Courtesy of Glacier Business Development ~ Dries Human, Werner Vlok, Kgauhelo Tladi and Petro Wagener
THREE aspects of the retirement reform project have been postponed:
- The annuitisation of provident funds;
- the increase of the de minimis threshold; and
- the tax neutral portability from a pension to a provident fund.
This postponement is made possible by the Revenue Laws Amendment Bill, 2016 that was tabled in Parliament on 24 February 2016.
Summary of elements that will be implemented on 1 March 2016
- Fringe Benefits
Contributions by employers on behalf of employees to any type of retirement fund will be fringe benefits and taxed in the hands of the employee.
- The employers’ deduction
The employer will be able to deduct the full contribution to retirement funds for tax purposes.
- The employees’ deduction
Contributions by members of pension funds, provident funds and retirement annuities will afford such members a deduction for tax purposes to the value of 27.5% of either the higher of remuneration or taxable income. The value of this deduction in terms of the new section 11(k) of the Income Tax Act will be capped at R350 000 per annum. Disallowed contributions will be carried over to the following year of assessment but will again be subject to the annual limits. At the date of the members’ retirement, the sum of the previously disallowed contributions will be deducted against any lump sum benefit paid out to the member and if there are remaining previously disallowed contributions thereafter, these will be deducted against compulsory annuity income.Annexure C to the National Budget Review again confirms the commitment to clarify that taxable income includes passive income such as annuities, interests and dividends. Remember that rental income is defined as trade income. Taxable income will, however, exclude taxable capital gains for purposes of the section 11(k) deduction. See http://www.treasury.gov.za/documents/national%20budget/2016/review/default.aspx . As soon as notification is received from SARS on this issue it will be communicated.
- Commutation at retirement
Members of pension funds, pension preservation funds and retirement annuities may only commute a maximum of one third of their retirement benefit and are obliged to purchase an annuity with the remaining two thirds, UNLESS the full value of the retirement benefit is less than R75 000 per fund. In such a case the member is permitted to commute the full value of the retirement benefit subject to taxation in terms of the retirement tax table. The threshold for commuting living annuities is set in the Government Gazette and remains either R50 000 or R75 000.
The compulsory annuitisation of provident funds + the raising of the de minimis threshold to R247 500 + tax neutral portability from a pension to a provident fund has been postponed until 1 March 2018.
Personal Income Tax
The marginal tax rate has not been increased and the bracket scales for the 2016/2017 tax year has only been adjusted slightly. In the same spirit again, only the primary rebate and the tax thresholds have been increased marginally. The result of these changes amount to personal income tax relief of R5.65 billion.
This exemption remains R23 800 per annum for taxpayers younger than 65 and R34 500 for taxpayers 65 or older.
Medical Tax Credits
The monthly tax credit for contributing to a medical scheme is increased from R270 to R286 per month for the taxpayer and the first dependant. The R181 credit per month for each additional dependants is increased to R192 per month.
Micro Businesses and Small Business Corporations
Natural persons, companies and close corporations with a qualifying turnover of R1 000 000 or less for the year of assessment, qualifies as a micro business. Turnover tax is calculated on gross turnover only and no deductions are allowed. Turnover tax replaces income tax, CGT, VAT and dividends tax for micro businesses. There has been no adjustment of the tax rates and sliding scale table applicable to micro businesses for the 2016/2017 tax year.
The tax rates and sliding scales applicable to small business corporations (gross income does not exceed R20 million for the year of assessment) has been raised and now look as follows for the 2016/2017 tax year.
|Taxable Income||Tax Rate|
|R0 – R75 000||0% of taxable income|
|R75 001 – R365 000||7% of taxable income above R75 000|
|R365 001 – R550 000||R20 300 + 21% of taxable income above R365 000|
|R550 001 and above||R59 150 + 28% of the amount above R550 000|
Retirement and Withdrawal tables
The retirement and withdrawal tables have not been adapted from the 2015/2016 tax year tables and remain the same.
CAPITAL GAINS TAX
The inclusion rates and annual exclusion for individuals have been increased significantly.
|Taxpayer||Inclusion rate||Effective rate|
|Individuals and Special Trusts||33.3% to 40%||13.7% to 16.4%|
|Companies||66.6% to 80%||18.6% to 22.4%|
|Trusts||66.6% to 80%||27.3% to 32.8%|
The annual exclusion of R30 000 has been raised to R40 000 but the exclusion of R300 000 in the year of the taxpayer’s death remains R300 000.
The change to the inclusion rate will have the effect that the taxation of long term insurance policies taxed according to the five fund approach, changes. Policies held in the individual policyholder fund will be subject to income tax inside the fund at 30% and have an effective rate (post CGT) of 12% (this was previously 10%).
One additional bracket has been added to the transfer duty sliding scale and transfers where the property value exceeds R10 000 001 is now taxed in the amount of R937 500 + 13% of the value over R10 000 000.
Mention is made of making assets (and not the value of the loan account) that were transferred to a trust against a loan account, estate dutiable in the estate of the founder of the trust at death.
Interest-free loans to trusts could possibly be deemed donations and trigger donations tax.
The above mentioned proposals in the budget will be discussed in more detail once clarified by legislation/SARS.
SECTION 12T TAX FREE SAVINGS ACCOUNTS
Transfers between service providers will only be allowed as from 1 November 2016 (and not 1 March 2016).
LAST BUT NOT LEAST
- A new environmental levy on tyres at R2.30 per kilogram as from, 1 October 2016.
- Sugar tax is something else to look forward to as from, 1 April 2017.