Our Finance Minister, Pravin Gordhan, cited Oliver Tambo and our constitution in introducing his annual Budget Speech yesterday. His emphasis this year was clearly transformation, and making better use of our resources to achieve that. Chartered Employee Benefits’ CEO,
John Campbell, provides us with a useful summary of the key points in this newsletter.
Personal income tax
A new tax rate of 45% has been introduced for those who earn above R1.5 million per year.
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 R75,750;
- if you are between 65 and 75, the threshold is R117,300; and
- if you are 75 or older, the threshold is R131,150.
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 R117,300 plus R34,500 interest before you have to pay tax. If you are 75 or older, you can earn an annual income of R131,150 plus R34,500 interest before you have to pay tax.
Tax-free savings account contribution increased
From 1 March 2017, you can contribute R33,000 per year toward these investments, in which all returns are tax-free.
Dividends Withholding Tax
A surprise in this Budget Speech is that Dividends Withholding Tax will increase from 15% to 20%.
Retirement Fund contribution deductions
Retirement Fund contribution deductions are 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!).
Capital Gains Tax (CGT)
The effective tax you’ll pay on capital gains may increase if your tax rate goes up to 45%.
If this is the case, the maximum effective tax will be as follows:
- Individuals and special trusts: 18% (inclusion rate of 40%)
- Companies: 22.4% (inclusion rate of 80%)
- Trusts: 36% (inclusion rate of 80%).
The capital gains exemption thresholdsremain the same:
- The annual exclusion stays at R40,000
- The exclusion amount on death stays at R300,000
- The primary residence exclusion stays at R2 million.
Adjustments to medical aid tax credits
Medical tax credits have been adjusted for inflation as follows:
- R303 per month for the main member and the first dependant on a medical scheme; and
- R204 per month for each additional dependant.
An important factor to bear in mind is that Treasury is considering a possible reduction to medical tax credits in future. This will be to finance National Health Insurance (NHI).
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 has submitted its proposals on the Estate Duty system, and we will keep you abreast of developments.
Loans to Trusts
From 1 March 2017, existing and future loans to Trusts will attract 8% interest per year. This is taxable in the lender’s hands. The 8% interest will be deemed a donation, and will attract donations tax of 20% each year. Please speak to your financial planner to discuss how this affects you.
Offshore Special Voluntary Disclosure Programme
SARS will start receiving offshore third party financial data from other tax authorities this year. If you have undeclared offshore assets and income, Government has offered a Special Voluntary Disclosure Programme. This has been extended to 31 August 2017 to enable you to regularise your affairs.
Changes to transfer duty
There has been only one change here: if you buy a property up to the value of R900,000 (previously R750,000), you will pay no transfer duty.
Tobacco, alcohol and fuel
You will pay between 6% and 10% more for your favourite tipple and smoke. Should you wish to add a Coke to your Klippies, await Treasury’s pronouncement on sugar tax.
Tax on fuel will increase by 39c per litre from 5 April.
Ever optimistic, our Finance Minister ended with the following sentiment:
“If we make the right choices, and do the right things, we will achieve a just and fair society, founded on human dignity and equality. We will indeed transform our economy and country so that we all live in dignity, peace and wellbeing.”
We hope this summary has offered insight. Of course, you are welcome at any time to contact me with any queries.