Personal Income Tax
- Individuals will enjoy personal income tax relief amounting to R9.5 billion by way of adjustments to the personal income tax brackets and rebates (see tax tables in Deloitte Quick Tax Guide - 2012/2013).
Capital gains tax
- With effect from 1 March 2012, the capital gains inclusion rate for individuals and special trust is increased from 25 per cent to 33.3 per cent, resulting in a maximum effective capital gains tax rate of 13.3 per cent (up from 10 per cent).
- The annual exclusion amount applicable to individuals and special trusts is increased from R20 000 to R30 000 (the exclusion amount on death is increased from R200 000 to R300 000).
- The primary residence exclusion is increased from R1.5 million to R2 million.
- With effect from 1 March 2012, the proposed monthly medical tax credits will be increased from R216 to R230 for the first two beneficiaries, and from R144 to R154 for each additional beneficiary.
- For taxpayers below 65 years of age, additional medical deductions are to be converted to tax credits at a rate of 25 per cent, with effect from 1 March 2014.
- For taxpayers 65 years and older (and those with disabilities), tax credits will also apply. These taxpayers will be able to convert all medical scheme contributions in excess of three times the total allowable credits plus out-of-pocket medical expenses, into a tax credit of 33.3 per cent.
Depending on the circumstances of the individual, the introduction of the medical aid tax credit system may adversely affect those taxpayers older than 65 years of age (and those with disabilities). Taxpayers older than 65 years of age who earn more than R346 000 would be worse off if the tax credit system as proposed was introduced this year.
- Tax-preferred savings and investment vehicles are to be introduced to encourage greater savings.
- The aggregate annual contributions could be limited to R30 000 per annum, with an overall limit of R500 000 over the taxpayer’s lifetime.
- Government proposes to introduce these vehicles by April 2014. A discussion document containing the proposals will be issued by May 2012.
This tax relief is welcomed in light of government’s initiatives to promote savings. However, as these vehicles are proposed as an alternative to the tax-free interest amounts of R22 800 (R33 000 for taxpayers older than 65), this proposal could have a serious impact upon retired persons who are reliant on interest income to make end meet.
- Previous announcements relating to retirement fund reforms have been confirmed with further proposed adjustments to encourage taxpayers who are closer to retirement age to make additional retirement contributions.
- Taxpayers younger than 45 years of age will be allowed a deduction of 22,5% of the greater of employment or taxable income, limited to R250 000 per year.
- Taxpayers older than 45 years of age will be allowed a deduction of 27,5% of the greater of employment or taxable income, limited to R300 000 per year.
- A minimum annual deduction threshold of R20 000 will apply.
- A rollover dispensation will be introduced to allow flexibility for individuals with fluctuating incomes.
An increased tax deduction for those 45 years and over is welcomed. Despite the proposed increase to the maximum deduction threshold, there may still be negative tax implications for individuals, particularly higher income earners.
No indication has been given as to whether the employee may be able to claim a monthly employees’ tax deduction.
The previously proposed withholding tax on winnings is replaced with the introduction of a national gambling tax based on gross gambling revenues.
The introduction of this form of tax will alleviate some of the administrative burdens which a withholding tax would have created.
Employee share schemes
- Employee share schemes will be reviewed to tackle any loopholes and possible double taxation. As part of this, the relationship between employer deductions and employee share scheme income will be assessed.
False job terminations
- Measures will be introduced to prevent withdrawals from retirement schemes before retirement, for example, where employees terminate employment solely to gain access to retirement funds.
The introduction of this is in line with government’s policies to encourage savings. No indication has been given as to how this will be implemented.
Fringe benefit value
- In order to better equate employees’ tax calculations with the tax payable on assessment, it is proposed that, where possible, actual costs are used in determining a fringe benefit, as opposed to the use of certain prescribed formulae for this purpose.
The proposed change is welcomed as actual costs should provide a fairer reflection of the benefit enjoyed by the individual and should eliminate the need for any refunds/tax payments which may arise from the taxation of the fringe benefit on assessment.
- It has been announced that further consideration will be given to the deductibility of key person insurance premiums, including in circumstances where the insurance is used to purchase an employee-shareholder’s interest or to repay employee-shareholder debt.
Taxation of payments from a South African or foreign retirement fund
- Anomalies relating to the taxation of lump sum and annuity payments from a South African or foreign retirement fund, as a result of the individuals’ tax residency status, will be considered during 2012/2013.
Clarity on this issue is welcomed as the taxation of the payment should be determined with reference to the nature of the income as opposed to the tax residency status of the individual or the form of the payment.
Divorce-order retirement benefits
- The “clean-break” principle introduced in relation to private sector retirement funds, which allows divorcing spouses to separate their pension interests following divorce, will also apply to the Government Employees Pension Fund.
- Certain anomalies in the tax treatment which still exist in this area will also be addressed.