• a stash in a box that was located next to the till in a bar with various questionable stains on them, with the owner’s assumption being that they all fell in the year for which we were to prepare the annual financial statements,
• on another occasion, it was a tale of a hi-jacking, in which the criminals not only got away with the car but the suitcase which had been used to store all the invoices over a period of months,
• in plastic sleeves, which, no matter how many times we tried to sort through we found a significant number still missing, which sent the owner in search for the other invoices, let’s give that an average turn-around time of 2 weeks each time.

 

Some clients we found to be more organised than others which reflected how much they valued and respected their business. They invested significant amounts of time safely retaining these slips, documenting the detail in a spreadsheet and sorting them per month. Others simply dumped them in a box figuring that maybe, one day, someday, they may be required and hoped for the best.

 

Let me take a moment here to explain the importance to the business owner of keeping the invoices and the receipts. Invoices and receipts are evidence of expenditure incurred by the business and most qualify as a tax deductible expense.  They should be retained as proof of such expenditure occurring for both year-end company audits as well as audits carried out by the South African Revenue Services (SARS).

 

In the case of a statutory audit should the auditor (who usually tests on a sample basis) determine that missing invoices amount to a limitation of scope on the audit, he/she would be well justified to issue a disclaimer opinion on these financial statements meaning no reliance can be placed on the information reported. This would be detrimental for any business as no financial institution, shareholder or investor would give those financial statements a second glance.

 

During a SARS audit missing invoices would be interpreted as the company having been claiming tax deductible expenses for expenditure it did not incur. Not only is the company now guilty of submitting false returns but it now has to pay the taxes on the increased profit margin, the penalties and the interest. Depending on the duration of time past when these audits are performed, which could be years, the interest can be quite hefty.

 

Fortunately thanks to the wonders of the 4^th industrial revolution there is now a solution to avoid the inconveniences and predicaments noted above. Receipt banking. This is an application which makes capturing an invoice as easy as taking a picture using a mobile phone. A picture of the receipt or invoice and the details are extracted by the application and saved on an online spreadsheet. The information is then cleared directly to the accounting software of choice reducing the risk of error. Furthermore, invoices can be e-mailed from the business owner or the supplier directly into the accounting software.

 

What does this mean for the business owner, the auditors, the accountants? No more stakes of faded, stained or missing invoices dating months and in some cases years back. No more time spent sorting invoices only to note for a third consecutive time some are still missing. No tales of bags of invoices, lost or stolen with no record of proof of them ever existing. No errors as a result of data incorrectly captured, human error. It’s a game changer, revolutionising how we do accounting, allowing for data to be available in real time. It is just one of the applications that we at Àrbol Grande Business Solutions make available to our valuable clients to make their lives, that much better.

 

 

‘I don’t believe in debt,’ he told me. ‘If my business does not perform well in a particular month I do not want to be stressing about creditors. I want to sleep well at night,’ he went on. I listened cheerfully, humbled by his work ethic and respect for money. I knew he was a mechanic, with 8 employees, 6 of them working away outside.

His business had a good reputation with people coming from far and wide in the region of Gauteng to this VW and Audi specialist. This morning I would get his story and we could review and finalise his website and I could issue him with my first invoice. As I gobbled down last night’s leftovers as breakfast my phone rang.

 

It was Steve’s brother Tshepo*.  He asked me, 3 times, where I was before letting me know that his brother had passed away. I was furious. In what world is that a funny joke! It was not a joke. He explained that it was a hijacking gone wrong. He was on his way to Kempton Park to drop off a client. He later added that he was the first to arrive at the scene. I immediately went to site to see them.

 

In time it sank in. I kept in touch with the brother. I told him I would help them with the trust for the business so it could be kept running for the benefit of the family. I realised he was uncertain what I was talking about and wondered if Steve had left a testamentary will in the first place. I soon came to realise that many did not understand the purpose and the benefits of a trust. At this point I decided I need sit down and explain this in an article, because the loss of a breadwinner in a family could have devastating consequences if not prepared for.

 

Well then, what is a trust? A trust is in arrangement where assets are held by one party (the trustee) for the benefit of another (beneficiary) as instructed by the owner (trustor/settlor). In recent decades the continued usefulness of trusts has been questioned as the tax benefits have eroded over time. The National Treasury recently introduced s7C in the income tax act which further tightened the tax provisions applicable to trusts. So what would be the reason to initiate a trust in this day and age? I have taken the liberty of listing a few below;

• Like companies, trusts can be used as a vehicle to protect against creditors
• To establish continuity – Efficient succession
• To reduce certain taxes like estate duty
• Can be used as an effective planning mechanism for future generations if the assets are kept in the trust
• They can also be used to achieve the same benefits as a usufruct (the right of use).

 

These benefits apply to all trusts. As mentioned above trusts are no longer beneficial as a tax avoidance tool. However, special trusts do have additional tax benefits that do not apply to a normal trust. These are trusts that are either created for people with special needs who are not able to provide for themselves financially or a trust created in the will of a deceased person for the benefit of the relatives of the deceased person where the youngest of the beneficiaries is under the age of 18 years. Instead of the current income tax flat rate of 45% applicable for normal trusts, special trusts are taxed at the rate applicable to natural persons meaning the sliding scales would apply. It must however be noted that the trust is still not considered a natural person for tax purposes and therefore rebates and other exemptions such as the s6A and s6B medical tax credits and s10(1)(i) interest tax benefits would not apply.

 

Further benefits exist for a special trust created for people with special needs. These include;

• A Capital Gains Tax (CGT) inclusion rate of 40% where any other trust would have an inclusion rate of 80%,
• This special trust is also entitled to the annual CGT exclusion of R40 000,
• It is also entitled to primary residence and personal use assets exclusions which the other trusts do not enjoy.

That said when considering creating a trust various factors come to play. It would be advisable to sit with your accountant to determine the purpose of creating the trust and effect it would have on your assets. It is all in all, still considered a useful tool in estate planning and are likely to be are around for a long time to come.