the-2021-budget-speech_2

The 2021 Budget Speech – No Radical Tax Changes

Amid widespread apprehension about the poor health of South African government finances in the wake of COVID-19, the Minister of Finance, Tito Mboweni, presented a Budget that set out a considered recovery plan for the year ahead.
He saluted the brave and fearless sacrifices of our frontline workers who continue to save thousands. He said that we often speak about how we must leave this earth better than we found it for future generations. Minister Mboweni said that he hoped his speech would leave us hopeful and outline how we will leave this economy in better shape for those who come after us.

Here follows a summary of the main points of the Speech:

Personal income tax

Adjustments to the personal income tax brackets and the primary, secondary and tertiary rebates were above inflation.

Tax threshold

This refers to the amount of income that you can earn before you need to pay tax. The thresholds have been increased by 5%, and are as follows:

  • If you are under age 65, your yearly tax threshold is R87,300 (previously R83,100)
  • If you are between 65 and 75, the threshold is R135,150 (previously R128,650)
  • If you are 75 or older, the threshold is R151,100 (previously 143,850)

Interest exemption

This remains unchanged. 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 R135,150 plus R34,500 interest before you have to pay tax. If you are 75 or older, you can earn an annual income of R151,100 plus R34,500 interest before you have to pay tax.

Tax-free savings account contribution unchanged

The amount that you can contribute towards a tax-free savings account remains unchanged at R36,000.

Dividends Withholding Tax

Dividends Withholding Tax remains unchanged at 20%.

Retirement fund contributions

The tax treatment for contributions to all retirement is limited to 27.5% of the greater of the amount of remuneration for PAYE purposes or taxable income. The deduction is further limited to the lower of R350,000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the following year of assessment.

Currently Pension and Retirement Annuity Funds require a compulsory annuity purchase upon retirement with two-thirds of such fund benefits. From 1 March 2021 annuitization of Provident Funds will also apply. The threshold below which a full fund benefit is allowed to be commuted is R247,500.

Foreign employment income

The exemption for foreign employment income of tax residents remains unchanged at R1,25 million.

Capital Gains Tax (CGT)

The capital gains exemption thresholds remain the same:

  • The annual exclusion stays at R40,000
  • The exclusion amount of death stays at R300,000
  • The primary residence exclusion stays at R2 million

The effective rate of CGT ranges between 7.2% to 18% for individuals, 22.4% for companies and 36% for Trusts.

Adjustments to medical aid tax credits

Medical tax credits have been adjusted for inflation as follows:

  • R332 per month for the main member and the first dependant on a medical scheme;
  • and R224 per month for each additional dependant

Estate Duty

Estate Duty tax remains unchanged. The estate duty abatement (exempt threshold) remains at R3,5 million per person, and the surviving spouse may benefit automatically from any unused deduction in the first dying spouse’s estate. In other words, the abatement remains a combined maximum R7 million for the second dying spouse.

Estate duty for dutiable estates up to R30 million remains at 20%, and is 25% for dutiable estates over R30 million.

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.

Loans to Trusts

Existing and future loans to Trusts attract 4.5% interest per year. This is taxable in the lender’s hands. The 4.5% interest will be deemed a donation, and will attract donations tax of 20% each year.

Donations Tax

Donations tax is levied at a flat rate of 20% on the cumulative value of property donated since 1 March 2018 not exceeding R30 million, and 25% for amounts exceeding R30 million. The first R100,000 of property donated in each year by a natural person is exempt from donations tax.

Transfer Duty

There are no changes to transfer duty. A property costing less than R1 million will attract no duty. A 3% rate applies between R1 million and R1,375 million; 6% between R1,375 million and R1,925 million; 8% between R1,925 million and R2,475 million; 11% between R2,475 million and R11 million; and 13% thereafter.

Foreign exchange

The offshore investment allowance remains at R10 million per adult person per calendar year. In addition the R1 million single discretionary allowance remains.

Tobacco, alcohol and fuel

You will pay an additional 8% for your favourite tipple and smoke. Tax on fuel will increase by 27c per litre from 7th April 2021.

Value-added Tax (VAT)

This remains unchanged at 15% and is levied on the supply of goods and services by registered vendors.

Conclusion

Ever optimistic, our Finance Minister ended with the following sentiment:

“Finally, to the millions of South Africans who faced, and continue to face, enormous difficulties and challenges, we ask you to take courage, persevere and walk with us. Above all, let us heed the counsel of Archbishop Tutu: “See that there is light despite all the darkness. A prosperous future is possible for our beautiful country. Gloria est consequenda – Glory must be sought after!”

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