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					                            AW NEWSLETTER
          Incorporating Anderson Whittle, AW Kinekt & Outsource Consult

                                                                   January 2007


THE BUDGET
Again benefits were disbursed to taxpayers in the Budget. Tax
thresholds for persons under 65 start at R 43000, and for these
Taxpayers the first R18000 of interest is tax free as well.
Interestingly there is a proposal for R 300000 tax free payment, by
the employer, to the employee, upon the employees death. This will
make Group Life a really worthwhile employee benefit. Donation
tax is now levied above R100000 pa, and death duty starts above R 3,5
Mil. Tax free medical aid employer contributions are now R530 for
the first two members, and R 320 for dependents. And tax deductible
donations to PBO’s are now allowed up to 10% of taxable income. This
will really make your favourite charity happy!

AMNESTY

The small business tax amnesty is still available until end March.

USUFRUCTS & BARE DOMINIUMS

Various commentators have expressed the view that there can be
unpleasant Capital Gain consequences in usufructs, and some VAT
effects in certain circumstances in dominiums. Are these now
past their sell by date?

STAFF INCENTIVES

Interested (if you are a start up co) in retaining, incentivising and
attracting top quality management? We have developed a simple reverse
option scheme which does not need a share trust, can be used on the
service contract platform, and provides excellent CG possibilities
for top managers - locks them in securely, the best golden handcuffs
that there are.

GET TO US EARLY!

We have never been great advocates of orthodox share options; changes
in Tax law have meant that about half of the schemes have been still
born, thus have damaged morale, and we don’t think that they provide
great incentive to senior management, other than the handful of very
Top Managers, as middle manager efforts can hardly be seen in the
share price.
And when the options are out of the money, they have been actively
damaging in retaining these managers.
Rewarding high performance employees regularly with cash has been
the way that we have seen is best practice to encourage performance,
using a risk adjudged reward measure.

EROSION OF RETIREMENT CAPITAL

Pension funds are looking more and more suspect as Employee Benefit
vehicles.   The Press, the Adjudicator, the FSB, the members, the
courts, and the SAPS are regularly attacking actuaries, Trustees,
Administrators and the investment bodies.

It seems like it will get worse. In fact, Pension Funds may even be
seen as political whipping boys.We can’t really see it getting
better. Trustees are now starting to be held liable. Is a pension
fund an asset or a liability? Where will it end up? We are sure that
much more is to come out before the issue dies down.

The Cash based compensation schemes that we implement are flexible
and do not enter into cul de sac long term promises, that may end up
damning The employer by politicians and other persons\institutions,
even though the Employer acted in utmost good faith in their
obligations.

Many of   our tax clients, payroll client’s employees, and contractors
are not   saving enough for retirement. We note the ineffectiveness of
Pension   Funds to provide the solution for this, and no doubt you have
read in   the press of the big problems in this arena.

Indeed the Government is addressing the issue as well, and in the
Budget 2010 will see the introduction of a state compulsory
retirement saving scheme for people who have no structure in place.
Unfortunately history has shown internationally that Government is
particularly poor in looking after your retirement funds - I don't
think that politicians should be in charge of your hard earned money!
We believe, outside the coming state retirement scheme, we have
developed a tax deductible, socially responsible scheme - wholly
owned by you! This will be based on unit trust Retirement Annuities,
and we plan to get all our clients’ employees and contractors to
contribute to their own fund from 1 March 2007.

It has been shown that costs are the biggest determinate in your
retirement fund performance – so we have chosen the lowest cost
vehicle to provide this to you – unit trusts - and you will also get
the full tax deduction monthly as well. This scheme has the massive
advantage too, of no penalties due if you stop contributing to it,
and you can obviously take it on to any new employer in the future
as well. So it's flexible, low cost, and not subject to penalties -
it's clearly the way forward. And in the 2007 Budget the Minister
cancelled taxes on retirement funds, which could lead to almost a
full percentage increase in net returns ( this could therefore
increase returns by a factor of more than 12% - which makes a big
difference over the longer term ).

Employers need now to becoming prescriptive in their strategy of
requiring employees to adequately provide for retirement.

OUR SOLUTION

Unit trust RA's to ring fence their propensity to erode their own
retirement asset. The single biggest factor other than spending
Pension/Provident lump sums in this erosion is cost, and these
Retirement Annuity policies are the lowest cost, when they are not
linked to Unit Trusts.
These Unit Trusts RA's are included in Cost to Company. That the
employees are incentivised by a use it or lose it policy.

It is interesting to note that the USA had a similar problem. Only
a generation ago, most Americans could not afford to retire, and
defined benefit pensions were the norm. Then the IRS introduced Sec
401 (K) pretax retirement savings, empowering individuals to actively
provide for their own retirement. Now 51% of American 401 (k) plans
are invested in mutual funds. And 72% of US mutual fund investors are
using mutual funds as their primary financial retirement tool. More
than half the assets in IRA’s (Individual Retirement Accounts, (like
our RA’s) have come from employer sponsored plans (i.e. pension
Schemes).
It appears that the future for South Africans is:
    Use Sec 14 of the Pension Funds Act to exit from expensive and
    poor performing SA pensions and provident funds and invest in a
    tax-free individual unit trust RA’s.

As a matter of record Anderson Whittle has never instituted a pension
or provident fund for any of our clients. However, we are certain
that Individual Unit Trust RA’s are the way forward for employees who
wish to retire comfortably.
Please speak to Ivy at 021 5576438 to ensure that you can retire.

People are living longer these days – the US Bureau of the Census
(International Programs) notes:
     In 1997 6,2% of Southern Africa were over 60 years old.
     In 2025 10,8% of Southern Africa will be over 60 years old.

Will you be able to afford to sustain a good lifestyle after this
age? A unit trust RA will be the primary weapon to enable this.


AW Recruitment

With our Contract House solution, we are regularly now asked for
Recruitment services. As such we have registered Anderson Whittle cc
with APSO, and two AW employees recently wrote the APSO exam, both
being placed in the top five, with one receiving the top mark. We are
at your service to provide efficient and really top class recruitment
services directly to you.




 COMPENSATION – THE HOLY GRAIL

 After 20 years of developing compensation for our clients we are

 Now certain of the best practices to leverage and deliver best
 quality compensation. We have led compensation in South Africa now
 for close on 20 years. And our clients are most successful. Two
 things are certain, that the vast majority of companies have
 inefficient compensation and management spends little time in
 addressing the resource. It’s interesting to note that even if
 compensation may be 50% of a company’s turnover and marketing say
 5% of a company’s turnover, management typically spends much more
 time on managing the marketing rather than the compensation. And
 they typically don’t understand the compensation function, and
 throw grading, evaluation, banding, remuneration committees, and HR
 insourced and outsourced solutions at the resource. Our experience
 is that by narrow focusing on the application of the massive
 compensation   spend,  with   top  quality  CTC   application,  tax
 structuring, excellent service contracts and incentives is where
 excellent retention, top quality candidate attraction, and employee
 satisfaction and performance comes from. And this leads directly to
 increased company profitability.

 And we further believe that employee share schemes are wasteful and
 are of little value, as are employee compensation schemes based on
 pension, and that BEE share for share, Sec 42 and other empowerment
 schemes dilute equity at the expense of shareholders. All the above
 are very very difficult to reverse out of – they are inherently
 weak strategic tools because of this. Management are severely
 constrained in amending employer strategy change using their most
 powerful resource, compensation, in entering into these long term
 inflexible schemes, which are based on ideas of life long
 employment and employer long term responsibility for the employee.
                                     We believe our Cash Based
Compensation schemes are easy to move into or out of. Flexibility
is tremendous. Increases are performance linked. Packages are
individually structured. Employees are happy and perform.

And with our outsourced solution – we ask for only one hour a year
of client top management time in providing new CTC ( per annum )-
but we do ask for more management time though, spent on incentives.

It’s should be getting very clear to management – if you have old
style compensation – you are fast becoming uncompetitive. Our
clients will have a 5-10% advantage in the biggest spend area of
their business over old style inflexible and wasteful compensation
regimes. And employees are starting to realize it.



CONTRACTORS VS EMPLOYEES

By 2015 contractors and freelancers could make up as much as 50% of
the white-collar workforce. This trend is in place due to the
continued   attractiveness  of   outsourcing   non-key  activities,
therefore freeing up management to concentrate on their core focus,
as well as the advantage of being able to manage by project, which
provides definite result orientated work planning and completion.
This is clearly the way forward for companies who are intent in
success, and remaining competitive.

AWKinekt Contract House, started in 1997, is SA’s only Contract
House, and provides the inputs necessary to operate management by
project on a controlled and low cost basis.

Perhaps one should examine some core aspects of the system:

 -   the client controls and directs the project, that is the very
     expensive total outsource of the risk –reward of the project is
     not undertaken
      -   the ownership of the project means that the client has control
          in changing and amending it, without the massive costs
          associated with a solution package change

      -   AWKinekt is involved with the scoping, specifying, skilling and
          operating the Project to finalization.

      -   We skill your project with non-LRA contractors           which
          reduces cost and increases flexibility.

      -   The result is a low cost solution – reducing the costs of
          managing by project.



Our Contracting resources enjoy the unique and proprietary AWKinekt
Contract House structures, and increased cash rewards of our
contracting system.
Our Cape Town and Johannesburg clients are hugely impressed with the
quality of our Service Delivery Management – widely regarded as the
best service delivery system for contracted service delivery, and
AWKinekt compliance with Oracle system is regarded as top quality.

The AWKinekt Contract House recruitment, uniquely effective service
delivery, disciplinary record (of all AWKinekt contractors - in seven
years there has only been one CCMA case which was thrown out of this
court), quality of work, and level of skills brought to bear,
contractor satisfaction level, and contractor compensation regime has
been regarded as top quality by our clients.

The Kinekt business was purchased by ourselves in late 2005 and was
restructured, upgraded and re-launched as AWKinekt Contract House in
early 2006, this has led to higher levels of service and quality in
our service delivery.
We have also introduced a novel learnership Program, which provide
the platform for BEE candidates to be trained on a fast track basis,
on a “ no reward” basis, which we calculate to be 60% cheaper than
corporate training programs, so leveraging the ROI advantage even
more. We reiterate that we are the only contract house in South
Africa, and this socially responsible and value adding service to
existing clients is only available through us.

The AWKinekt Contract House solution is a unique cost based solution,
and the most advanced method of delivering high Skills into companies
at reasonable rates.

We are getting quite a substantial number of SARS attacks on our
individual taxpayer compliance business (we have 600 clients). SARS
is stating that individual taxpayers who are independent contractors,
who have IRP5's (i.e. PAYE is deducted) are actually employees, and
SARS is attempting to disallow deductions. This does not bode well
for labour brokers, as their contractors are deemed employees.
Our AWKinekt Contract House system will not be subject to this
attack.
AWKinekt is the only way forward for independent contractors.
Contact us as (021) 5576438

STC

In the Budget the minister reduced STC to 10% from 1 October 2007,
And noted STC would be replaced with a tax on dividends at company
Level in the future.
CAPITAL GAIN – SHARES

In the budget the Minister proposed that Shares held for three years
Will be regarded as capital.

TAX RETURNS and your Car Allowance

Please note that Logbooks, as per our format, are very effective
indeed. When having your compensation structured through us, and
where you have told us you will be keeping a logbook, you must do so,
otherwise you will be making a very large payment to SARS at
assessment time as opposed to receiving a very large refund from
them.
OFFSORE

Overseas investment allowances have now been increased to R2 000 000 per person.
Permission for this must be applied for, which we can do for you.



TRENDS IN COMPANY TAX



      Historical trends in Organisational Economic Corporate Development

     statutory company tax rates and company tax revenue(a)




      Rates are top federal statutory company tax rates. Averages are un-weighted.




Executive Payroll

We offer really effective compensation and have a unique top
management tax effective payroll at very competitive rates. Our
outsourced payroll includes Mmonthly reports relating to Payroll;
Leave, Sick Leave, Payslips, Annual IRP 5's, Annual EMP201, and we
handle the onerous dealings with the Receiver.

We can also    offer Cost    to    Company    compensation, and    for
Management, Service      Contracts and Annual      Re-Structures which
include Car   Allowances   (two  variances); Rental   FBV;   Transfer;
Reimbursed amounts; Medical Aid; Retirement Annuity; Pension /
Provident Funds. We are able to apply and help with cost centres,
budget variances, help with incentives, advice on new employee
packages, and generally provide high level inputs to making your
business really competitive. Our payroll system is flexible; we
operate off your Pension schemes, Medical schemes and other EB
structures. These days though, cutting edge employers are moving
to Cost to Company for obvious reasons (Consultancy on this is
included in our costs). It's best to let each employee buy what
he/she thinks is best for himself/herself

We were amongst the pioneers of this Cash based Compensation in the
early   90's,  and   today   our   clients  certainly have the   best
compensation, so attracting and retaining best quality employees.
You'll find that your compensation regime will move up to the cutting
edge!

We also handle SARS PAYE audits, up to and including the ADR and Tax
Court.

I am sure that by now you must be interested to know how much value
we can add to your HR function - the biggest Investment that you
have.

             Nov 2006 Draft Amendment – Income Tax Act – Personal
             Service Companies (PSC) AND Bomb proofing the deemed PSC:

 The Amendment includes proposed changes to PSC’s. These include a
 new subparagraph (b) which includes a deeming provision where the
 PSC renders services mainly at the premises of the client. However
 the onerous deeming provision making an entity a PSC when in
 receipt of regular earnings will be deleted.

 Do you have a PSC or think you may be caught in the quicksand of
 the deeming provisions?

 If you do   - you should really speak to us.

UK Trusts
The present British Chancellor of the Exchequer Gordon Brown is
proposing that UK Trusts will have a capital tax levied on them every
decade or so. This will make a UK Trust less attractive as a Tax
delaying vehicle. One might expect that a similar effort could come
to pass in SA. Non-resident trusts of course would not be affected.

Outsource Consult

Our Outsource business, designed for high calibre – high earning
consultants to work through free of the LRA, UIF, Skills and PAYE is
available as a platform for independent persons to provide their
services through.
For eight years we have provided top level consulting through this
neat and powerfully structured environment, in which Sec 8(1) areas
are hybridised with sole trader benefits to maximise net cash.

Examples of recent consulting work have been implementing the
integration of two large bank home loan books, operating in tandem
the old and new payroll systems of a large SA corporate, and the
implementation of an integrated MIS and Financial Control system for
a new Cape Town company. The costs of Outsource are a net 4,2%,
making it massively effective for users.
New -More Beneficial Lump Sum Retirement Tax:

From 1 October the tax free lump sum will increase from R120 000 to R
 300 000,with the next R 300 000 being taxed at 18%, and anything in
   excess of R600 000 at 36%. This means there will be no use in
  reducing income in the last two years to ameliorate the taxon the
  lump sum, and certainly makes the playing fields and goals a lot
             clearer for people planning for retirement.

				
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