PROPOSED CHANGES TO THE TAX REGIME ANNOUNCED BY MINISTER OF FINANCE on 24/2/16.
(Effective 1/3/16 unless otherwise stated).
By Almo Lubowski
Expenditure is over 1.46 trillion rand. Budget deficit projected at 3.2%.
Taxes collected were R 11.6 billion lower for 2015/6 than estimated. Revenue to go up by R18.1 billion for 2016/7.
Less than a million people bear 64% of personal income tax.
There will be R 5 bill tax relief for individuals but business will pay in more.
Reduce municipalities from 278 to 257. Public infrastructure capital spending: R 870 billion planned. Inner city regeneration for Durban incl. Bridge City, Centrum & the Point. Extend BRT to Ethekwini.
In 2015 Min. Nene said public sector wages had increased by more than 6% p.a. above inflation over past 10 years. If govt. can’t negotiate salaries- would have to cut back. He was fired…..
Tertiary rebate remains R 2 466 a year for taxpayers 75 or older.
Personal Tax relief:
Tax threshold up to R 75 000 from R 73 650;
Over 65’s to age 74, threshold up to R 116 150 from R 114 800;
Over 75’s threshold up to R 129 850 from R 128 500.
Increase in marginal rates (except lowest) & top marginal rate up to 41%- starts at R 701 300 from R 673 101.
Interest exemption remains R 23 800- under 65’s. (no changes)
“ “ “ R 34 500-over 65’s.
Foreign interest & dividend exemption: R zero
Tax rebates: primary is R 13 500 (was R 13 257) & secondary (>65’s) remains R 7 407. See ‘tertiary’ rebate above for >75’s.
Travelling (motor vehicle) allowances: adjustments made, must keep detailed records. Deemed taxable value is 80%. Adjustments to table of deemed costs; 8000 kms or less business travel- rate is R3.29 per km.
Employer-owned policies: Only ‘keyperson’ policies which are designed to insure revenue are deductible. Nothing new this year.
The monthly deductions for contributions to medical schemes and qualifying out-of-pocket medical expenses were converted into tax credits effective 1/3/2012. Increased to R 286 p.m. for 1st two dependents & R 192 p.m. for additional. More tax relief if qualifying expenses exceed 7.5% taxable income. Neither over 65’s nor persons with disabilities enjoy full deduction anymore: – limited to 33% of expenses & an amount that exceeds the tax credit by 3 times. Included for PAYE & provisional tax purposes.
Provisional tax threshold for over 65’s: remains R 120 000.
nil on property value up to R 750 000 (no change);
3% from R 750 001 to R 1 250 000;
R15 000 plus 6% of the value between R1 250 000 & R1 750 000;
R45 000 plus- 8% of value above R1 750 000;
R 85 000 plus- 11% of value from R 2 250 001;
R 10 mill. plus- 13% (new). 2 These rates will apply to purchase agreements concluded on or after 01/03/2016 and to individuals, legal persons (CC’s and companies) and trusts.
Donations Tax exemption remains R 100 000 p.a. Corporates still R10 000p.a.
Estate Duty exemption remains R 3.5 million and still ‘portable’ between spouses. The surviving spouse can use the ‘unused’ portion of the predeceased spouses’ R 3.5 mill abatement.
CGT natural persons annual exemption increases to R 40 000 (R 30 000) p.a.
CGT primary residence exemption remains R 2 mill. (no changes for 2 years)
CGT exemption in year of death from 1/3/2012 remains R 300 000.
CGT inclusion rates: increase to 40% (33.3%) for individuals & special trusts; increased for companies & trusts to 80% (66.6%).
Effective CGT rates therefore: – individuals max. now 16.4% (was 13.65%); companies 22.4% (18.6%); trusts 32.8% (27.31%); special trusts 16.4%.
CGT small business exemption on disposal still R 1.8 mill (owner over age 55). Market value of assets not to exceed R 10 mill to qualify.
Retirement fund table 0% tax band remains R500 000– from 1/3/2014. This also applies to “severance benefit” payments by the employer (taxed i.t.o. the same amended table from 1/3/2011). No
changes to the table.
Pension & RA fund contributions: from 1 March 2016:
An employer’s contribution on behalf of an employee is a taxable fringe benefit in the hands of the employee.
Individuals will be allowed to deduct up to 27.5% of the greater of their remuneration or taxable income (excl. annuities or lump sums or capital gains) for contributions to pension, provident and retirement annuity funds. This percentage includes risk premiums & admin. costs.
11(k) to be amended to allow contributions to be deducted against passive (investment) income as well including annuities
An annual maximum contribution ‘cap’ of R 350 000 for all persons.
Disallowed contributions can be ‘rolled over’ and set-off against tax at retirement. (but see the limit to estate duty exemption below*)
No changes to max. 1/3rd commutation on pension & RA’s, but Tax Law Amendment Act 31/2015 states that full commutation will be phased out for provident funds (this will be postponed until 1/3/2018 by Revenue Laws Amendment Bill 2016).
‘De minimis’ amount is R 247 500 i.to. TLAA 2015 w.e.f. 1/3/2016 for RA’s & pension funds (was R 75k). (Postponed to 1 March 2018 by same Bill above for Provident Funds).
The de minimis amount for ILLA’s & annuities remains R 75 000.
Compulsory preservation was supposed to be implemented from 1/3/2016. This would include public sector funds, but all vested rights will be protected. No mention of this- off the table?
Withdrawal benefits: pre –retirement lump sum withdrawal from pension/ provident funds 0% tax amount remains R 25 000. Taxable portion taxed on amended sliding scale (e.g. only 18% up to R 660 000). No changes.
GEPF pensioners to receive 5.3% increase from April 2016.
RA’s- in 2015 was proposed that immigrants to SA should be allowed to access their funds if they return home. The TLAA 2015 allows this. 3
*To eliminate the potential to avoid estate duty, an amount equal to the nondeductible contributions to retirement funds is included in the dutiable estate when a retirement fund member passes away.
Last year the Min. said from 1/3/2015, a retirement fund or preservation fund member may defer the drawing of their retirement income until after their retirement date (if the fund allows). But a maximum age will be set. No further mention of this
introduced new tax-exempt savings plan for individuals in 2015 (The annual maximum R 30 000 & maximum total R 500 000 over lifetime invested in tax-free savings will include ETF’s; CIS & bank deposits)-no increases. Why? Transfers between providers postponed to 1/11/2016.
Taxation of Trusts- remains 41% for trusts other than ‘special trusts’. (In 2013 Min. said trusts might be taxed at ‘entity level’ with no flow-through of income & losses, but not applicable to those trusts set up for “the legitimate needs of minor children & people with disabilities”). Davis committee is investigating. Today Min. said govt. proposes to include interest-free loans to a Trust as a taxable donation or an asset in the dutiable estate of the founder. Other measures to be looked at. (Have we not heard this before?). Today no word on scrapping the conduit principle. N.B.
Old- age; disability & care- dependency grant up to R 1 505 but to R 1 515 from October (was R 1 420 p.m.). R 1 525 p.m. for >75’s. Over 16.5 million people on grants in RSA.
Child support grant R 350 (was R330) p.m. Foster- care: R 890 p.m. CO2 emissions tax- increase 1/4/16. Tyre levy introduced.
A levy on sugar-sweetened beverages;
Fuel levy increased by 30 c a litre for diesel and petrol from 1/10/2016.
PBO’s deductible donations stay at 10% of your taxable income and ‘excess’ donations to be rolled- over.
STC- was replaced by dividend tax at shareholder level (DWT) from 1/4/2012. (All distributions treated as divi’s unless proved a return of capital). Dividend tax is 15% for individuals only- domestic companies; retirement funds & PBO’s exempt. No changes.
Compulsory VAT registration: for turnover remains R 1 000 000 p.a. Voluntary threshold remains R 50 000 (no change). VAT rate remains 14%.
FOREX allowance for individuals is R 10 000 000 p.a. and is now R 20 000 000 p.a. for families. There is an additional, discretionary allowance of R 1 000 000 for any purpose (in 2014 only for travel, gifts & loans to nonresidents, donations & maintenance of family). No changes.
Foreign residents pay withholding tax of 15% on interest from 1/3/2015.
VDP for non-compliant offshore investors; Bill to be published relaxing the rules w.e.f. 1/10/2016.
Gambling revenue (including from National Lottery) to be taxed from “by end of 2013” at 1% only, per 2013 speech. Gambling tax Bill supposed to be in 2015. Nothing today.
National Health Insurance (NHI)- a ‘white paper’ has been published.
Persons who earn < R 250 000 pa. & only 1 employer, not file a return.
For non-resident companies tax rate still 28%. 4
Personal service providers tax still 28% but pay PAYE.
‘Micro Business’ tax threshold is still R 335 000 and maximum tax rate 3% provided business’s turnover is less than R 1 mill p.a. & qualifies for 3 years minimum.
Micros only have to file returns for turnover tax; employees’ tax & VAT twice a year.
‘Small Businesses Corporation’ a business with gross annual turnover of maximum R 20 mill qualifies. Tax threshold up to R 75 000 from R 73 650 (same as individual rate).
SBC’s tax rate remains 7% for taxable income up to R 365 000 p.a. & max. rate 28% from R 550 001.
This is a summary of a few matters only and should not be relied upon to give advice. The full text of the speech and the budget detail is available on the Treasury website. E & OE.
By DJ Thomson, CFP® BA, LLB, Adv H Dip FP. Legal Adviser
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.