BUDGET 2018

B1Following the annual national budget speech delivered by Finance Minister Malusi Gigaba on 21 February, we highlight some of the most significant matters arising below:

  • The much-debated VAT rate has been increased from 14% to 15%, which was widely expected although hugely unpopular given the political sensitivity coupled with the effect that this will have on the poor;
  • The corporate income tax and transfer duty rates have been left unchanged;
  • The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too (although we do expect these to go up to 50% / 100% in the near future);
  • “Bracket creeps” or “stealth taxes” had a significant impact on the current budget and refer to marginal tax brackets not being adjusted upwards for the effect of inflation annually. This year, no adjustments will be made to the top 4 tax brackets for individuals. Assuming that inflation is 6%, it will therefore be 6% “easier” for taxpayers to fall into a higher tax bracket compared to last year.
  • A new estate duty / donations tax bracket is to be introduced for donations or estates in excess of R30 million, and which will attract tax at 25%. Amounts below this threshold will still be taxed at the prevailing rate of 20%.
  • The above and other most significant changes can be summarised as follows:
  WAS NOW
Top marginal PIT rate 45% 45%
VAT rate 14% 15%
Tax rate for trusts 45% 45%
Estate duty for estates > R30m 20% 25%
CGT annual exclusion R40,000 R40,000
Primary rebate for individuals R13,635 R14,067

The Minister also alluded to the following matters which would be subject to legislative intervention or refinement during the course of the legislative year ahead:

  • Interaction of anti-avoidance rules relating to share buybacks and dividend stripping and the general reorganisation rules are to be reviewed, since current rules may affect legitimate transactions (especially in the preference share funding context);
  • Appropriateness of the current high tax exemption as part of the “controlled foreign company” (CFC) regime will be considered. However, legislation targeting foreign companies held by foreign trusts (which have SA resident beneficiaries) and classifying these as CFCs will be reintroduced;
  • To further encourage venture capital company investments, the appropriateness of the current passive investment income threshold is to be revisited, as well as the timing of the “group company” disqualification requirement;
  • The “official rate of interest” (used to calculate tax consequences of interest-free or low-interest loans), currently at prime less 2.5%, is to be increased; and
  • Further refinements will be made to the new “debt relief” legislation introduced in 2017 to remove anomalies.

This article is a general information sheet and should not be used or relied upon as 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 financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

THE BUDGET 2017

A1bFollowing the annual national budget speech delivered by Finance Minister Pravin Gordhan on 22 February, we highlight some of the most significant matters arising below:

  1. A new tax bracket will be introduced targeting the wealthy as well as trusts. It is proposed that trusts will from now on be taxed at 45% on all taxable income, while individuals earning more than R1.5million per tax year will pay 45% income tax on such income (estimated to be around 103,000 individuals);
  2. The dividends withholding tax rate is proposed to be increased from 15% to 20%. This is linked to the above increase in individual income tax rates to prevent wealthy individuals from exploiting the arbitrage opportunity that may exist in receiving fees in a company and having these paid out as a dividend;
  3. The much debated VAT rate has been left unchanged, which was widely expected given the political sensitivity coupled with the effect that this may have on the poor;
  4. Increase in withholding taxes on non-residents disposing of immovable property situated in SA;
  5. The “duty free” threshold for transfer duty (tax levied on purchasers of immovable property) has been increased from R750,000 to R900,000;
  6. The corporate income tax, donations tax and estate duty rates have been left unchanged;
  7. The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too;
  8. The above and other most significant changes can be summed up as follows:
  WAS NOW
Top marginal PIT rate 41% 45%
Dividends tax 15% 20%
Tax rate for trusts 41% 45%
Estate duty abatement R3.5 m R3.5 m
CGT annual exclusion R40,000 R40,000
Primary rebate for individuals R13,500 R13,635

The Minister also alluded to the following matters which could expect legislative intervention or refinement during the course of the year:

  1. Renewed focus on transfer pricing and cross-border tax avoidance schemes;
  2. Further refinements to anti-avoidance legislation introduced in 2016 as applies to trusts;
  3. Section 42 “asset-for-share” relief to be extended to also provide for the assumption of contingent liabilities (as opposed to only applying to the issuing of shares or the assumption of existing debt);
  4. Share issue and buy-back transactions (commonly used as part of corporate restructurings whereby CGT is avoided) are to be addressed as part of an anti-avoidance effort;
  5. The anti-avoidance provisions linked to “third-party back shares” (section 8EA) are to be relaxed;
  6. Further refinement and relaxation of the VCC regime as relates to rules restricting such investments;
  7. Measures will be introduced whereby foreign companies held by foreign trusts with SA beneficiaries will be drawn into the SA tax net under the “controlled foreign company” regime

This article is a general information sheet and should not be used or relied upon as 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 financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)