Ahead of today’s budget, pundits were predicting that our Finance Minister, Nhlanhla Nene, would be performing a balancing act: in an attempt to address the fiscal deficit, he would be announcing ways to increase fiscal revenue, while at the same time decreasing fiscal spending.
The latter he hopes to achieve, he says, by revising spending plans across the whole of government, “aimed at greater efficiency, reduced waste and an improved composition of spending.” In addition, there will be a consolidation of government personnel numbers and a reduction in the main budget expenditure ceiling of about R25bn over the next two years.
So, while wasteful spending will hopefully be reduced, it is the taxpayer that will bear the brunt of the measures to raise revenue.
Nene asserted that tax reforms since 1994 have “considerably broadened the tax base, through the inclusion of capital gains and closing of loopholes.” Nevertheless, he says, additional revenue is still required.
Personal income tax increases
From 1 March 2015, personal income tax will increase by 1% for all taxpayers who earn more than R181,900 per year.
A taxpayer younger than age 65 who earns R200,000 per year will pay R21 more tax per month. Taxpayers earning R500,000 per year will pay R271 more per month, and if you earn R1,5 million or more, your tax will increase by R1,105 per month.
This refers to the amount of income you earn before you need to pay tax. The new thresholds are as follows:
- if you are under age 65, your yearly tax threshold is R73,650;
- if you are between 65 and 75, the threshold is R114,800; and
- if you are 75 or older, the threshold is R128,500.
The interest exemption amounts remain the same. If you are under age 65, the annual interest exemption is R23,800, and if you are 65 and older, the exemption is R34,500.
How will the tax threshold and interest exemption changes affect you?
If you are between the ages of 65 and 75, you can earn a yearly income of R114,800 plus R34,500 interest, before you have to pay tax. If you are 75 or older, you can earn an annual income of R128,500 plus R34,500 interest before you have to pay tax.
Tax-free savings account
The proposed tax-free savings investment mentioned in last year’s budget will be available from 1 March 2015. Individuals can contribute up to R30,000 per year to these investments, with an overall limit of R500,000 in their lifetime. Growth will be tax-free.
Capital gains tax – slight adjustments
The maximum effective capital gains tax amounts have been adjusted:
- Individuals and special trusts: 13.65%
- Companies: 18.65%
- Other trusts: 27.31%.
The capital gains exemption thresholds are as follows:
- The annual exclusion remains the same at R30,000
- The exclusion amount on death stays at R300,000
- The primary residence exclusion remains at R2 million.
Treasury applies ‘tax credits’ to medical scheme contributions. The medical tax credit is a fixed amount that SARS (South African Revenue Service) offsets against the tax that you pay. Tax credits will generally reduce the tax you pay.
For the next tax year, medical tax credits will increase in line with inflation as follows
for taxpayers under the age of 65:
- Tax credit of R270 (up from R257) for each taxpayer and the first dependant on a medical scheme;
- Tax credit of R181 (up from R172) for each additional dependant.
In determining tax payable, individuals are allowed to deduct:
- In the case of 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 three times the medical scheme fees tax credits for the tax year.
Update on retirement reform and National Health Insurance (NHI)
Treasury has continued to hold consultations with various parties regarding retirement reform and NHI. Further information will be confirmed in due course.
In his speech, the Minister noted that members of the Government Employee Pension Fund (GEPF) will not have their benefits adversely affected.
Changes to transfer duty
Treasury will adjust rates and brackets for transfer duty on the sale of property. The aim is to provide relief to middle-income households. No transfer duty will apply to properties below R750,000. However, the rate on properties above R2,25 million will increase.
There is talk of an increase in the offshore investment allowance. We will give you more details as they emerge.
On the road again …
While Nene stated that “South Africa will benefit from the lower oil price”, he also announced increases that will require drivers to calculate more carefully their own budget allocations for fuel. To address the claims backlog of the Road Accident Fund to the tune of R98bn, a 50 cents per litre increase in the RAF levy will be implemented. Add to that the increase of 30 cents per litre on the general fuel levy, and, from April, you will be paying an additional 80,5 cents per litre to fill your vehicle. Whether you are comforted by the Minister’s assurance that “concerns regarding the socio-economic impact of toll tariffs have been heard, and revised monthly ceilings will shortly be proposed”, depends on you. Funding will still come from road users, but government will sponsor part of these bills. Perhaps that promise to take up cycling this year is starting to look more appealing!
Tax on your tipple, and others
You will pay more for your alcoholic beverages and cigarettes:
- tax on quart of beer is up by 15.5 cents
- a bottle of wine will cost 15 cents more, and, if it is sparkling wine, it goes up by 48 cents
- a bottle of whiskey will be R3.77 more
- a pack of cigarettes goes up by 82 cents.
UIF (Unemployment Insurance Fund)
Since the UIF has a surplus, the contribution threshold will decrease for the 2015/2016 tax year.
We hope this short summary gives you an idea of what you can expect from a tax perspective over the next year. Please let us know if you have any questions.