The budget was read on 22 February 2012 and the following proposals were made. Please note that the summary is limited to proposals impacting financial planning.
1. Personal Income Tax Relief
The tax tables will be amended to result in personal tax relief of R9.5 billion. The primary rebate is increased from R10 755 to R11 440, the secondary rebate from R6 012 to R6 390 and the tertiary rebate from R2 000 to R2 130. This results in the annual tax threshold being as follows:
- Under 65 years – R63 556
- Over 65 years – R 99 056
- Over 75 years – R 110 889
2. Dividends Withholding Tax
The effective implementation is 1 April 2012. This will see the end of Secondary Tax on company. Pension funds will be exempt from income tax on all dividends received. The dividends withholding tax rate has been adjusted to 15%. The rate is increased for equity reasons, as high-income individuals tend to receive a larger portion of their income from dividends.
3. Capital Gains Tax
Once again, to enhance equity, the inclusion rates for capital gains tax will be increased with effect 1 March 2012.
The inclusion rate for individuals and special trusts are increased from 25% to 33.3% – which will result in a maximum effective rate of 13.3% (from 10%). The inclusion rate for all other entities has been increased to 66.6%. For a company or CC the effective rate will therefore be 18.6% (from 15%) and for trusts it will be 26.7% (from 20%).
To counter the impact on the middle-class taxpayer, the following capital gains tax exemptions are increased from 1 March 2012:
- Annual exclusion from R20 000 to R30 000;
- Death exclusion from R200 000 to R300 000;
- Primary residence exclusion from R1 500 000 to R2 000 000;
- The exclusion amount for the disposal of small businesses for taxpayers over the age of 55 from R900 000 to R1 800 000;
- The maximum market value for assets allowed for a small business to qualify for the above exclusion has been increased from R5 million to R10 million.
4. Medical Tax Credits
From 1 march 2012 medical scheme contributions for taxpayers below 65 years will be converted to medical scheme tax credits. The monthly tax credit will be R230 per month for the first two beneficiaries and R154 for each additional beneficiary. In addition, this taxpayer will be able to claim an amount equal to four times the allowable tax credits plus out of pocket medical expenses, insofar as it exceeds 7.5% of taxable income.
For taxpayers over the age of 65 and for those under 65 with immediate family with disability, all medical expenses and medical scheme contributions are tax deductible.
Further reform in this regard is planned for 2014 and the tax credits will then apply to all taxpayers (with certain provisions applicable to the taxpayers over 65 and those under 65 with immediate family that are disabled).
5.Funding Options for NHI
The National health will be phase in over 14 years, starting in 2012/13. Various funding options are being considered which can include the increase of the VAT rate, a payroll tax on employers, a surcharge on taxable income of individuals or a combination of the above. A discussion paper will be published by end-April 2012.
6. Encouraging Household Saving
To encourage greater saving, tax-preferred savings and investment accounts are being proposed, which will encourage a new generation of savings products. Returns generate in these investments will be tax exempt and the withdrawals will also be fee of tax. The design and costing of the products must ensure that lower income earners can also participate. Aggregate annual contributions could be limited to R30 000 per annum, with a lifetime limit of R500 000 to ensure that high-earners to not benefit disproportionately.
The introduction date is aimed at 1 April 2014 and a discussion is planned for May 2012.
7. Retirement Reforms
All contributions made to retirement funds by employers and employees will be tax deductible by the employee. Individual taxpayers below 45 years will be entitled to a tax deduction of up to 22.5% of the higher off employment or taxable income with an overall annual cap of R250 000. Taxpayers over 45 years will be entitled to deduct up 27.5% of the higher of employment or taxable income with the cap set at R300 000. A Minimum monetary threshold of R20 000 per annum will apply. Contributions in excess of R20 000 per annum will apply. Contributions in excess of the limitation costs within the retirement savings will be included in the maximum allowable percentages.
These amendments will come into effect on 1 March 2014. Consultation will take place to establish a uniform approach to retirement fund withdrawals.
8. Business Taxes
Small business corporations will enjoy an increase tax-free threshold from R59 750 to R62 556. Taxable income up to R350 000 (up from R300 000) will be taxed at 7% (reduced from 10%). For taxable income over R350 000 the normal rate of 28% will apply. This will be effective for the year of assessment ending on or after 1 April 2012.
9. Miscellaneous Tax Amendments
Employer owned policies – contingent liability policies – In 2011 legislative changes were made resulting in the tax deductibility of key-person policies where that policy protects the taxpayer against operating losses due to the loss of an employee. The deduction of premiums for policies to purchase shares or to repay debt is questionable (contingent liability, loan account protection and share buyback policies). The continued allowance of deductible premiums in this regard will be explored, which will be resolved in 2012 or 2013.
Taxation of divorce order related retirement benefits – The clean-break principle was introduced in 2007. The principle will also apply to the GEPF. The proposal is that the tax treatment of payments in terms of a divorce order in respect of the GEPF should mirror that of private-sector funds:
- For payouts in respect of divorce orders issued on or after 1 September 2007, each individual spouse should be liable for the tax on the portion they receive;
- Payouts for divorce orders issued before 1 September 2007 should not attract any tax;
- The application of formula C will be extended to the non-member spouse;
The proposed date of implementation is 1 March 2012.