Draft Taxation Laws Amendment Bill 2017

One of the biggest factors that influence the planning and advice given to clients is changes to tax legislation. 
National Treasury makes amendments to our tax legislation each and every year, and in this edition we examine the 2017 Draft Taxation Laws Amendment Bill, as supplemented by National Treasury, with the accepted responses from commentary received by the public and other interested parties. We provide you with both a quick overview as well as a more in-depth look at the actual proposed provisions so that you are aware of potential changes and the direction that the policymakers are taking.
While the press is focusing on proposed taxation on the income of SA residents working offshore, the 2017 Draft Taxation Laws Amendment Bill also contains a few items of interest from a broader financial planning perspective. Please note that as this is only draft legislation and may change. 

Currently, according to Section 10 (1)(o)(ii) of the Income Tax Act (ITA), the remuneration South African residents  earn outside South Africa is fully income tax exempt, provided they are outside the country for a specific period of time. 
Think of all the clients who are South African residents but working offshore (e.g. in Dubai) or in African countries. The issue that National Treasury has is that in some host countries no or very low rates of tax are applied to the SA resident’s income. 
As this exemption does not apply to those employed in the public sector offshore, South African residents in the offshore private sector are therefore at a tax advantage. 
It is proposed that the exemption will be repealed and all remuneration earned offshore which exceeds R1 million will become subject to tax in South Africa. 
From a financial planning perspective, this may result in a greater incentive for these South African residents to increase their retirement savings in South African retirement vehicles, in order to benefit from the tax advantages (such as deductions), as opposed to simply keeping all that money offshore. 
When the 2016 ITA Amendment was introduced, there was an upsurge in account holders transferring their trust loans into companies in order to avoid the provisions of Section 7C, which deem low or interest-free loans to trusts to be donations (subject to donations tax at 20%). 
It is proposed that Section 7C be widened to also include loans made by companies, the shares of which are held by trusts. 
The message is very clear that trusts are being scrutinised and are viewed (rightly or wrongly) as tools which high-net-worth individuals are using to reduce their taxes, now and at their deaths. 
While a trust remains a valuable estate planning tool, the emphasis must be on the need to protect wealth for future generations, and clients need to accept and be prepared to pay a premium for this protection in the way of higher taxes. 
Clients need to fully understand what they are getting into when they elect to use an inter vivos trust structure. 
While you as a client may know the pros and cons of establishing and transferring assets to a trust, a qualified professional should actually advise and guide you and set up these structures. Testamentary trusts remain invaluable estate planning tools and the issue of loan accounts should be non-existent or minimal in this domain. 
We may even see testamentary trusts used in far broader ways going forward, coupled with life insurance to fund the payment of estate duty and capital gains tax at date of death. Speak to your financial planner as soon as possible should you believe that these proposed changes will have an impact on your circumstances.