Are you required to register as a Credit Provider?
The National Credit Amendment Act came into effect March last year, and with it Section 40’s removal of the requirement of 100 Credit Agreements outstanding.
But, what does this mean for you?
This means that any person or entity with a principal debt owed to them, in terms of any credit agreement that is not defined as an incidental credit agreement, in excess of the threshold is required to register. In case you find yourself wondering what Incidental Credit Agreements are, these are credit agreements where interest is levied on late payments for goods or services).
Says Octagon Chartered Accountants: “What this amendment has done is that while previously, most casual lenders were excluded from registering because of the generous threshold of R500 000, a new threshold has been introduced, which has reduced the threshold to nil R0.
“This means that anyone, with just one loan or other Credit Agreement, barring the Incidental Credit Agreement, will be required to register as a Credit Provider in terms of the Act.”
But, how will staff loans be effect with the introduction of this new threshold?
When it comes to the NCA and staff loans, Octagon Chartered Accountants advises: “It is important to note that any loan or credit extension which does not include interest or a fee for late or deferred payment will, however, not fall under the definition of Credit Agreement and accordingly, registration as a Credit Provider will not be necessary when providing such facilities.”
Therefore, explains the chartered accounting and tax advisory firm, if staff loans are provided it should be interest-free or a fee for late or deferred payment should not be charged. Otherwise your dealership needs to register as a Credit Provider.
“If no interest is charged, bear in mind that it constitutes a fringe benefit in the hands of employee for tax purposes and, accordingly, will increase the employee’s tax liability on a monthly basis. For example, outstanding loan x official interest rate = a fringe benefit.”
If, however, you decide to provide interest bearing loans to your staff, you need to ensure that you have proper credit granting procedures in place. Says Octagon: “If you fail to set up proper credit granting procedures, you stand a high chance of getting your credit agreements set aside by the court, with no chance of having them suspended. This means, that you’ll be losing out on the amount that you initially lent out – a detrimental effect that you want to avoid!”
Are family-related loans affected?
What you need to keep in mind is that small, personal loans (referred to as credit agreements between persons who are at ‘arm’s length’, for example, between members of the same family) fall outside the terms of this Act.
And what happens if I fail to register?
A compliance notice, which will force the Provider to stop providing credit or get them to register, will be issued by the Regulator if a Provider remains unregistered. If the Provider still fails to register, then they stand the chance of paying some hefty penalties and fees. “Therefore,” explains Octagon Chartered Accountants, “it is imperative that those who fall within the definition of a Credit Provider register as such. You cannot call on the Act during a credit agreement, unless you have registered for it. The last thing you want is to try make a claim for extended credit or payment as an unregistered Provider. You’ll find yourself floating around the deep end, with no leg to stand on.”