Personal Income Tax
The Minister proposed that the personal income tax rates increase by one percentage point from the second bracket upwards. This will result in increased tax for tax payers earning more than R181 900 a year. However, tax brackets, rebates and medical scheme contribution credits will be adjusted for inflation, as in previous years. The net effect is that there will be tax relief for income levels below about R450 000 a year, while those with higher incomes will pay more in tax. The rate of tax for trusts (other than special trusts) has also increased from 40% to 41%.
Click HERE for a budget summary which shows the adjusted tax rates applicable to individual taxpayers and special trusts for the 2015/2016 tax year. Also tabulated below.
This means that a taxpayer younger than 65 and earning a taxable income of R73 650 or less per annum, or a taxpayer 65 and older but younger than 75 and earning a taxable income of R114 800 or less per annum, or a taxpayer of 75 years and older and earning a taxable income of R128 500 or less per annum, will not pay any income tax in the 2015/2016 tax year.
The example below demonstrates of the changes on individuals younger than 65:
Capital Gains Tax (CGT)
As a result of the increase to the marginal tax rates, the highest effective capital gains tax rates increase as follows:
- Individuals and Special Trusts: from 13.32% to 13.65%,
- Trusts: from 26.64% to 27.31%
Due to no change in the companies’ tax rate, the maximum effective rate for companies remains unchanged at 18.65%.
The interest exemption threshold has not been changed as a result of the tax-free investment vehicles that will be introduced on 1st March 2015 (see our next newsletter).
The exemption amounts therefore remain as follows:
- R23 800 per annum for taxpayers under the age of 65,
- R34 500 per annum for taxpayers aged 65 years and older.
It is expected that these amounts will remain unchanged in the future.
Taxation of Small Businesses
Following recommendations of the Davis Committee, further relief was proposed for small businesses. These are businesses where one of the requirements is that the business has a gross income of less than R20 million in a financial year.
The tax rates for small businesses for financial years ending on any date between 1 April 2015 and 31 March 2016:
The transfer duties on properties have also been adjusted to provide relief to middle-income households. The new rates will eliminate all transfer duty on property acquired below R750 000, decrease the effective transfer-duty liability for properties acquired up to about R2.3m, but increase the liability for more expensive properties.
Medical Tax Credits
With effect from 1 March 2015, the initial tax credit (for contributions to medical schemes) for all tax payers is R270, and for a taxpayer and his or her first dependent is R540. An additional credit of R181 is afforded to each additional dependent.
For taxpayers younger than the age of 65 an additional tax credit will be given of an amount equal to 25% of the aggregate of:
- the amount by which their contribution exceeds four times their tax credit (for contributions), plus
- their out of pocket expenses that exceeds 7.5% of their taxable income (excluding any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit).
For taxpayers 65 years of age or older, or who are disabled or who have any disabled dependents, an additional tax credit will be given of an amount equal to the aggregate of:
- 33.3% of the amount by which their contribution exceeds three times their tax credit (for contributions), plus
- 33.3% of their out of pocket expenses.
It is proposed that the additional tax credit afforded to employees who are 65 years and older with respect to their contributions to medical schemes may also be accounted for in the monthly PAYE calculations. It is likewise proposed that this facility will also be afforded to over 65 year old provisional tax payers.
Newsletter to follow
Flexible retirement dates
Currently only members of retirement annuities and preservation funds may, subject to fund rules, elect to retire from the fund at any time once they reach the age of 55, whereas members of pension and provident funds must access their retirement benefits upon reaching “normal retirement age” defined in the fund’s rules.
With effect from 1 March 2015, members of pension and provident funds will be able to elect, at any time after reaching normal retirement age, when they want to access their retirement benefits and trigger the accrual thereof for tax purposes (fund rules must be amended to allow for this).
Retirement Reform Delay
The most important change introduced by the 2014 Taxation Laws Amendment Act was the delay in the implementation of the retirement reforms by a year. This delay has the result that the following changes will only be implemented on 1 March 2016:
- The fringe benefit taxation of employer contributions to pension and provident funds.
- The simplified and improved contribution deduction regime for retirement fund members.
- Making provident funds subject to the pension fund annuitisation regime, subject to the protection of vested rights.
- The increase to the amount below which retirees can take their entire benefit from retirement funds as a lump sum, from R75 000 to R150 000.
Exchange Control Changes
The exchange control manual is being simplified and will be completed in 2015. The following threshold changes will take effect from 1 April 2015:
- South African residents’ foreign capital allowance will increase from R4 million to R10 million per calendar year or upon emigration, or R20 million per family unit.
- The subcategories under the individual single discretionary allowance are removed and the annual R1 million allowances may be used for any legal purpose abroad.
These dispensations are subject to the statutory requirements of the Reserve Bank and SARS. Further administrative details will be communicated by the Reserve Bank.
Other Proposals – Estate Duty
National Treasury is concerned that some individuals are transferring assets into retirement annuity funds for the purposes of avoiding estate duty, rather than for retirement provision purposes.
To eliminate the potential to avoid estate duty, Government proposes that an amount equal to the non-deductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away.