Steinhoff: Tax implications

It must be difficult to plan a nativity scene within the fund managers’ offices this year? Where will they find three wise men? Although there are some who, with the benefit of hindsight, are now claiming the writing was on the wall and that the Steinhoff disaster was inevitable.

There are always winners and losers. One wonders if anybody was shorting Steinhoff! They will have a handsome Christmas and may pay a lot of tax on the profits come February!

Now comes the question “Will the Steinhoff disaster add to finance minister, Musi Gigaba’s woes?” SA is already predicted to undercollect tax by R50bn for the 2017/18 tax year. Some say it will be even more.

Obviously this cannot be good news and it is virtually impossible to predict the knock-on effects. Many Christmas plans must have been reduced to brings and braai’s. Even VAT and sin tax can be affected.

However, South Africa has bigger problems with its revenue streams than Steinhoff.

The really big investors are retirement funds, the principle casualties being the government employee pension fund, PIC and other major institutions. These funds are exempt from taxation. So when bad news comes their way there is no tax relief and no cost to National Treasury. In the end of the pensioner carries the full burden.

In the old days when a stock market crash or disaster of the magnitude of Steinhoff hit, many investors scrambled to change their tax status from investor to speculator. This allowed them to claim a full tax deduction for the losses sustained. Things are different now.

If listed shares are held for more than three years the proceeds on disposal are deemed capital irrespective of whether the shareholder is an investor or speculator. This confines the loss to being a capital loss, worth a maximum of 18% in the case of an individual, 36% for a trust and 22,4% for a company. It also presumes that the taxpayer has other capital income available for offset, over capital losses carried forward. Capital losses cannot be claimed against revenue income.

Insurance companies are taxed on a market to market basis using the five funds approach. So the effect will be very dependent on the make-up of the funds.

Perhaps some speculators who have held shares for less than 3 years may be able to gain some tax relief if the shares are disposed of before the tax year end or they are able to, in the case of individual taxpayers, motivate a permanent diminution value. However this would be a very small proportion of the total Steinhoff shareholding.

In all the losses in tax collections over the Stenhoff disaster will not be that substantial. South Africa has for greater things to worry about when it comes to tax corrections for the remainder of the 2017/ 18 tax year, such as

• The forthcoming ANC leadership conference and how that is effects exchange rates and business confidence.
• The extent of annual bonuses and 13th cheques paid in November/ December.
• Will consumers come out to play over the festive season?