2010 Tax related budget proposals

The following is a summary of the tax related budget proposals announced by the Minister of Finance on 17 February 2010

BUDGET HIGHLIGHTS

The main tax proposals include:

  • Personal income tax relief for individuals amounting to R6 5bn This partially compensates for inflation
  • Limited voluntary disclosure option for taxpayers in default
  • Exchange control reforms proposed
  • Interest-income exemption increased to R22 300 per year and to R32 000 for those over 65
  • Standard Income Tax on Employees (SITE) system to be discontinued
  • Congestion, pollution and landfill taxes considered
  • Niggles remain for proposed dividend tax
  • National Health Insurance scheme delayed for about five years
  • "Tips for Pravin" to continue, using Facebook and other new forms of media
  • Gambling winnings being exempt from personal income tax to be reviewed - impacts on casino, online gambling and lotto winners
  • Wage subsidy for young people
  • Clamp down on company car fringe benefits

INDIVIDUALS

Relief for Individuals Personal Income Tax

Budget 2010 provides significant tax relief to individuals amounting to R6 5bn, which partially compensates for the effects of inflation (bracket creep) This means that individuals younger than 65 years of age earning a total amount of

  • R80 000 will pay tax at an average rate of 5 2% on earnings and save R504;
  • R250 000 will pay tax at an average rate of 17 6% on earnings and save R1 614;
  • R750 000 will pay tax at an average rate of 30 6% on earnings and save R3 534

The tax threshold for individuals younger than 65 will be R57 000 and for individuals 65 or older R88 528

Increased exemption for interest and dividend income

  • The annual exemption on interest earned for individuals younger than 65 years is raised from R21 000 to R22 300
  • The exemption for individuals 65 years and older increases from R30 000 to R32 000
  • The threshold for the tax-free portion of interest and dividends from foreign investment increases from R3 500 to R3 700

Medical Expenses

From 1 March 2010 the tax deductible portion of monthly contributions to medical schemes is increased for each of the first two beneficiaries from R625 to R670 and for each additional beneficiary from R380 to R410

Retrenchment Packages

The R30 000 exemption for termination of services has not been adjusted in many years It is proposed that this exemption be merged into the retirement fund lump sum benefit system and that the qualifying lump sums be taxed by applying the tax table for retirement fund lump sum benefits The aggregation principle will apply

Other Tax Proposals Affecting Individuals:

Standard income tax on individuals (SITE)

SITE was introduced in the late 1980s to limit the number of tax returns filed annually Administrative modernisation and the fact that the tax threshold for taxpayers younger than 65 years is approaching R60 000 have eliminated the need for this system

SITE is to be abolished from 1 March 2011 Administrative relief measures will be considered for low-income taxpayers with multiple sources of income

Limiting salary structuring

  • The company car fringe benefit value is to be increased
  • Deferred compensation and employer-provided group life insurance will be taxed as fringe benefits

Voluntary Disclosure Programme

In order for taxpayers to disclose their defaults (non-compliance) and regularise their tax affairs a voluntary disclosure programme will be implemented

  • The programme is to be effective during a window period from 1 November 2010 until 31 October 2011
  • The full amount of tax remains due
  • Relief with regard to interest and penalties will apply Page 3 of 10
  • Relief is to be granted if
    • o the disclosure is complete
    • o SARS was not aware of the default
    • o a penalty or additional tax would have been imposed had SARS discovered the default in the normal course of business

COMPANIES

No change is proposed to corporate tax rates

Sophisticated tax avoidance schemes

It is proposed that legislative amendments be introduced to address a number of aggressive tax schemes, for example

  • interest cost allocation for financial institutions
  • offshore protected cell companies
  • schemes channelling deductible amounts to residents in the form of tax free foreign dividends
  • restricting the interest exemption for non-residents investing in financial instruments other than South African bonds, unit trusts or publicly available interest bearing instruments

Headquarter companies

Relief from exchange control and taxation will be considered for various types of headquarter companies located in South Africa

TAX GUIDE INDIVIDUALS AND TRUSTS INCOME TAX RATES: NATURAL PERSONS AND SPECIAL TRUSTS YEAR OF ASSESSMENT ENDING 28 FEBRUARY 2011

Taxable Income R Taxable rates
0 - 140 000 18% of each R1
140 001 - 221 000 25 200 +25% of the amount above 140 000
221 001 - 305 000 45 450 +30% of the amount above 221 000
305 001 - 431 000 70 650 +35% of the amount above 305 000
431 001 - 552 000 114 750 +38% of the amount above 431 000
552 001 and above 160 730 +40% of the amount above 552 000

Natural persons: Tax thresholds

  2010 2011
Below 65 years of age 54 200 57 000
Aged 65 and over 84 200 88 528

 

Tax rebates

  2010 2011
Primary - All natural persons 9 756 10 260
Secondary - Persons aged 65 and over 5 400 5 675

 

Trusts

The tax rate on trusts (other than special trusts which are taxed at rates applicable to individuals) remains unchanged at 40%

Provisional Tax

A provisional taxpayer is any person who earns income other than remuneration or an allowance or advance payable by the personfs principal The following individuals are exempt from the payment of provisional tax

  • Individuals below the age of 65 who do not carry on a business and whose taxable income
    • o will not exceed the tax threshold for the tax year; or
    • o from interest, dividends and rental will be R20 000 or less for the tax year
  • Individuals age 65 and older if their annual taxable income
    • o consists exclusively of remuneration, interest, dividends or rent from the lease of fixed property; and
    • o is R120 000 or less for the tax year

Retirement fund lump sum withdrawal benefits

TAXABLE INCOME (R) RATE OF TAX (R)
0 - 22 500 0% of taxable income
22 501- 600 000 18% of taxable income above 22 500
600 001 - 900 000 103 950 + 27% of taxable income above 600 000
900 001 and above 184 950 + 36% of taxable income above 900 000

 

Retirement fund lump sum withdrawal benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal Tax on a specific retirement fund lump sum withdrawal benefit (X) is equal to

  • tax determined by applying the tax table to the aggregate of that lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009 and all retirement fund lump sum benefits accruing from October 2007; less
  • tax determined by applying the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009 and all retirement fund lump sum benefits accruing from October 2007

Retirement fund lump sum benefits

TAXABLE INCOME (R) RATE OF TAX (R)
0 - 300 000 0% of taxable income
300 001 - 600 000 18% of taxable income above 300 000
600 001 - 900 000 54 000 + 27% of taxable income above 600 000
900 001 and above 135 000 + 36% of taxable income above 900 000

Retirement fund lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment due to redundancy or termination of employerfs trade Tax on a specific retirement fund lump sum benefit (Y) is equal to

  • tax determined by applying the tax table to the aggregate of that lump sum Y plus all other retirement fund lump sum benefits accruing from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009; less
  • tax determined by applying the tax table to the aggregate of all retirement fund lump sum benefits accruing before lump sum Y from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009

Foreign Dividends

Most dividends received by individuals from foreign entities are taxable

Exemptions

Interest and dividends

  • Interest earned by any natural person under 65 years of age, up to R22 300 per annum, and persons 65 and older, up to R32 000 per annum, are exempt from taxation Foreign interest and foreign dividends are only exempt up to R3 700 out of the total exemption
  • Interest is exempt where earned by non-residents who are physically absent from South Africa for 183 days or more per annum and who are not carrying on business in South Africa

Deductions

Current pension fund contributions

The greater of\7,5% of remuneration from retirement funding employment, or R1 750 Any excess may not be carried forward to the following year of assessment

Arrear pensions fund contributions

Maximum of R1 800 per annum Any excess over R1 800 may be carried forward to the following year of assessment

Current retirement annuity fund contributions

The greater off:

  • 15% of taxable income other than from retirement funding employment, or
  • R3 500 less current deductions to a pension fund, or
  • R1 750

Any excess may be carried forward to the following year of assessment

Arrear retirement annuity fund contributions

Maximum of R1 800 per annum Any excess over R1 800 may be carried forward to the following year of assessment

Medical and disability expenses

  • Taxpayers 65 and older may claim all qualifying expenditure
  • Taxpayers under 65 may claim all qualifying medical expenses where the taxpayer or the taxpayerfs spouse or child is a person with a disability
  • Other taxpayers under 65 may deduct monthly contributions to medical schemes up to R670 for each of the first two dependants on their medical scheme and R410 for each additional dependant In addition they can claim a deduction for medical scheme contributions above the caps and any other medical expenses limited to the amount which exceeds 7,5% of taxable income (excluding retirement fund lump sums)

Donations

Deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income before deducting medical expenses ( excluding retirement fund lump sums)

Allowances

Subsistence allowances and advances

Where the recipient is obliged to spend at least one night way from his/her usual place of residence on business and the accommodation to which that allowance or advance relates is in the Republic and the allowance or advance is granted to pay for

  • meals and incidental costs, an amount of R276 per day is deemed to have been expended;
  • incidental costs only, an amount of R85 for each day which falls within the period is deemed to have been expended

Where the accommodation to which that allowance or advance relates is outside the Republic, the daily amount deemed to have been expended is available on the SARS website

Travelling allowance

Rates per kilometer which may be used in determining the allowable deduction for business travel, where no records of actual costs are kept

Value of the vehicle (including VAT) (R) Fixed cost (R p a ) Fuel cost (c/km) Maintenance cost (c/km)
0 - 40 000 14 672 58.6 21. 7
40 001 - 80 000 29 106 58.6 21. 7
80 001 - 120 000 39 928 62.5 24. 2
120 001 - 160 000 50 749 68.6 28. 0
160 001 - 200 000 63 424 68. 8 41. 1
200 001 - 240 000 76 041 81.5 46 .4
240 001 - 280 000 86 211 81.5 46 .4
280 001 - 320 000 96 260 85.7 49. 4
320 001 - 360 000 106 367 94. 6 56. 2
360 001 - 400 000 116 012 110.3 75. 2
exceeding 400 000 116 012 110.3 75. 2

Note:

The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year

Alternative to the rate table:

  • Where the distance travelled for business purposes does not exceed 8 000 kilometers per annum, no tax is payable on an allowance paid by an employer to an employee up to the rate of 292 cents per kilometer, regardless of the value of the vehicle
  • This alternative is not available if other compensation in the form of an allowance or reimbursement is received from the employer in respect of the vehicle

The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a log book are used to determine the costs which may be claimed against a travelling allowance;

80% of the travelling allowance must be included in the employeefs remuneration for the purposes of calculating PAYE

Fringe Benefits

Employer-owned vehicles

  • The taxable value is 2,5% of the determined value (usually the cash cost excluding VAT) per month Where a second (and further) vehicle is made available to an employee or his family, and the vehicle is not used primarily for business purposes, the benefit is 2,5% per month on the vehicle with the highest value and 4% per month on the other vehicle(s)
  • Where the employee bears the cost of all fuel used for the purposes of the private use of the vehicle (including travelling between the employeefs place of residence and his/ her place of employment) the monthly percentage to be applied is reduced by 0,22 percentage points
  • If the employee bears the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres) the monthly percentage to be applied is reduced by 0,18 percentage points

Interest-free or low-interest loans

The difference between interest charged at the official rate and the actual amount of interest charged, is to be included in gross income

CORPORATE TAX RATES YEARS OF ASSESSMENT ENDING BETWEEN 1 APRIL 2010 AND 31 MARCH 2011

NORMAL TAX    
Companies and close corporations Basic rate 28%
Personal service provider companies Basic rate 33%
Foreign resident companies which earn income from a SA source Basic rate 33%

 

 

SMALL BUSINESS CORPORATIONS

Tax rates for qualifying small business corporations will be as follows:

Taxable Income (R) Rate of Tax (R)
0 - 57 000 0%
57 001 - 300 000 10% of the amount above 57 000
300 001 and above 24 400 + 28% of the amount above 300 000

 

MICRO BUSINESSES

Financial year ending on 28 February 2011

Taxable turnover (R) Rate of tax (R)
0 - 100 000 0%
100 001 - 300 000 1% of the amount above 100 000
300 001- 500 000 2000 + 3% of the amount above 300 000
500 001 - 750 000 8 000 + 5% of the amount above 500 000
750 001 and above 20 500 + 7% of the amount above 750 000

 

 

SECONDARY TAX ON COMPANIES (STC)

The STC rate remains unchanged at 10%

EFFECTIVE CGT RATES

Taxpayer Inclusion Rate (%) Statutory Rate (%) Effective Rate (%)
Individuals 25 0 40 0 10
       
Trusts      
Unit - 28 -
Special 25 18 - 40 4,5 - 10
Other 50 40 20
       
Companies      
Ordinary 50 28 14
Small business corporation 50 0 - 28 0 - 14
Permanent establishment 50 33 16 5

 

OTHER TAXES DUTIES AND LEVIES

Value-added Tax (VAT)

VAT is levied at the standard rate of 14% on the supply of goods and services by registered vendors A vendor making taxable supplies of more than R1 million per annum must register for VAT and a vendor making taxable supplies of more than R50 000, but not more than R1 million per annum, may apply for voluntary registration Certain supplies are subject to a zero rate or are exempt from VAT

Transfer Duty

Transfer duty is payable at the following rate on transactions which are not subject to VAT -

  • Acquisition of property by natural persons:
    Value of property (R) Rate
    0 -500 000 0%
    500 001 - 1 000 000 5% of the value above R500 000
    1 000 001 and above R25 000 + 8% of the value exceeding R1 000 000
  • Acquisition of property by persons other than natural persons: - 8% of the value

Estate Duty

Estate duty is levied at a flat rate of 20% on property of residents and South African property of non-residents A basic deduction of R3,5 million is allowed in the determination of an estatefs liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses

Donations Tax

  • Donations tax is levied at a flat rate of 20% on the value of property donated
  • The first R100 000 of property donated in each year by a natural person is exempt from donations tax
  • In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total
  • Dispositions between spouses, and donations to certain public benefit organisations are exempt from donations tax

Securities Transfer Tax

The tax is imposed at a rate of a quarter per cent on the transfer of listed or unlisted securities Securities consist of shares in companies or memberfs interests in close corporations

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