Monthly Archives: March 2017

SAICA Golf Day

Thanks to all the volunteers that helped at the Newtons St Patrick’s Day Tee Off at the SAICA Free State Region Golf Day on 17 March 2017 at Bloemfontein Golf Club! Newtons had two 4 ball teams playing also and walked away with several prizes…which we won’t mention!

SAICA Golf Day 2017

Crunching the numbers: Budget 2017

It is an astounding exercise to go through the numbers behind the annual national budget presented recently and to start to understand what it is that the various tax changes are aimed at achieving.

On 22 February 2017, Finance Minister Pravin Gordhan presented South Africa’s biggest budget yet, providing for budgeted Government expenditure over the 2017/2018 fiscal year of R1.6 trillion (or R1,563,300,000,000!) Of this, by far the most significant portion will be spent towards social services to be delivered in the form of education, healthcare, social protection (grants), and local development and infrastructure: R884bn, or 56.5%, to be exact. A further R198.7 billion is being allocated to defence and public safety, with agriculture and economic affairs receiving R241.6 bn. General administration (departments such as Treasury, Foreign Affairs and the various legislative organs) is to receive R70.7bn of the 2017 budget, while it is further notable that little over 10% is allocated to servicing Government debt.

On the income side, taxes remain Government’s primary source of revenue, and budgeted revenue in tax collections are estimated to be collected as follows:

Description ZAR bn %
Personal income tax 482.1 38.1
Corporate income tax 218.7 17.3
VAT 312.8 24.7
Customs and excise 96.1 7.6
Fuel levies 70.9 5.6
Other 84.9 6.7
Total 1,265.5 100

Direct income taxes, as have been the trend over the recent past, continues to be the major contributor to the Government purse at more than 55% and borne by those individuals economically active.

It was widely reported in the run-up to the budget speech that a shortfall in tax revenue of approximately R28bn would need to be provided for, and that the Minister would need to be creative in meeting this challenge and where he would raise taxes to cover this, especially considering that increased taxes inevitably acts as impediment to economic growth (estimated to reach 2.2% by 2019). The bulk of this additional R28bn to be collected will be received from the raising of the personal income tax and trust tax rate ceiling to 45% (R16.5bn), while the increased dividends tax rate raised from 15% to 20% is expected to raise a further R6.8bn.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Budget 2017

Following the annual national budget speech delivered by Finance Minister Pravin Gordhan on 22 February, we highlight some of the most significant matters arising below:

 A new tax bracket will be introduced targeting the wealthy as well as trusts. It is proposed that trusts will from now on be taxed at 45% on all taxable income, while individuals earning more than R1.5million per tax year will pay 45% income tax on such income (estimated to be around 103,000 individuals);

  • The dividends withholding tax rate is proposed to be increased from 15% to 20%. This is linked to the above increase in individual income tax rates to prevent wealthy individuals from exploiting the arbitrage opportunity that may exist in receiving fees in a company and having these paid out as a dividend;
  • The much debated VAT rate has been left unchanged, which was widely expected given the political sensitivity coupled with the effect that this may have on the poor;
  • Increase in withholding taxes on non-residents disposing of immovable property situated in SA;
  • The “duty free” threshold for transfer duty (tax levied on purchasers of immovable property) has been increased from R750,000 to R900,000;
  • The corporate income tax, donations tax and estate duty rates have been left unchanged;
  • The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too;
  • The above and other most significant changes can be summed up as follows:
  WAS NOW
Top marginal PIT rate 41% 45%
Dividends tax 15% 20%
Tax rate for trusts 41% 45%
Estate duty abatement R3.5 m R3.5 m
CGT annual exclusion R40,000 R40,000
Primary rebate for individuals R13,500 R13,635

The Minister also alluded to the following matters which could expect legislative intervention or refinement during the course of the year:

  • Renewed focus on transfer pricing and cross-border tax avoidance schemes;
  • Further refinements to anti-avoidance legislation introduced in 2016 as applies to trusts;
  • Section 42 “asset-for-share” relief to be extended to also provide for the assumption of contingent liabilities (as opposed to only applying to the issuing of shares or the assumption of existing debt);
  • Share issue and buy-back transactions (commonly used as part of corporate restructurings whereby CGT is avoided) are to be addressed as part of an anti-avoidance effort;
  • The anti-avoidance provisions linked to “third-party back shares” (section 8EA) are to be relaxed;
  • Further refinement and relaxation of the VCC regime as relates to rules restricting such investments;
  • Measures will be introduced whereby foreign companies held by foreign trusts with SA beneficiaries will be drawn into the SA tax net under the “controlled foreign company” regime

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

PAYE and Directors’ (and Members’) remuneration from 1 March 2017

Many would have noted reports in the national media that the Taxation Laws Amendment Act, 16 of 2016, was signed into law by President Zuma on 11 January 2017. One of the many changes that the Act brings into effect is the repeal of paragraph 11C of the Fourth Schedule to the Income Tax Act, 58 of 1962. The provision is repealed effective 28 February 2017, which means that a new regime is introduced for deducting PAYE from directors’ remuneration effective for the 2018 tax year commencing on 1 March 2017.

The repeal introduces a new dispensation for the calculation of employers’ liability to pay over PAYE on a monthly basis as relates to directors’ remuneration paid. (It bears reminding at this stage that members of close corporations are deemed to be directors for PAYE purposes too, so the same would apply to members’ remuneration paid from 1 March 2017.) Ironically, the “new” dispensation that now applies to directors’ remuneration is the same regime that has throughout applied to “regular” employees, and these regimes can now be said to be aligned.

The purpose of paragraph 11C was to provide for the unique circumstances presented in directors’ remuneration, whereby actual remuneration for directors would often be inconsistent and amount to ad hoc payments decided and approved from time to time.[1] Policy was therefore to have PAYE calculated on a notional amount calculated generally with reference to the actual directors’ remuneration paid out in the previous year of assessment.

However, with the introduction of section 7B (dealing with “variable remuneration”[2]) in the Income Tax Act itself in 2013, policy in this regard appears to have changed with National Treasury. If “regular” employees need to account for PAYE on an ongoing basis on variable remuneration (also inconsistent) received, the need to differentiate between employees and directors would fall away and no policy consideration would exist whereby there should be differentiated between the PAYE treatment of variable remuneration received by employees vis-à-vis directors’ remuneration.

The reference to section 7B is only relevant to explain the policy change. It is important to appreciate though that directors’ remuneration will likely not form part of “variable remuneration” as defined in section 7B, and therefore PAYE cannot be accounted for merely on an actual payment basis. PAYE should be calculated and paid over as and when remuneration accrues to an employee (with the exception of variable remuneration), and likewise to directors now too. This would be as and when the employee or director becomes entitled to the remuneration, and not only when the amounts are actually received subsequently (as would be the case for variable remuneration covered by section 7B).

[1] See the now archived SARS Interpretation Note 5 (Issue 2)

[2] A term defined in section 7B of the Income Tax Act

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)