SAIA

NEWS@SAIA – Financial and Legal Advice

Dear SAIA Members

The South African Institute of Architects has taken the initiative to source and share various articles which could help you in the running of your practice. These articles relate to financial and legal matters.

Bryan Wallis

Acting CEO, SAIA

In This Edition

May 2018

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The VAT Rate Increase and Construction Contracts

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Following the recent announcement of the increase of the Value Added Tax (VAT) rate to 15%, effective 1 April 2018, there has been much concern regarding the rate of VAT applicable to progressive supplies of goods and services such as construction activities.

The Value-Added Tax Act, No 89 of 1991 (VAT Act) draws a distinction between construction contracts in relation to the construction of new dwellings, and other construction activities. The impact of the VAT increase in relation to each type of construction activity follows.

Construction contracts for new dwellings concluded before 1 April 2018

Where a construction contract, in which the construction price is stated, has been concluded before 1 April 2018 for the construction of a new dwelling, the construction services will attract VAT at 14% irrespective of when the construction services are rendered or completed.

A ‘dwelling’ in this context means a building or structure which is used, or which is intended to be used, predominantly as the residence of a natural person.

Construction contracts other than for new dwellings

To the extent that construction services are performed or goods delivered before 1 April 2018, such goods or services are subject to VAT at 14%. Charges for construction services performed or goods delivered (other than in relation to a dwelling) on or after 1 April 2018 will be subject to VAT at 15%. These rules apply irrespective of when the invoice for such goods or services is issued (ie before or after 1 April 2018).

Construction activities commencing before 1 April 2018 and completed after 1 April 2018

Where construction activities (other than in relation to a dwelling) commence before, and end after 1 April 2018, the contractor is required to apportion the value of goods delivered and services performed on a fair and reasonable basis between the period before 1 April 2018, and the period on or after 1 April 2018.

The portion of the consideration payable for construction goods delivered and services performed (other than in relation to a dwelling where the contract is concluded before 1 April 2018) which is attributable to the period before 1 April 2018 will attract VAT at 14%, whereas the portion of the consideration payable for the construction goods delivered and services performed for the period on or after 1 April 2018 will attract VAT at 15%.

Where a construction contract was concluded before 1 April 2018 for any construction other than a new dwelling, which stipulates VAT payable at 14%, s67(1) of the VAT Act provides the contractor with relief when VAT becomes payable at 15%. Section 67(1) entitles the contractor to recover from the recipient the additional amount of VAT that becomes payable on supplies made on or after 1 April 2018 as a result of the VAT rate increase.

The contractor will, however, not be entitled to recover the additional amount payable from the recipient if the contract specifically excludes the entitlement of the contractor to recover the additional VAT amount in the event of a VAT rate increase.

The implications of the VAT rate increase can prove to be a challenge in respect of construction contracts and in the presence of any uncertainty, legal advice should be sought.

Written by
Gerhard Badenhorst and
JD van der Merwe

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How to Stay Fit in the New Financial Year

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As many practices begin their new Financial Year, here’s some advice to ensure success in the new year

Budget

With the introduction of a VAT increase, unstable fuel prices and an increase in food and household expenses, consumer spending on necessities has become a significant burden thus there is no doubt that not only consumers, but also businesses, have felt the pinch in their pockets over the last few months. Business owners tend to focus too much on day-to-day problems and forget that the key to success is for businesses to invest time to create and manage their budget, prepare and review business plans and regularly monitor cash flow and performance.

If you’re able to budget properly, then you can ensure that you have enough capital to grow your business this financial year. You can start by reviewing your performance last year looking at your key objectives for the coming year and change or re-establishing your longer-term planning.

Some common budgeting tips you can use to manage your money:

Avoid Hidden Costs

To prepare yourself for hidden costs you must make sure that you’re well aware of legal/regulatory costs, tax/compliance costs, insurance, competition, employee turnover, and more. It’s always best to be well informed and prepared.

Have An Emergency Fund

Instead of putting all excess cash back into the business, you will do well by setting aside a portion towards an emergency fund. Having a back-up plan in the event of a disaster is crucial.

Pay Your Debts

If you’ve taken on personal or business debt, it’s always a good idea to pay it off as quickly as possible. Instead of paying the minimum payments each month, we recommend paying more than what is expected as the money you owe back will compound. If you suspect that you and / or your business’s it over indebted and that you will not be able to fulfil your commitments, then it may be best to apply for a consolidation loan. Your personal credit score determines how creditworthy you are and this applies to business as well. By reducing your debt, you can increase your credit score, both personally and for the business. It also boosts your score when your business profits increase consistently for a long period of time and a good business credit score influences a better and longer payment plan and an even lower interest rate but if the business has the potential to grow though then do wait before applying for consolidation loans. If not, your credibility will be reduced.

Lastly, don’t forget to budget in your own salary as you should always make sure you have enough to cover your expenses and to enjoy the good thing you deserve for your hard work.

Pay Your Taxes

Most of the State’s income is derived from Income Tax (personal and corporate tax), although nearly a third of total revenue from national government taxes comes from indirect taxes, primarily Value-Added Tax (VAT).

For the 2018 year of assessment (1 March 2017 – 28 February 2018), you are liable to pay income tax if:

  • you earn more than R75 750 and you are younger than 65 years;
  • you earn R117 300 and you are 65 – 75 years;
  • you earn R131 150 and you are 75 years and older;

Taxpayers who do not submit their returns will be charged an administration penalty and have to pay it to SARS. This penalty is levied under Section 210 of the Tax Administration Act which also prescribes the various types of non-compliance which are subject to fixed administrative penalties.

The penalty amount that will be charged depends on a taxpayer’s taxable income and can range from R250 up to R16 000 a month for each month up to a maximum of 35 months. Each recurring penalty will have a unique transaction number.

If the administration penalty is not paid, SARS will appoint an agent (such as your employer) to collect the money on its behalf. This means that if you do not respond to any of the notices or demands informing you of your outstanding tax debts, SARS may appoint your employer or any other third party who holds money on your behalf or owes you money, including salary, wages and other types of remuneration, to pay the outstanding amounts to SARS. If convicted, the person is subject to a fine or to imprisonment for not longer than two years.

Businesses are reminded that VAT is also a tax and VAT vendors can claim back their VAT expenses from the revenue service. As an architect, if your total revenue for services rendered in a calendar year exceeds R1 million then you are obliged to become a VAT vendor.

Be warned that the High Court has sentenced three company directors to effective sentences of 25 years’ imprisonment each after being convicted of fraud, forgery, uttering* and money laundering involving R216 m in VAT refunds paid out by SARS.

* refers to money that you know is forged and yet you have placed this money back into circulation through your business

2018 Budget Highlights

Please note that this is applicable to the 2019 tax year, 1 March 2018 to 28 February 2019.

  • The most important change is the increase in the VAT rate from 14% to 15%, with the effective date 1 April 2018.

    Please keep in mind that all the normal VAT rules will apply – the date of supply will determine the rate of VAT that has to be applied. If the goods, or service, was supplied before 1 April 2018, but invoiced after 1 April, VAT must be levied at 14%.

    Any services rendered over a period, including construction, rental agreements and progressive supply of services or goods, will be subject to the 15% VAT rate for any of these supplied from the 1st of April onwards.

    Example – the sale of a commercial building in January 2018, with registry at the deeds office after 1 April 2018, and payment on date of registration, will attract VAT at 15%, as the date of supply will be after 1 April 2018.

  • Changes that will affect financial liquidity/planning.

    • Estate duty on estates with a value exceeding R 30 million will increase from 20% to 25%.
    • Liquidity in the estate must be provided in order to ensure that the execution of the estate can go forward as planned.
    • Donations Tax has been adjusted at the same rate as estate duty. Donations tax will be 25% on any amount exceeding R 30 million. The basic exemption of
      R 100 000 has not been increased. The exemption on donations between spouses is also still in place.

May good financial health and success be yours during the next financial year as you continue to build your practice on sound business principles.

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Shedding light on Labour Laws Amendment Bill

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The Labour Law Amendment Bill introduces new leave categories, that could affect your practice’s capacity

The Labour Laws Amendment Bill, was first introduced to South Africa’s parliament in November 2015, and has been passed by the National Assembly. If it passes the review process by the National Council of Provinces and is authorised by the President, it will ensure that fathers have the right to ten consecutive days leave when a child is born or adopted. Presently paternity leave falls under the scope of family responsibility leave.

Currently, as prescribed by the Basic Conditions of Employment Act (BCEA), male employees are entitled to three days paid family responsibility leave following the birth of their child. However, until now there has been no separate statutory leave type to provide for paternity leave. These changes have been on the table since 25 November 2015 when a draft bill was published in the government gazette, proposing amendments to the BCEA and the Unemployment Insurance Act. The draft amendment bill aims to give employees who are parents (regardless of gender), parental, adoption and surrogacy leave as well as UIF benefits.

The Bill, if passed, will entrench the right to claim payment of parental benefits, ten consecutive weeks adoption leave if the child adopted is below the age of two, the right to claim payment of adoption benefits and ten weeks ‘commissioning parental leave’ for employees in a surrogate motherhood agreement.

Additionally, if there are two adoptive parents, one of the parents may apply for parental leave and the other adoption leave. If there are two commissioning parents (i.e host or surrogate parents), one of the parents may apply for parental leave and the other parent may apply for commissioning parental leave.

The proposed amendments are still in the form of a bill, before being promulgated. It is worth keeping in touch with developments regarding these proposed changes to the Labour Law amendment Bill. This is because the Bill seeks to provide for parental leave, adoption leave and commissioning parental leave as well as the payment of these from the Unemployment Insurance Fund. Many people could benefit from these amendments on becoming parents. SAIA members, running practices, are encouraged to be aware of these possible changes, to update their policies as required and to ensure that they can handle capacity constraints should a member of staff or even a fellow principle need to take the desired leave.

Written by

Nicol Myburgh
CRS Technologies

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April 2018

Architects Unplugged
5 April 2017

We have extended the AfriSam-SAIA Award Deadline to the 13th of April 2018!
6 April 2017

Deadline is midnight on 13th of April 2018!
11 April 2017

Exploring Resilience and Innovation at AZA18
20 April 2017

March 2018

Should SAIA Practices participate in the benchmarking and fees survey?
1 March 2017

CPD On-Demand Introduction Webinar
5 March 2017

SAIA Practice Benchmarking & Fees Survey – Win a drone!
8 March 2017

#AZA18 WeTheCity: Human Rights in Architecture
20 March 2017

WEBINAR: SAIA – AFRISAM SUSTAINABILITY AWARDS PROGRAMME – ADJUDICATION CRITERIA
26 March 2017

UIA Poster Exhibition
28 March 2017

WEBINAR : AfriSam SAIA Sustainability Awards Programme – Adjudication Criteria
29 March 2017

February 2018

Building Information Modelling (BIM) Conference
21 February 2017

Fourth Annual City Development Africa Smart Growth and Digital Transfomation
27 February 2017

UIA PPC Paris Jan 2018

SAIA Building Relationships with UIA

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Simmy Peerutin, Chair of SAIA Practice Committee, attended the UIA Professional Practice Commission (PPC) in Paris last week. Kevin Bingham, a UIA Council member, also attended the day before the UIA Council meeting. The PPC meeting is held annually over two days and is co-chaired by James Wright from the USA and Zhuang Weimin from China. Representatives from all five UIA regions attended, including representatives from the National Council of Architectural Registration Boards USA and Architects Council of Europe. Africa was represented by Sudan, Egypt and South Africa.

Guidelines and Practice Notes recently approved in Seoul include:

  • Guidelines on the value of Architecture
  • Update to PPN1 – Computer Practice, written by Simmy Peerutin
  • New UIA 2017 Gender Equity Policy

Current workstreams for this triennium’s PPC include:

  • Outsourcing of Architectural Services/Practicing in a Host Nation
  • Expansion of PPN 4 – Dispute Resolution – Kevin Bingham is the workstream leader
  • Model International Practice law/act
  • Model International Plan of Work – Simmy Peerutin is the workstream leader
  • Populating and expanding the UIA database on Architectural Practice Around the World (APAW)
  • Mobility of Architects – facilitation of global practice

Through our global interactions at the UIA, we are endeavouring to ensure that our local architects are able to receive support that will enable them to benchmark their work against the best architects globally.