The highly anticipated 2017 budget was delivered by the Minister of Finance on Wednesday, 22 February. The Minister emphasised that the focus for the 2017/2018 tax year was inclusive economic growth, development and transformation. Achieving these objectives necessitated an increase in revenue through tax policy measures of R28 billion.
Below we set out a number of key aspects of the budget, including future proposals that may impact your clients from a personal tax perspective.
What was anticipated from the 2017 budget?
A number of predictions preceded this year’s budget speech, including increases to all marginal tax rates, VAT, and dividends tax.
What remains unchanged?
- No increase in VAT.
- No change to the corporate tax rates, donations tax rate and exclusion, securities transfer tax, interest exemptions and interest withholding tax.
- The estate duty rate and abatement also remains unchanged, although the Minister indicated that the proposals of the Davis Tax Committee will be dealt with in the 2018 budget.
- The retirement fund lump sum and withdrawal lump sum tax tables remain unchanged.
- Retirement fund contribution deduction limits remain unchanged.
- The Tax Free Savings Account (TFSA) lifetime contribution limit remains at R500 000.
What will change?
New marginal tax rate for high earners
In contrast to the widely publicised prediction of an increase to all the income tax brackets (except the lowest), a new top marginal tax rate of 45% has been introduced for individual taxpayers with a taxable income exceeding R1.5 million. Treasury has indicated that this change will impact approximately 100 000 taxpayers and will result in additional revenue of R16.5 billion.
Increased marginal tax rate for trusts other than special trusts
The marginal tax rate for trusts (excluding special trusts) will be increased from a flat rate of 41% to a flat rate of 45%.
CGT effective rates
As a result of changes to certain marginal tax rates, the effective rate of CGT for affected taxpayers will change accordingly.
CGT EFFECTIVE RATES FROM 1 MARCH 2017
CGT: Individuals and special trusts
– Maximum effective rate: 18% (increased from 16.4%)
– Effective rate remains unchanged at 22.4%
CGT: Trusts other than special trusts
– Effective rate: 36% (increased from 32.8%)
Dividend tax rates
Treasury has stressed that increasing the top marginal tax rate for individuals without also increasing dividends tax rates could lead to taxpayers opting to pay themselves with dividends rather than salaries. Accordingly, the dividend tax rate on local dividends was increased from 15% to 20%. In addition, the effective dividends tax rate for foreign dividends was increased from 15% to 20%
Transfer duty payable on property
In support of middle-income households, the value at which property is taxed at 0% has been increased from R750 000 to R900 000
TFSA annual contribution limit
The annual contribution limit for Tax Free Savings Accounts has been increased from R30 000 to R33 000. This is consistent with the 2014 budget statement that annual limits will increase in line with inflation.
- The Minister confirmed that the usual ‘sin taxes’ on items such as alcohol and tobacco will be increased by between 6.1% and 9%. These increases will see an additional R5.1 billion in revenue.
- The fuel levy will increase by 30c/l from 5 April 2017.
- Tax on sugary beverages will be implemented through an amendment to the Custom and Excise Act, and carbon taxes are also scheduled to come into effect during the 2017/2018 tax year.
Other future proposals
Amending the foreign employment income tax exemption in respect of South African residents
Currently, if a South African resident works in a foreign country for more than 183 days a year, foreign employment income earned is exempt from tax in SA, subject to certain conditions.
It is proposed that this exemption only applies if foreign employment income is subject to tax in the foreign country.
Refining measures to prevent tax avoidance through the use of trusts
Section 7C of the ITA which comes into effect on 1 March 2017 introduced an anti-avoidance measure aimed at curbing the tax-free transfer of wealth to trusts through the use of low-interest or interest-free loans.
However, Treasury suggests that some taxpayers have already attempted to circumvent the anti-avoidance measure by making low-interest or interest-free loans to companies owned by a trust.
In order to avoid, or at least discourage abuse, it is proposed that section 7C be extended to cover the scenario where low-interest or interest-free loans are granted to a company owned by a trust.
Preservation of benefits after reaching normal retirement age
Recently, amendments were made to the ITA to allow individuals to elect to retire from their retirement fund after the normal retirement age.
Once the individual eventually elects to retire from the retirement fund, at the moment it is not possible to transfer the benefits from that retirement fund to another.
Accordingly, it is proposed that transfers of such retirement benefits should be allowed from a retirement fund to a retirement annuity fund, subject to fund rules.
Tax-exempt status of pre-March 1998 benefit in public-sector funds
The ITA makes provision for the transfer of pre-March 1998 lump sum benefits from a public-sector fund to a pension fund, whilst retaining the tax-exempt status.
However, the tax-exempt status of the pre-March 1998 benefit is lost upon subsequent transfers.
It is proposed that the tax-exempt status of such benefit will be retained on the second transfer.
Removing time limit to join an employer umbrella fund
Currently employees have 12 months to join a newly established employer umbrella fund – otherwise they are unable to join.
To encourage contributions towards retirement funds, it is proposed that the above limit be removed, subject to the rules of the relevant fund.
Application of the cap on deductible retirement fund contributions
Treasury has highlighted that there is there is uncertainty as to how the annual contribution cap of R350 000 should be applied when determining monthly employees’ tax.
In order to remove this uncertainty, it is proposed that the amount of R350 000 be spread proportionately over the tax year.
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