Even though the Finance Minister Tito Mboweni delivered his budget speech with his usual rhetoric tongue-in-cheek comments on Wednesday 24th February, Minister Mboweni was also profoundly serious during his budget speech possibly due to the overshadowed reality of the dire state we find our public finances in.
In this document we highlight some of the 2021/2022 Budget tax proposals that may impact you or your business.
This year’s Budget announcement delivered no bombshell tax increases or wealth taxes. Instead, the focus shifted from revenue collection from the working class to expenditure cutting measures within the public sector. As per last year the before-mentioned expenditure cutting will primarily come from the public sector’s exorbitant wage bill, however, these negotiations with unions may create a spanner in the works.
To limit the negative impact on economic growth, the 2021/22 Budget proposals will not increase tax rates in any category. Instead, Government is expanding specialised audit and investigative skills in tax and customs to broaden the net.
A dedicated enforcement division focused on high-net-worth individuals with complex financial structures including onshore and offshore trusts to be targeted and notices from SARS in this regard will be sent out during April 2021.
What are the key changes?
The following changes from the period 1 March 2021 to 28 February 2022
There has been a slight upward adjustment in the tax-free thresholds for personal income taxes:
The primary, secondary and tertiary rebates were increased as follows:
Monthly tax credits for medical scheme contributions slightly increased as follows:
Individuals and Special Trusts
There were adjustments to the personal income tax brackets this year. It was mostly the lower-income individuals that will receive most of the income tax relief from these inflation adjustments. The personal income tax rates for the 2021/2022 tax year are listed below.
The corporate income tax rate will be reduced to 27% for corporates with years of assessment commencing on or after 1 April 2022 and government has committed to reducing the corporate tax rate to the lower twenties in future years in line with the global average of 23.6%. The tradeoff for this cut will be the limitation of interest expense deductions and limiting the use of tax/assessed losses for corporates to 80%.
Sunset clause on venture capital companies (VCC) – S12J
The venture capital company (VCC) incentive was introduced in 2009 to boost retail investments in smaller businesses that would struggle to obtain finance by other means. Government will not extend the VCC incentive beyond 30 June 2021 as they believe the incentive did not sufficiently achieve its objectives.
An 8% increase in alcohol and tobacco duties is effective from 24th February 2021.
The VAT rate remains at 15% but certain additions have been made to increase the list of zero-rated supplies such as super fine maize meal.
Due to the effects of COVID-19, Treasury are also considering reassessing the VAT treatment of temporary letting of residential immovable property by developers as currently, they must account for VAT on the open market value of the units temporarily let.
Extension of time for Section 11D (Research & Development) & Section 13quat (Urban development Zones allowances
Government extended the research and development and urban development zones incentives by 2 years, which means the new sunset clause for these incentives is now 31 March 2023.
Reviewing tax provisions for travel and working from home
Considering the great‐scale migration to working from home over the past years, the Government will review current travel and home office allowances.
Government will investigate their effectiveness, fairness in application, minimalism of use, certainty for taxpayers and compatibility with environmental objectives
Apart from the above potential
amendments, there were some other amendments worth mentioning:
In line with the Government climate change commitments, the carbon tax rate increased from R127 to R134 per ton of carbon dioxide equivalent, which amounts to a 5.2 %, per ton of carbon dioxide equivalent, from 1 January 2021.
The levy for 2021 will increase by R 0.01 to R 0.08 per litre for petrol and R 0.09 per litre for diesel from 7 April 2021.
Tax and exchange control treatment of individuals
A new system is being phased in from 1 March 2021. Under the new system, natural person emigrants and natural person residents will be treated identically.
The concept of “financial emigration” as recognised by the Reserve Bank will be phased out and replaced with a verification process. Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests as set out in the Income Tax Act No 58 of 1962.
Retirement Funds ‘lock in’
Prior to 1 March 2021, an individual could use the “financial emigration” process to withdraw their retirement fund early (i.e., before the retirement age of 55 years old), however in the new regime, your retirement fund will be “locked-in” for a minimum of 3 years from the date you are no longer a tax resident in South Africa. For that 3-year period, the emigrant must also prove that he or she is a tax resident of a foreign country, only thereafter will the taxpayer be entitled to withdraw the funds from their retirement fund or preservation fund.
These rules will not apply where:
It is further recommended by Treasury that when a person emigrates (old or new regime) before the retirement age of 55 years old, that they are taxed using the less favourable withdrawal tables rather than the retirement tables even if the emigrant waits for retirement age before withdrawing the funds. SARS wants to ensure that they get their share of the tax instead of losing out due to a double tax treaty which may provide the new country taxing rights on those withdrawals.
The local interest exemptions remain unchanged:
Interest withholding tax for non-residents
Interest withholding tax remains at 15% on interest from a South African source payable to non-residents. Interest is exempt if payable by any sphere of the South African government, a bank or if the debt is listed on a recognised exchange.
Retirement lump sum taxation
On retirement (55 years), the first R500,000 of a retirement lump sum remains tax-free.
On a pre-retirement withdrawal, the first R25,000 of a pre-retirement lump sum remains tax-free.
Estate duty is levied on world-wide property of South African tax residents and South African property of non-residents less allowable deductions. The duty is levied on the dutiable value of an estate at a rate of 20% on the first R30 million and at a rate of 25% where the aggregate dutiable value of the property exceeds R30 million.
A basic deduction of R3.5 million is allowed in the determination of an estate’s liability for estate duty
Property left to a spouse is exempt from Estate Duty.
Other than specific anti-avoidance rules mentioned above, the income tax rates for trusts (other than special trusts) remain unchanged at 45%.
Dividend withholding tax remains at 20% on dividends declared to resident and non-residents by South African corporates.
Foreign dividends received by resident individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20% however double tax treaties could reduce this rate.
The capital gains tax inclusion rate for individuals and special trusts remains at 40%, and for other taxpayers at 80%.
The annual exclusion for a capital gain or loss granted to individuals and special trusts remains at R40,000. The exclusion granted to individuals remains R300,000 in the year of death.
Donations tax is payable at a flat rate on the value of property disposed of by way of donation or gratuitous disposition. It is levied at a flat rate of 20% on the value of property donated, while any donations exceeding R30 million over a lifetime of a taxpayer will be taxed at a rate of 25%.
The first R100,000 of an amount donated in each year by an individual, however, remains exempt from donations tax.
Property donated to a spouse is exempt from donations tax.