Finance Minister Malusi Gigaba’s maiden Budget Speech delivered on Wednesday, 21st February saw him make “difficult decisions” to address a revenue shortfall and to fund free higher education.
Below is a note from tax expert Tony Davey on the highlights from the budget.
1. INDIVIDUALS
The maximum marginal rate for natural persons remains at 45% and is reached when taxable income exceeds R1 500 000.
The minimum rate of tax remains at 18% on taxable income not exceeding R195 850.
The primary rebate for all natural persons has been increased to R14 067 (previously R13 635). The additional rebate for persons aged 65 years and older is increased to R7 713 (previously R7 479). Persons aged 75 and older are granted a further R2 574 (previously R2 493).
The tax free portion of interest income remains at R23 800 for taxpayers under 65 years, and R34 500 for persons aged 65 years and older. In addition the tax-free savings dispensation for other investments, including collective investment schemes, became operative 1 March 2015 and remains at R33 000 per tax year.
Local dividends tax remains at a flat 20% rate which was effective 22 February 2017.
Foreign dividends also remain taxed at a flat rate of 20%, but this may be reduced in terms of Double Tax Treaties.
An individual is exempt from the payment of provisional tax if the individual does not carry on any business and the individual’s taxable income –
- Will not exceed the tax threshold (see 4 below) for the tax year, or
- From interest, foreign dividends and rental will be R30 000 or less for the tax year.
- COMPANIES AND CLOSE CORPORATIONS
The rate of normal tax remains at 28%.
The final withholding dividend tax remains at a flat rate of 20%.Tax Exempt bodies (e.g. Retirement Funds) will suffer no withholding tax upon production of a tax exemption certificate.3. TRUSTS
The flat rate remains at 45%, although distributions in the same tax year are taxed instead in the beneficiaries hands.4. INDIVIDUAL TAX THRESHOLDS
Liability for tax is as follows:
| Under 65 years: | R 78 150 (previously R 75 750) |
| 65 to 74 years : | R121 000 (previously R117 300) |
| 75 years and older: | R135 300 (previously R131 150) |
INCOME TAX: INDIVIDUALS AND SPECIAL TRUSTS
Taxable income (R) Rates of tax
| 0 – 195 850 | 18% of taxable income |
| 195 851 – 305 850 | R 35 253 + 26% of taxable income above R 195 850 |
| 305 851 – 423 300 | R 63 853 + 31% of taxable income above R 305 850 |
| 423 301 – 555 600 | R100 263 + 36% of taxable income above R 423 300 |
| 555 601 – 708 310 | R147 891 + 39% of taxable income above R 555 600 |
| 708 311 – 1 500 000 | R207 448 + 41% of taxable income above R 708 310 |
| 1 500 001 and above | R532 041 + 45% of taxable income above R1 500 000 |
TRUSTS OTHER THAN SPECIAL TRUSTS – RATE OF TAX – 45%
TAX REBATES:
| PRIMARY | R14 067 |
| SECONDARY (AGE 65 AND OVER) | R7 713 |
| PLUS AGE 75 AND OVER | R2 574 |
- ESTATE DUTY AND DONATIONS TAX
The rate of estate duty and donations tax remains at 20% for dutiable estate amounts of R30 million or less and increases to 25% for dutiable estate amounts over R30 million.The estate duty abatement (exempt threshold) remains at R3,5 million per person and a surviving spouse may also benefit automatically from any unused deduction in the first dying spouse’s estate. i.e. The abatement remains a combined maximum R7 million for the second dying spouse.There is a similar treatment of Donations Tax namely 20% for donations of R30 million or less, and increases to 25% for donations over R30 million.The first R100 000 of amounts donated in each tax year by a natural person remains exempt from donations tax. Donations between spouses are fully exempt.6. CAPITAL GAINS TAX (CGT)
- The annual capital gain exclusion for individuals remains at R40 000.
- The primary residence exclusion from capital gains tax remains at R2 million.
- The capital gain exclusion at death remains at R300 000.
- The effective rate of CGT is the range of 7.2% to 18% for individuals, 22,4% for companies and 36% for Trusts, although correctly structured Trusts can result in the individual rate being applicable.
- TRANSFER DUTY
The rates remain, i.e. property costing less than R900 000 will attract no duty. A 3 percent rate applies between R900 000 and R1,25 million, 6 per cent between R1,25 million and R1,75 million, 8 percent between R1,75 million and R2,25 million, 11 percent between R2,25 million and R10 million and 13 percent thereafter.8. RETIREMENT FUNDS (The tables remain as before)
Retirement Fund Lump Sum Withdrawal BenefitsTaxable Income Rates of Tax
| 0 – 25 000 | 0% of taxable income |
| 25 001 – 660 000 | 18% of taxable income above 25 000 |
| 660 001 – 990 000 | 114 300 + 27% of taxable income above 660 000 |
| 990 001 and above | 203 400 + 36% of taxable income above 990 000 |
Retirement Fund Lump Sum Retirement Benefits or Severance benefits
Taxable Income Rates of Tax
| 0 – 500 000 | 0% of taxable income |
| 500 001 – 700 000 | 18% of taxable income above 500 000 |
| 700 001 – 1 050 000 | 36 000 + 27% of taxable income above 700 000 |
| 1 050 001 and above | 130 500 + 36% of taxable income above 1 050 0 |
- Tax Harmonisation of Retirement Fund Contributions
As from 1 March 2016 all retirement funds (pension, provident and retirement annuity funds) are treated similarly for tax contribution purposes.
The tax deduction formula of 27,5% per annum (with a cap of R350 000) of the greater of taxable income and remuneration applies to members of all retirement funds, including provident funds. - Annuitisation
Pension and Retirement Annuity (RA) Funds will still require a compulsory annuity purchase upon retirement with two-thirds of such fund benefits whereas Provident Fund benefits may be commuted in full, until 1 March 2019. The threshold below which a full fund benefit from a Pension or RA is allowed to be commuted is R247 500 effective 1 March 2016.
- MEDICAL EXPENSES
Taxpayers may in determining tax payable deduct monthly contributions to medical schemes (a tax rebate to be known as a medical scheme fees tax credit) up to R310 for each of the taxpayer and the first dependant on the medical scheme and R209 for each additional dependant.
An individual who is 65 and older, or if that person, his or her spouse or child is a person with a disability, 33.3% of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year.
Any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).10. VAT
The rate increases one percentage point to 15% (previously 14%), effective 1 April 2018. The compulsory VAT registration threshold remains at R1 million turnover per twelve month period.11. FOREIGN EXCHANGE
The offshore investment allowance remains at R10 million per adult person per calendar year. In addition the R1 million individual single discretionary allowance remains.12. VOLUNTARY DISCLOSURE PROGRAM
A new OECD global standard for the automatic exchange of financial information between tax authorities came into effect from end of 2017. SARS and the Reserve Bank thus offered the Special Voluntary Disclosure Program (SVDP) to parties with unauthorized foreign assets or income who wished to regularize their affairs, until 31 August 2017. This SVDP has expired but taxpayers who have foreign undisclosed assets and/or income may still avail themselves of the normal Voluntary Disclosure Program (VDP) contained in the Tax Administration Act.