There have been recent comments about whether employment equity is actually reaching traction. When you look at the results overall, we actually see that profile only being critical at a 9% level when you look across the survey, which we initially were extremely worried about and we thought that told us a story about where people see that. If you compare that against Canada, experience and qualifications are at 23% and 18% respectively, then the 9% for employment equity [in South Africa] is fairly low. However, we then dissected the data a little bit and we looked at companies over the 200 staff level and at that point two elements emerged immediately – cultural fit with 19% and employment equity status at 15% were the two most important categories and they were selected every single time by the respondents in that category.

JESSICA HUBBARD: Was the cultural fit something that surprised you?

RICHARD ANGUS: Not at all because as the organisation gets bigger, making sure you have cultural fit in a large organisation is a critical part of performance but what it does talk to is the fact that cultural fit drives connection and values within an organisation but employment equity status is critical for larger companies. If you look at the BBBEE codes in terms of when employment equity becomes relevant in an organisation, I think these results now mirror those elements quite nicely. If somebody were to say to me, is employment equity important in the workplace, the answer is absolutely yes. You can see in the survey that companies with more than 200 staff members are actively seeing it as one of the most critical parts of their valuation criteria. The fact that it and cultural fit are so close together, tells you that it’s almost as important for them to say what is your employment equity profile and will you actually fit well in my organisation. I was quite surprised by that it does tell a very positive story and obviously the track record on the ground is what counts but this definitely talks to intent that people do consider this very strongly.

GRANT ROBSON: If I can just add another point there, if you look at these larger companies the employment equity status choice and it was the first choice of all the respondents, so it just shows you, as we’ve just said, as there are question marks around the importance of employment equity, in these larger companies it’s the most important criteria.

JESSICA HUBBARD: It’s key insight for companies looking ahead. Let’s move onto the final question:

Whilst recruiting for financial staff, how do you mind the gap in the interim?

Can we perhaps talk to businesses of all sizes, so SMEs and larger corporates?

GRANT ROBSON: The overwhelming winner on this one was relying on existing staff to cover the critical issues that arise. These last two questions were probably the most important for us because this is really in the area that we play in, we provide part time and interim executives. So we were very keen to see that when this gap arises what are people currently doing, so 50% are just relying on existing staff. Now, how sustainable is that? You’re going to put these people under a huge amount of pressure, what happens to the quality of the information when you do these sorts of things, so there’s a lot to read into that. We then had the response of second a staff member from somewhere else in the organisation at 13%, and then source a contractor from a recruitment or personnel agency was around 16% and only 8% said they would come to a company like us, so we’re going to have to change…

JESSICA HUBBARD: Lots of marketing to do [laughing].

GRANT ROBSON: We’re going to have to change that perception. The other response of leave the work until a new person is appointed I’m happy to say was only at around 4%, so not a lot of people are doing that, thank goodness. Then at 9%, which is quite high, is source a suitable qualified candidate from an audit firm. Again, bearing in mind that these are smaller companies. With larger corporates, you’re not going to find the use of audit firms helping out internally and at executive levels, in fact there was not one answer that would use an audit practice and really because the Companies Act doesn’t allow for that.

RICHARD ANGUS: I think for me, the one thing that’s very clear from this whole survey is the fact that the selection of the people in your business is a critical success factor and you can see here that CEOs are responding but you also worry when you see that 50% of the work is effectively just going to be passed to the existing staff. It sometimes worries one that the whole expectation gap of how people expect work to happen actually exists in organisations, so CEOs and people at that sort of level think the work is going to happen and they don’t really, and there seems to be a little bit of a disconnect with what actually happens on the ground and the gaps that potentially need to be filled.

For me that’s the one element why our business is important is to enable people to get the work done, to focus on the output and make sure that there’s execution and delivery with experienced people who aren’t going to take six months to get up the curve and so on. If you look at those elements, candidate experience was the highest consideration in the elements of what you would consider the most, 23% of people said I want somebody with experience and that means there’s no time for training. When you’re plugging the hole you want experienced competent people who can step in, fill the gap and from what I can see we want to be able to do that at lower levels in the organisation without the boss knowing that we’re just filling the gap and getting it done. So that was an insight for me.

JESSICA HUBBARD: Certainly very important insights for HR professionals and business leaders across the board. That was Grant Robson and Richard Angus from The Finance Team.

Save is More Important Than The Return

When saving for retirement, there are three big factors that have an impact on the final outcome: how much you save, what return you get on your investments, and how long that growth has to compound.

Many investors tend to focus mainly on the second of those. They spend a lot of time worrying about how their portfolio and its underlying funds are performing.

This can become such an obsession for some that it may even cause them to make the mistake of chasing performance and trying to pick the best funds year after year. They move their money between funds regularly trying to capture the best returns.

The major problem with this thinking is that performance is the one factor that an investor actually cannot control. Of course you can make sound decisions about which funds you use and therefore give yourself the best chance of seeing good returns, but nobody can predict the markets.

No investor, or financial advisor or fund manager for that matter, can make any decision that they will be certain will guarantee them an extra 1% return over the next year (unless it is switching from one bank deposit to another). There is simply no way of knowing what markets will do.

That is why investors should rather spend more time considering the factors that they really can control.

The first of those is how soon you start. There are thousands of articles all over the internet explaining why it is so important to begin investing for your retirement as early as possible, because the more time you have the greater the power of compounding becomes.

A simple example makes this clear. Assuming an annual growth rate of 10%, an investor who saves R1 000 every month from the age of 20, would have accumulated more than two and a half times as much money by the age of 65 as someone who saves the same R1 000 every month but only starts at age 30.

This is despite only actually contributing 28.6% more. The major difference is time.

Investor A Investor B
Monthly contribution R1 000 R1 000
Starts at age 20 30
Years to retirement 45 35
Total contributions R540 000 R420 000
Assumed annual growth 10.00% 10.00%
End balance R10 569 855.89 R3 828 276.70

The other factor within an investors control is how much they save. And what most people don’t realise is that this actually has a bigger impact than the return they are able to achieve.

Simply put, every extra 1% you are able to save is worth more than an extra 1% return.

To illustrate this, consider an investor saving R2 000 per month. A 10% return over the year would mean they would have R2 200 at the end of it.

If they saved an extra 1%, which is R2 020 and earned the same 10% return, at the end of the year they would have R2 222. If however they saved the same R2 000 and earned an 11% return, they would have R2 220.

That difference may seem very small, but as the table below shows, it does have an effect over time.

R2 000 per month R2 020 per month
11% return 10% return
After 5 years R154 343.48 R155 886.91
After 10 years R402 915.20 R406 944.35
After 15 years R803 242.44 R811 274.86
After 20 years R1 447 973.46 R1 462 453.19

Earlier this year National Treasury announced that the annual contribution limit on tax-free savings accounts would be increased from R30 000 to R33 000. That is 10% more. If every investor made that additional contribution (which is only R250 per month), they would be making a very big difference to their final outcome.

The significant thing for investors to appreciate is that the factors that lie within their control have a major impact on their wealth. Instead of spending time worrying about finding a fund that could give an extra 1% a year performance, they would achieve more simply by saving a few extra rand every month.

Focusing on the things you can control also means you will be less likely to make emotional decisions about switching investments and chasing performance. Rather understand where you can really make a difference, and do those things instead.

Learn More About Money Mistakes to Avoid in your 30s

Tonight we get into our personal finance topic, talking about money mistakes to avoid in your 30s. CEO at CrueInvest, Craig Torr, joins us for tonight’s topic. Let’s define what money mistakes are.

CRAIG TORR: Those are your typical mistakes that you tend to make early on in life and just continue making those bad decisions and they obviously compound upon one another through a lifetime.

TUMISANG NDLOVU: What then are some of the most common money mistakes made by those in this particular age group, and I speak for myself at this tender age of 32.

CRAIG TORR: I think the one that jumps out at us is the cost of the wedding and that tends to set most married couples back quite far in their financial planning. There’s a lot of pressure obviously to live up to expectations of it being a great day and family involved and so on but one needs to be quite careful about the costs involved in putting that day together.

TUMISANG NDLOVU: The advice then there would be how do you then say no to pleasing everybody else and pleasing your own pocket to ensure that going forward you don’t actually run into a ditch where money is concerned?

CRAIG TORR: I think it’s about communication and being open and honest and having those discussions in advance and also involving the family, depending on who’s going to be paying for the wedding as well. It differs from scenario to scenario but all too often we see young couples really overdoing it on that wedding, possibly where the parents are not in a financial position to assist to the extent that they would like to. So it’s really about communication and affordability, those would be the two important issues to take into consideration.

TUMISANG NDLOVU: Still on the big expenses in terms of one’s life at this stage of 30 going upwards, things such as cars or your first property, how do you then make sure that you navigate around this and don’t make mistakes in this particular process?

CRAIG TORR: I think again the car and the property are two very different decisions, the property is very much a lifestyle decision, there’s a lot of emotion attached to it, it’s typically the home that you are going to raise kids in and so on. We’d be more comfortable to stretch the budget on that one as opposed to the cars, where those cars are depreciating assets that cost a considerable amount of money. So if we were to compromise on one we would look at advising to rather compromise on the car than on the house because failure to do so could result in you having to move more often than is necessary and that also comes with its built-in costs.

TUMISANG NDLOVU: What’s there to be said then about the small stuff, I know one of my bad habits is coffee, biltong that I don’t really need and when you calculate the cost of this at the end of each month you realise that you’ve spent quite a lot of money. Cigarettes are also an issue, it’s a lot of money if you calculate it over 12 months.

CRAIG TORR: Absolutely, I think you’ve hit the nail on the head, you do need to be cognisant of those little things like the day-to-day expenses, the cool drinks, the sandwiches that could all be reduced by planning a little better, making your own food or whatever it might be, maybe eating more healthy and so on.

I think the other way to do it is to have a plan and save first, pay your future-self first, in other words make sure that you are saving enough and then there’s less stress on what you do with what is left over if you do it that way around.

That’s typically the way most people end up saving comfortably and confidently for their future. If we had to save what we had left at the end of the month I don’t think too many of us would do a fantastic job of saving.

Saving before spending is essential

TUMISANG NDLOVU: Would you say that there is an increase in the trend of paying your future-self first as opposed to the common money mistakes that are continuously made?

CRAIG TORR: I wouldn’t say necessarily an increase, we’d like to see an increase in that behaviour because it ultimately serves that individual best to pay their future-self first and that’s done automatically if you’re a member of the compulsory pension fund. But typically we find that where more and more people are working for themselves, working from home and there is no formal corporate pension fund that they belong to so they need to do it themselves and a lot of those people are delaying it and putting it off and thinking they’ll start next year or whenever it might be.

That just compounds the problem because the consequence very often of doing that is also that they are spending at the level at which they are earning or even worse, beyond that level and in which case they are doing it on credit, which then compounds the problem and you have interest working against you rather than working for you.

TUMISANG NDLOVU: Having said that, is it acceptable at the age of 30 plus for one to still be making common money mistakes? Can one afford to make mistakes at that age when you are supposed to be making decisions about your future-self, as well as looking towards saving enough for retirement?

CRAIG TORR: I think if we can lessen the number of mistakes we make or avoid them completely that would obviously improve the situation. Every mistake that one makes does come with its consequences. Financial literacy is about trying to ensure that people make less of those mistakes, those mistakes are mostly made because of instant gratification, we want to meet those needs as opposed to delayed gratification. That’s very difficult because every prat of the media is trying to get us to part with our money and at the end of the day the delayed gratification or paying one’s future-self first great antithesis of that. So one has got to be mindful of the media trying to get us to part with our money and really looking after ourselves in the future.

TUMISANG NDLOVU: As a parting shot what advice would you like to leave with our listeners on tonight’s topic?

CRAIG TORR: I think just to have a plan in place and at least have an idea of what one should be saving and then begin with that in mind, pay your future-self first, put a lot less pressure on yourself for those months where you do perhaps want to go out and spend or splurge on something. If you have your savings taken care of, if you have your risk – something we haven’t spoken about – taken care of and your life and disability cover in place then the negative implication of a spend is to a large degree mitigated, so I would always say have a plan in place and once you’ve got that then the rest will become easy if you follow the plan.