The Minister of Finance announced amendments to tax and other legislation that may affect investors. These changes, which come into effect on 1 March 2016, are discussed below.
Individuals and special trusts
The highest marginal tax rate for individual taxpayers remains unchanged at 41%. The personal income tax rates for the 2016/2017 tax year are listed below.
|Taxable income||Tax rate|
|0 - R188 000||18% of taxable income|
|R188 001 - R293 600||R33 840 + 26% of taxable income above R188 000|
|R293 601 - R406 400||R61 296 + 31% of taxable income above R293 600|
|R406 401 - R550 100||R96 264 + 36% of taxable income above R406 400|
|R550 101 - R701 300||R147 996 + 39% of taxable income above R550 100|
|R701 301 and above||R206 964 + 41% of taxable income above R701 300|
Companies and trusts
The income tax rate for companies remains unchanged at 28% and at 41% for trusts (other than special trusts).
Tax thresholds have been increased to:
- R75 000 for taxpayers younger than 65
- R116 150 for taxpayers aged between 65 and 75
- R129 850 for taxpayers aged 75 and older
The primary rebate (deductible from tax payable) has been increased to:
- R13 500 per year for all individuals
The secondary and tertiary rebates remain unchanged at:
- R7 407 for taxpayers aged 65 and older
- R2 466 for taxpayers aged 75 and older
Interest exemptions remain unchanged:
- The exemption on interest earned for individuals younger than 65 years remains R23 800 per annum
- The exemption for individuals 65 years and older remains R34 500 per annum.
Medical tax credits
Monthly tax credits for medical scheme contributions will increase as follows:
- From R270 to R286 per month for the person who pays the contributions and the first dependant on the medical scheme
- From R181 to R192 per month for each additional dependant
Interest withholding tax (IWT) and Dividend witholding tax (DWT)
The default IWT rate remains 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.
The default DWT rate remains 15% on dividends paid by resident companies and by non-resident companies in respect of shares listed on the JSE.
Retirement lump sum taxation
The retirement lump sum tax table remains unchanged. 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 pre-retirement lump sum withdrawal tax table remains unchanged. 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 capital gains tax inclusion rate for individuals and special trusts has been increased from 33.3% to 40%, and for other taxpayers from 66.6% to 80%.
|Investor||Maximum effective tax rate|
|Individuals and special trusts||0% - 16.4%|
The annual exclusion for a capital gain or loss granted to individuals and special trusts has been increased from R30 000 to R40 000.
Transfer duty rate
The transfer duty rate on properties has been increased from 11% to 13% for properties above R10 million.
|Value of Property||Transfer Duty|
|0 - R750 000||0%|
|R750 001 - 1 250 000||3% of the value above R750 000|
|R1 250 001 - 1 750 000||R15 000 + 6% of the value above R1 250 000|
|R1 750 001 - 2 250 000||R45 000 + 8% of the value above R1 750 000|
|R2 250 001 - 10 000 000||R85 000 + 11% of the value above R2 250 000|
|R10 000 001 and above||R937 500 + 13% of the value above R10 000 000|
Annuitisation of provident fund benefits to be postponed to 1 March 2018
The Revenue Laws Amendment Bill 2016 has been enacted to amend the Income Tax Act to delay annuitising provident funds at retirement until 1 March 2018.
Changed tax deductions on contributions to retirement funds to be implemented on 1 March 2016 as scheduled
Members of all retirement funds will now be able to deduct their contributions (and contributions made on their behalf by their employers) up to a maximum of 27.5% of the higher of taxable income or remuneration, subject to an annual ceiling of R350 000. Contributions made by employers on behalf of employees will still be treated as a taxable fringe benefit in the members’ hands.
Changes proposed for the future
Transfers of tax-free savings accounts between service providers
The implementation date to allow transfers of tax-free investments between service providers will be postponed from 1 March 2016 to 1 November 2016 to provide service providers additional time to finalise the required administrative processes. Draft regulations outlining the transfer process will be published in the near future.
Including passive income in taxable income for the purpose of retirement contribution deductions
The current wording of section 11(k) of the Income Tax Act, which introduces the harmonised tax regime for retirement contributions, does not allow for contributions to any retirement fund to be offset against passive income. It is proposed that section 11(k) be amended to allow for retirement contributions to be deducted against passive income, subject to the available limits. The intention is for members to be able to include passive income, such as living annuity income and interest income, in the taxable income figure used to determine the maximum allowable deduction for their retirement fund contributions from 1 March 2016.
Revising foreign pension contributions, annuities and pay outs
When the residence-based taxation system was introduced in 2001, section 10(1)(gC) was added to the Income Tax Act to exempt foreign pensions derived from past employment in a foreign jurisdiction (i.e. from a source outside of South Africa). Questions regarding the treatment of contributions to foreign pension funds, and the taxation of payments from foreign funds, raise a number of issues. A review is required to determine the appropriate treatment, taking into account the tax policy for South African retirement funds.
Changes to the tax treatment of transfers to trusts
To limit taxpayers’ ability to transfer wealth to trusts without paying estate duty or donations tax, it is proposed that any assets transferred to a trust through a loan should be included in the estate of the founder at death, and that interest-free loans to trusts be categorised as donations. Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits will also be considered.