Today’s Budget Speech has been pronounced as fair and firm. The self-assurance and authority with which Minister Pravin Gordhan delivered his pronouncements will hopefully go some way to buoy both global and local confidence in the country … in the words of the Minister: “ … towards hope, confidence and a better future for all.”
Personal income tax
From 1 March 2016, Government will provide some tax relief for lower to middle income earners, compensating for inflation.
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 R75,000;
- if you are between 65 and 75, the threshold is R116,150; and
- if you are 75 or older, the threshold is R129,850.
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 R116,150 plus R34,500 interest, before you have to pay tax. If you are 75 or older, you can earn an annual income of R129,850 plus R34,500 interest before you have to pay tax.
Changes to Retirement Fund contribution deductions
A shock in the last week has been that Retirement Reform will not be fully implemented from 1 March 2016.
What has been implemented?
For the first time, Retirement Fund contribution deductions have been standardised across all types of Retirement Funds. A significant benefit for those earning up to R1,27 million a year is that they can deduct up to R350,000 on their Retirement Fund contributions. The deduction is, however, capped at R350,000 (even if you are contributing more than this!).
So, what has been put on hold?
Provident Fund members have always been allowed to access their full Retirement Fund benefit in cash when they retire. The Retirement Reform proposal intended to allow members to access a maximum of one-third as cash and use the remaining two-thirds to pay them an income (annuity) in retirement. This proposal, however, has been put on hold for the next two years, to afford all stakeholders time to confirm finer details around implementation.
Capital Gains Tax (CGT)
The inclusion rate for CGT for individuals has increased by 6.7% (from 33.3% to 40%). What does this mean? Formerly, if you made a capital gain of R100,000 (by selling shares, for example), you would have paid CGT on R33,333. Now, you will pay CGT on R40,000.
The maximum effective CGT amounts have been adjusted:
- Individuals and special trusts: 16.4% (inclusion rate of 40%)
- Companies: 22.4% (inclusion rate of 80%).
The CGT exemption thresholds are as follows:
- The annual exclusion increased to R40,000
- The exclusion amount on death stays at R300,000
- The primary residence exclusion remains at R2 million.
Adjustments to medical aid tax credits
Medical tax credits have been adjusted for inflation as follows:
- R286 per month for the main member and the first dependant on a medical scheme;
- R192 per month for each additional dependant.
Estate Duty tax remains unchanged at 20%. You are allowed a basic deduction of R3.5 million on your estate when you die. You do not pay Estate Duty on the value of your Retirement Funds or on the value of the assets you leave to your surviving spouse.
The Davis Tax Committee is currently reviewing the Estate Duty system, and we will keep you abreast of developments.
Treasury is proposing that assets transferred through a loan to a trust are to be included in the estate of the founder of the trust at death and interest-free loans to trusts are to be treated as donations. We are awaiting clarification on this.
Offshore Special Voluntary Disclosure Programme
If you have undeclared offshore assets and income, Government has offered a Special Voluntary Disclosure Programme from October 2016 to end March 2017 to regularise your affairs in exchange for income tax and exchange control relief. Only companies and individuals — and not trusts — qualify.
Changes to transfer duty
Transfer duty on properties valued in excess of R10 million will increase from 11% to 13% for properties acquired after 1 March 2016, and this will yield an additional R100 million for the fiscus.
And that bottle of rum …
If you drink or smoke, you will pay between 6% and 8.5% more. You can expect to pay tax on your favourite sugar-sweetened beverages from 1 April 2017.
The general fuel levy goes up by 30 cents a litre on 6 April 2016.
A new tyre levy of R2.30/kg will take effect from 1 October 2016.
Taxes on incandescent globes, plastic bags and motor vehicle emissions are increased.
We found Minster Gordhan’s closing quotation from Nelson Mandela hopeful and an apt conclusion for our summary:
I am fundamentally an optimist … keeping one’s head pointed toward the sun, one’s feet moving forward …