The 2016 Budget Speech gives individuals and companies an opportunity to disclose and declare all non-compliant offshore income and assets Read more in our latest Fiduciary Focus newsletter.
Published: January 2017
In the third edition of Fiduciary Focus, we made mention of the Special Voluntary Disclosure Programme (SVDP). This initiative, announced by the Minister of Finance in the 2016 Budget Speech, gives individuals and companies an opportunity to disclose and declare all non-compliant offshore income and assets. It provides a waiver from understatement penalties and an exemption from criminal prosecution for those who disclose their offshore assets and income since 1 March 2010. This is crucial for anyone who has not yet disclosed offshore assets and income because the new common reporting standards enable tax authorities in a range of countries to share tax information about taxpayers.
The SVDP applies to individuals, companies and donors and beneficiaries of offshore trusts
Trusts do not qualify for special voluntary disclosure. However, settlors, donors and deceased estates or beneficiaries of foreign discretionary trusts may participate in the SVDP.
The SVDP is offered for a limited period only from 1 October 2016 to 31 August 2017
This period was extended from the original cut-off date of 31 March 2017, allowing non-compliant taxpayers to regularise any non-compliant offshore assets and income. There is also a permanent Voluntary Disclosure Programme (VDP), which only covers tax non-compliance. Individuals may apply for the VDP or the SVDP or a combination of the VDP and the SVDP. This means you can apply for tax relief under the permanent VDP and exchange control relief under the SVDP.
The SVDP extends to exchange control transgressions
What is the difference between the VDP that is already contained in the Tax Administration Act, 28 of 2011, and this SVDP? The permanent VDP does not extend to exchange control transgressions. The VDP only deals with previously undisclosed income for tax purposes, where applicants may disclose all previously undisclosed foreign income. With the new common reporting standards these transgressions will become apparent.
Key differences between the VDP and the SVDP
This table provides an overview of the two programmes, their similarities and differences.SVDPVDPApplication period: 1 October 2016 to 30 June 2017 to 31 August 2017Application period: ongoingApplies to unauthorised foreign assets held on or before 28 February 2015.Applies to unauthorised foreign assets held as far back as 2001, and foreign interest from 1998 (SA converted to a residence basis system of taxation with effect from 1 March 2001).Disclosure of receipts and accruals (interest, dividends and capital gains) for the period 1 March 2010 to 28 February 2015.Disclosure of all receipts and accruals (interest, dividends and capital gains) in accordance with the above – open all prior year tax returns and include income.40% of the capital held during the period 1 March 2010 to 28 February 2015 to be included in taxable income (effective tax rate 16,4%, ie 40% x maximum marginal tax rate of 41%).No inclusion of capital – only income to be included in all prior years of assessment.Interest will be payable from 1 March 2010.Interest remains payable from date of receipt of income.Documentary evidence required from 1 March 2010 onwards.Documentary evidence required from date of receipt or accrual of income.Unauthorised assets donated to an offshore trust – estate duty will be payable on the market value of the trust assets on the death of the person holding those assets.Unauthorised assets donated to an offshore trust – the applicant would be liable for tax on such income until the trust disposes of the assets, which will trigger capital gains tax (CGT). On the death of the applicant estate duty will not be payable on the market value of the trust assets.
Non-compliant taxpayers are strongly advised to apply for the SVDP or the VDP
Anyone looking to disclose their 'unauthorised' foreign assets must have a discussion with a reputable accountant or attorney who can guide them through this complex process and provide them with professional advice. The SVDP runs for a limited period only and there is a substantial amount of information and documentation required to submit an application. Therefore, the earlier you start collating the required information and documents, the better.
If you knowingly avoid applying for relief, advisors may be obligated by law to report you
The Financial Intelligence Centre (FIC) was established to combat money laundering and the financing of terrorism. It requires that financial institutions and other businesses deemed vulnerable to money laundering must be tax-compliant. The FIC has stated that there is no obligation for financial advisors to report suspicious or unusual transactions if their clients are assisted in regularising their affairs by making use of the 2016 SVDP.
However, the FIC stipulates that advisors are obliged to report their clients if it becomes clear that they have no intention of applying for relief under the SVDP. It also appears that the above exemption does not apply to clients wishing to make use of the permanent VDP. Advice given based on incorrect facts or a misunderstanding of the facts can be catastrophic for both clients and businesses, so we advise clients to approach a reputable tax attorney or accountant to assist them with the process.
How can we help you?
Your regional fiduciary specialist is very happy to discuss these developments and help you plan a way forward if you need to regularise your offshore affairs. Once you have your affairs in order, it is crucial that you let us know about these so that we take all your global assets into account for your future wealth plans. However, we advise that you take note of the following:
DISCLAIMER The Fiduciary Focus Newsletter is intended for general information purposes only and should not be construed as tax, legal or accounting advice. This communication is based on our bona fide interpretation of legislation, rules, regulations and publications. Nedbank Private Wealth provides estate and tax planning advice; however, we do not provide tax, legal or accounting advice and you are requested to consult a professional tax advisor or professional in this regard.
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