Pravin’s promises paint a brighter picture
In opening his 2014 Budget Speech, Finance Minister Pravin Gordhan quoted the nation’s father, Nelson Mandela: “The purpose of freedom is to create it for others.” Not unlike last year, the emphasis of Gordhan’s speech was on co-operation and unity in achieving this goal of freedom for the whole nation.
In this budget summary, we have highlighted the main tax proposals that may affect you over the next tax year.
The tax threshold refers to the amount of income you earn before you need to pay tax. The new thresholds are as follows:
- R70,700 (under age 65)
- R110,200 (between age 65 and 75)
- R123,350 (75 or older).
Last year, the interest exemption amounts increased slightly. However, we were notified that these might not be adjusted for inflation in the future, which is the case this year. If you are under age 65, the annual interest exemption remains the same (R23,800) and if you are 65 and older, the exemption is R34,500 (unchanged).
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 R110,200 plus R34,500 interest, before you have to pay tax. If you are 75 or older, you can earn an annual income of R123, 350 plus R34,500 interest before you are taxed.
The proposed tax preferred savings account mentioned in last year’s budget will go ahead. You can contribute up to R30 000 per year, and R500 000 in total over your lifetime. Exemptions for interest, dividends and capital gains will apply subject to certain limits. Banks, asset managers, life insurers and brokers will be able to offer these exemptions through investments such as bank deposits, collective investment schemes, exchange traded funds and retail savings bonds.
Dividend withholding tax
The dividend withholding tax remains unchanged at 15% on dividends you earn from shares listed on the JSE. Retirement funds, that is, Living Annuities, Retirement Annuities, Preservation Funds, Pension Funds and Provident Funds, do not pay dividend tax.
Capital gains tax
The maximum effective capital gains tax remains the same:
- Individuals and special trusts: 13.3%
- Companies: 18.6%
- Other trusts: 26.6%
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.
For the next tax year, medical tax credits will increase as follows:
- Tax credit of R257 (up from R242) for each taxpayer and the first dependant on a medical scheme
- Tax credit of R172 (up from R162) for each additional dependant.
The medical tax credit is a fixed amount that SARS (South African Revenue Service) offsets
against the tax you pay. Tax credits will generally reduce the tax you pay.
Taxpayers 65 and older
Previously, you could claim all qualifying medical expenditure (amounts you could not claim from your medical aid) – that is, 100%; however, a deduction formula has now been introduced. You can deduct 33.3% of qualifying medical expenses plus the amount by which the medical scheme contributions you pay exceed 3 times the medical scheme fees tax credits for the year.
Changes to contributions and withdrawals from retirement funds
Over the past year, Treasury held consultations with various parties regarding retirement reform. Contribution deduction amounts will be confirmed in the course of 2014.
Retirement lump sum benefit tax exemption
The retirement lump sum benefit tax exemption has increased. The retirement lump sum benefit comprises lump sums from Pension, Pension Preservation, Provident, Provident Preservation or Retirement Annuity funds, on death, retirement or termination of employment. The tax-free amount you can take in these instances has increased from R315,000 to R500,000. Previous tax-free amounts you have taken will be offset against this new amount.
How do these changes affect you?
You will have noted interesting changes to the retirement lump sum tax-free amount and to the medical aid deductions for those 65 and older. Please feel free to consult us on any aspect of the Budget that you believe will impact you.
We hope this short summary gives you insight into the tax situation for 2014.