Tag Archives: Income

New proposed tax amendments

National Treasury releases proposed amendments to tax legislation on an annual basis. Some of the most important of these are already foreshadowed when the Minister of Finance delivers his budget speech in Parliament. The proposals made in that Budget Review are then formalised into proposed draft tax legislative amendments in the form of the Draft Taxation Laws Amendment Bill and the Draft Tax Administration Laws Amendment Bill.

This year, after the budget speech on 24 February earlier this year, the proposed amendments were released by Treasury on 8 July 2016. We set out below some of the more significant proposed amendments:

  • As announced in the budget speech, targeted anti-tax avoidance legislation is introduced as relates to trusts. However, Treasury has opted to retain the conduit pipe principle many feared would disappear, and proposes to target interest free loans made to trusts instead;
  • Further refinements to the harmonisation of the tax treatment of withdrawals from pension, provident and retirement annuity funds;
  • Repeal of the withholding tax on foreign service fees paid by SA tax residents;
  • As a result of the very complex and targeted anti-tax avoidance legislation linked to employee share incentive schemes, almost every year amendments are required to close new tax structures set up to reduce the tax consequences of these reward programmes as they relate to employees. This year is no different with certain targeted new anti-avoidance measures being proposed to the taxation of these schemes upon termination, as well as the taxation of dividends paid out on these shares throughout;
  • Significant amendments are introduced to the existing hybrid equity and debt instrument provisions in sections 8E to 8FA of the Income Tax Act, 1962. Most notably, the treatment of interest on subordinated debt as dividends for tax purposes have been addressed as relates to intra-group debt or cross-border debt issued to a South African tax resident;
  • Further relaxation of the rules as relates to venture capital companies are proposed to further entice taxpayers to make use of this very beneficial income tax incentive regime;
  • The Customs and Excise Act, 1964, is to have its own general anti-avoidance rules introduced as section 119B; and
  • A new understatement penalty category is proposed for a transaction to which the general anti-avoidance provisions in the Income Tax Act, 1962, or Value-Added Tax Act, 1991, are applied.

The public is invited to comment on the proposed changes by 8 August 2016. Please contact us should any of the above be of particular relevance to you and should it appear necessary to discuss these prior to these draft bills being passed by Parliament, very probably later this year.

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)

Tax rates announced in the budget

On 24 February 2016, Min. Pravin Gordhan tabled National Treasury’s annual budget. While it contained a few surprises (both for what it said and that which it did not), the focus in studying the budget has always been the new tax rates proposed.

Below we set out the new rates that will apply going forward. The two most significant changes are the increase in the capital gains tax inclusion rate, as well as the introduction of yet another transfer duty scale for properties purchased with a value in excess of R10 million.

It is important to note that although not approved by Parliament as yet, the below rates are unlikely to be changed.

Income tax rates for individuals for the 2016/2017 tax year:

Taxable income (R)

 

Rates of tax (R)

 

0 – 188 000

 

18% of each R1

 

188 001 – 293 600

 

33 840 26% of the amount above 188 000

 

293 601 – 406 400

 

61 296 31% of the amount above 293 600

 

406 401 – 550 100

 

96 264 36% of the amount above 406 400

 

550 101 – 701 300

 

147 996 39% of the amount above 550 100

 

701 301 and above

 

206 964 41% of the amount above 701 300

 

Interest Exemptions from Income Tax (unchanged):

 

2017

 

Person younger than 65

 

R23 800

 

Person 65 and older

 

R34 500

 

Medical credits available to be deducted against an income tax liability:

  Per month   2017

For the taxpayer who paid the medical scheme contributions   R286

For the first dependant   R286

For each additional dependant(s)   R192

 

The following rebates will apply for individuals against their tax liability calculated in accordance with the above:

Cumulative Rebates from Income Tax for Individuals:

Tax Rebate

 

Primary

 

R13 500

 

Secondary (65 and older) (unchanged)

 

R7 407

 

Tertiary (75 and older) (unchanged)

 

R2 466

 

Income Tax for companies is still levied at 28%, whilst the rate is retained at 41% for trusts.

Small Business Corporations are not taxed at a flat rate of 28%, but according to the below table for tax years ending between 1 April 2016 and 31 March 2017:

Taxable income (R)

 

Rate of tax (R)

 

0 – 75 000

 

0%

 

75 001 – 365 000

 

7% of the amount above 73 650

 

365 001 – 550 000

 

20 395 21% of the amount above 365 000

 

550 001 and above

 

59 150 28% of the amount above 550 000

 

Capital gains tax is calculated by including 40% (previously 33.3%) of an individual’s net capital gains (less R40,000) in their taxable income to be used for calculating their income tax liability (see table above). The inclusion rate for ordinary trusts and companies are increased to 80% (previously set at 66.6%).

The VAT rate has been retained at 14%. The same applies to donations tax and estate duty, both still levied at 20%.

Transfer duty applicable to individuals:

Value of the property (R)

 

Rate

 

0 – 750 000

 

0%

 

750 001 – 1 250 000

 

3% of the value above 750 000

 

1 250 001 – 1 750 000

 

15 000 6% of the value above 1 250 000

 

1 750 001 – 2 250 000

 

45 000 8% of the value above 1 750 000

 

2 250 001 – 10 000 000

 

85 000 11% of the value above 2 250 000

 

10 000 001 and above

 

R937,500 13% of the value exceeding R10 000 000

 

Turnover tax rates:

 Taxable turnover (R)

 

Rate of tax (R)

 

0 – 335 000

 

0%

 

335 001 – 500 000

 

1% of the amount above 335 000

 

500 001 – 750 000

 

1650 2% of the amount above 500 000

 

750 001 and above

 

6 650 3% of the amount above 750 000

 

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)

Passive income and SARS

Have you ever investigated passive income opportunities to earn extra money? Did you consider the effect that earning additional income might have on your current income tax liability? If your income increases, whether from a passive income source or otherwise, SARS will soon come to the party to claim its share of your profits. Do you know what the effect of earning passive income might be on your present tax situation? If not, do read the rest of this article.

What is passive income?

Passive income is money you earn now which you didn’t have to work for now. However, you did work for it when you set up your source of passive income in the past.

If you set up your passive income source correctly, it will continue to generate income with either a minimum or no presence from you as the business owner. That’s what makes passive income so attractive: there’s no direct link between the number of hours you work and/or must be present in the business, and the amount of money you can make.

Provisional tax considerations

A taxpayer will not be required to submit provisional tax returns if his/her only source of income is remuneration from their employer and the employer deducts PAYE on a monthly basis from such remuneration.

PAYE can only be deducted by an employer from remuneration paid to its employees. If you earn passive income which is not subject to PAYE, you will have to submit provisional tax returns. Provisional tax is calculated on the estimated taxable income for a specific tax year. Please consult your tax adviser for advice regarding any potential provisional tax obligations.

Income tax considerations

As with any type of business income, passive income will be subject to income tax. SARS will allow a taxpayer to deduct the expenses incurred in generating the passive income, provided that the expenses are tax deductible in terms of income tax legislation. A taxpayer earning passive income will thus be taxed on the resulting profit (passive income less expenses incurred to generate that passive income).

For an expense to be tax deductible against passive income, it must fulfil all the following requirements:

  • It must have been actually incurred (i.e. the expense must either have been paid already or be due and payable);
  • In the carrying on of any trade;
  • In the production of passive income (there must be a link between the expenditure and the passive income); and
  • Not be of a capital nature (i.e. the expense must not give rise to an enduring/long term benefit).

If you are not sure whether an expense will be tax deductible and/or at which amount, please consult your tax adviser for advice.

Dual-purpose expenses (i.e. expenses that were incurred both for business and private purposes at the same time) may be apportioned according to the ratio of the business-related portion to the total amount of the expense. Only the business-related portion of the total expense will be tax deductible.

The profit you earn as a result of your passive income venture will be added to your taxable income for a specific tax year. If you already earn income from another source (e.g. salary/wages), that income and the profit from passive income will be added together to determine your taxable income. Taxable income will thus increase, which might put you into a higher tax bracket with a higher tax percentage.

To avoid nasty surprises it is important to consider the income tax implications of a passive income opportunity before taking advantage of such an opportunity. Although the figures you use for the calculations will be estimates and might not be that accurate, it’s still better to do some semi-accurate calculations than no calculations at all.

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)

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