The Minister of Finance announced amendments to tax and other legislation that may affect investors. These changes, which come into effect on 1 March 2014, are discussed in more detail below.
Individuals and special trusts
The tax brackets have been adjusted for inflation. The highest marginal tax rate for individual taxpayers remains unchanged at 40%. The personal income tax rates for the 2014/2015 tax year are listed below.
|Taxable income||Tax rate|
|0 – R174 550||18% of taxable income|
|R174 551 – R272 700||R31 419 + 25% of taxable income above R174 550|
|R272 701 – R377 450||R55 957 + 30% of taxable income above R272 700|
|R377 451 – R528 000||R87 382 + 35% of taxable income above R377 450|
|R528 001 – R673 100||R140 074 + 38% of taxable income above R528 000|
|R673 101 and above||R195 212 + 40% of taxable income above R673 100|
Companies and trusts
The income tax rate for companies and trusts remains unchanged at 28% and 40% respectively.
The tax thresholds, below which no tax is payable, have been amended as follows:
- R70 700 for taxpayers younger than 65
- R110 200 for taxpayers aged between 65 and 75
- R123 350 for taxpayers aged 75 and older
Rebates deductible from tax payable have been amended to:
- R12 726 per year for all individuals (primary rebate)
- R7 110 for taxpayers aged 65 and older (secondary rebate)
- R2 367 for taxpayers aged 75 and older (tertiary rebate)
Interest exemptions remain unchanged:
- The exemption on interest earned for individuals younger than 65 years remains R23 800 per annum
- The exemption for individuals older than 65 years remains R34 500 per annum
Medical tax credits
Monthly tax credits for medical scheme contributions will increase as follows:
- From R242 to R257 per month for each of the first two beneficiaries
- From R162 to R172 per month for each additional beneficiary
Dividend tax remains 15% on dividends paid by resident companies and by non-resident companies for shares listed on the JSE. Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 15%.
Retirement lump sum taxation
The tax brackets for both pre-retirement and retirement lump sum withdrawals have been adjusted.
The first R500 000 of a retirement lump sum withdrawal will be tax free. This amount was previously R315 000. The table below illustrates how lump sums will be taxed.
|Taxable lump sum||Rate of tax|
|0 – R500 000||0% of taxable income|
|R500 001 – R700 000||R0 + 18% of taxable income above R500 000|
|R700 001 – R1 050 000||R36 000 + 27% of taxable income above R700 000|
|R1 050 001 and above||R130 500 + 36% of taxable income above R1 050 000|
The first R25 000 of a pre-retirement lump sum withdrawal will be tax free. This amount was previously R22 500. The table below illustrates how lump sum withdrawals will be taxed.
|Taxable lump sum||Rate of tax|
|0 – R25 000||0% of taxable income|
|R25 001 – R660 000||R0 + 18% of taxable income above R25 000|
|R660 001 – R990 000||R114 300 + 27% of taxable income above R660 000|
|R990 001 and above||R203 400 + 36% of taxable income above R990 000|
Capital gains tax (CGT)
The CGT inclusion rates remain unchanged.
|Investor||Maximum effective tax rate|
|Individuals and special trusts||0% - 13.3%|
Specific exclusions worth mentioning are:
- Annual exclusion of R30 000 for capital gain or loss granted to individuals and special trusts
- R300 000 granted to individuals in the year of their death
Changes proposed for the future
Tax free savings account
The tax free savings account, first announced in the 2012 Budget Speech, will commence this year. The account will have an initial annual contribution limit of R30 000 with a life time cap of R500 000.
Retirement funding reform
Changes to the taxation of retirement fund contributions (in line with the Taxation Laws Amendment Act, 2013) will provide additional relief to most retirement fund members and encourage them to save for retirement. National Treasury will release a document in the near future that describes the changes up until this point and set out anticipated future reforms.
All information contained is this budget update is subject to legislation applicable at the time and is also subject to change. Allan Gray is not authorised to and does not provide financial advice. All the information above should be regarded as guidelines only and should not be construed as advice.