The shareholder-, buy and sell agreement and MOI in your business

The shareholder-, buy and sell agreement and MOI in your business should cover all the taxation aspects of Income Tax, Capital Gains Tax, Donations Tax and Estate Duty, upon the departure any one or more owner[s] / shareholder[s].

It is imperitive that the buy and sell agreement is structured and aligned with the Shareholders Agreement and the Memorandum Of Incorporation of the company, in order provide the most tax efficient solution possible.

A correctly structured buy and sell agreement will ensure that Income Tax, Estate Duty, Capital Gains Tax and Donations Tax implications are either:

  • Avoided entirely
  • Reduced to manageable and acceptable levels
  • Funded through tax efficient structures and mechanisms.

From an income tax perspective you need to consider Section 11(w) and all its implications. Although there are choices and decisions that can be made here, in very simple layman’s terms, if the premiums were deducted for income tax purposes by the company, then the proceeds of any life insurance policies paid to the company, will be taxable.

For the most part, Estate Duty is not a concern if life insurance is used to pay for the share transfer between owners / shareholders, assuming that the departing owner / shareholder is a natural person. There is an unusual anomaly to this, insofar as a company, which is a shareholder, is defined as a person by the Interpretation Act, Act No 33 of 1957 and so it is possible to maintain Estate Duty free payments to shareholder companies. Trusts on the hand do not enjoy the same exemption. There are nevertheless corporate structuring techniques available with a combination of trusts and companies, whereby Estate Duty benefits could still be obtained.

At any stage that the payment for the owner’s interest or shareholding exceeds the base cost of the interest / shares, there will be a capital gain and capital gains tax will ensue. Similarly, there could be a capital loss, which will not be deductible for tax purposes. It is vitally important that an acceptable valuation method is adopted and adopted in all relevant agreements and the MOI of the company, to avoid excessive CGT [capital gains tax] being raised by SARS.

Donations tax could arise if the payment for the ownership interest / shareholding is substantially less than a fair market value thereof. This is also why one needs to define the share valuation method in an acceptable manner and structure to SARS. If insufficient consideration is given to this aspect, you could find yourself in the unenviable position of incurring both Donations and Capital Gains Tax upon the transfer of ownership.

Commercial Property Finance

The Fedgroup Commercial Property Finance offering is based on three features that make our approach unique: competitive rates, flexible terms and the personal touch.

Competitive Rates

Fedgroup’s rates are highly competitive so why not give us a call. In addition, Fedgroup’s premium for fixing your interest rate is unrivalled in the South African market.

Flexible Terms

Our minimum contract period is five years. This affords you the flexibility to renegotiate the terms of your commercial property bond agreement every five years.

The personal touch

Fedgroup’s head of Commercial Property Finance meets personally with prospective property owners a loan decision is provided in principle within 48 hours.

Contact Fedgroup Commercial Property Finance today to find out more about our unrivalled interest rates and turnaround times.

How to apply for a commercial property loan

  1. Approach Fedgroup with a property in South Africa that you wish to finance

  2. Fedgroup expresses interest

  3. Complete the easy-to-use application form

  4. Fedgroup assesses the value of the property

  5. Credit risk assessment is completed

  6. Approval in principle is given within 48 hours after site inspection

  7. Terms of loan agreed to in principle

  8. Full valuation is performed

  9. Loan agreements are signed

  10. Guarantees are issued where necessary

  11. Conveyancing commences and the bond is registered

  12. Funds are transferred

Tax Consequences of Pension/Provident fund withdrawals at resignation

Tax Consequences of Pension/Provident fund withdrawals at resignation

Most of us will experience the process of resigning from an employer at some stage of our lives and, if you are lucky enough to receive a pension, you will be left with an important choice to make at that point.

I would like to share, in simple terms, the different tax implications when someone opts to take a 100% cash withdrawal at the point of resignation (before retirement age) or transfer their Pension fund to an approved Preservation Fund.

To understand the tax implication, there are three important aspects we need to understand:

The difference between Pre-Retirement and Retirement

  • Retirement, in normal circumstances, is allowed at the age of 55 or older
  • Pre-retirement, in normal circumstances, is before the age of 55

The difference between how Lump Sum or Pension Benefits will be taxed pre-retirement (Withdrawal Benefits Table)
and at retirement (Retirement Benefits Table), please see below:

Taxable Lump Sum Rate of Tax
0 – R25 000 0% of taxable income
R25 001 – R660 000 18% of taxable income above R25 000
R660 001 – R990 000 R114 300 + 27% of taxable income above R660 000
R990 001 and above R203 400 + 36% of taxable income above R990 000
Taxable Lump Sum Rate of Tax
0 – R500 000 0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000
R700 001 – R1 050 000 R36 000 + 27% of taxable income above R700 000
R1 050 001 and above R130 500+ 36% of taxable income above R1050 000

By simply looking at these tables, you will already have noticed the difference between the portions taxed at 0%:

R0 – R25 000 – Withdrawal Benefits Table

R0 – R500 000 – Retirement Benefits Table

The options available at resignation to the Taxpayer:

  1. Receive a cash lump sum
  2. Transfer the pension benefit to an approved Preservation fund (Pension Preservation of Provident Preservation) or Retirement annuity.
  3. Choose a combination of the two options (Excl. GEPF)

Tax and your fuel – Fuel levy

Most people do not know, but about 60% of your fuel price is not for the fuels cost. Most of it goes to pay tax (Fuel Levy), the Road Accident Fund and the various players in storing, wholesaling and retailing petrol.

As of April the makeup of the cost of petrol (as reported by the Automobile Association) is as shown in the table below.

Notes to the table:

    1. The difference between the two sets of prices is the cost of transport (34 cents per litre) to get fuel from the coast to inland.
    2. The Fuel Levy is a general tax and is part of Government taxes. It will contribute R77.5 billion to taxes in 2018/2019.
    3. The RAF is to compensate those injured in road accidents. RAF will raise R41.2 billion in 2018/2019.
    4. Storage, margin and distribution is mainly the fee paid to wholesalers and service stations.

If you want to see how this effects you on a daily basis, take a look here:

Here’s how the new fuel levy will hurt you at the pumps

Buy March Sell November

Today we discuss another solution to our aim of increasing our money twice as much each year.

In order to double your money, you will have to make some effort in planning and engage in action with some marketing and sales skills.

Buying in March and selling in November is another way you can double your money, or some of your money.

The idée is to buy an asset at half price and trade it at double the price or market value. This might seems exuberant at first but there are many products and assets you can purchase at half price.

The secret is to buy when people are eager to sell and sell when people are eager to buy. In March people are seriously recovering from their realities of December/January holidays and money are in short supply.

The flip of the coin happens at the end of the year when excitement and bonuses drive sales, but of course you can advertise anytime.

There are various assets and will depend on your personal skills.

You can consider buying from online adverts to auctions and wholesalers.

The following is a short list of ideas you can consider:

  • Books
  • Tickets
  • Bicycles
  • Cars
  • Watches
  • Property
  • Holiday Accommodation

Investing your money in the bank for 7% growth to keep up with inflation is the minimum and without much risk, however if you acquire some skills and are willing to risk some of your money, you can in fact double your money.

Take note that you should consider the amount of money you are willing to risk vs your skills and time. Take your time and start small. Greed is one of the largest reasons people loose moeny.

This is my third post on how you can double your money. Let us know your ideas on how you would be able to double your money?