22 February 2018
The purpose of this document is to provide intermediaries with information applicable to their work.
The budget proposals are subject to ratification by Parliament. The final legislation is expected to be tabled later this year. We will then provide you with detail information.
Estate duty is levied at a rate of 20%. However, estate duty for estates worth R30 million and more has been increased from 20% to 25%. This will be effective from 1 March 2018.
The donations tax exemption for natural persons remains R100 000 p.a. Donations exceeding R100 000 p.a. are taxed at 20%. However, any donations above R30 million in one tax year will be taxed at 25%.
The interest exemption remains the same for interest earned from a South African source for both individuals under, and over the age of 65. The interest exemption for non-residents remains intact.
Medical tax credits will increase from R303 to R310 per month for the first two beneficiaries, and from R204 to R209 per month for the remaining beneficiaries. The calculation of the deduction in respect of individuals over the age of 65, disabled individuals, as well as all other individuals, remains unchanged.
The medical tax credit consists of two components namely, medical scheme fees for approved medical scheme contributions and additional medical expenses for out-of- pocket medical payments. There are instances where multiple taxpayers contribute toward the medical scheme or expenses of another person (for example, adult children jointly contributing to their elderly mother’s medical scheme). Where taxpayers carry a share of the medical scheme, contribution or medical cost, it is proposed that the medical tax credit should also be apportioned between the various contributors.
The Income Tax Act currently exempts all retirement benefits from a foreign source for employment rendered outside of South Africa from taxation. The interaction of this exemption with double taxation agreements and other provisions of the Act will be reviewed to ensure that contributions are only deductible where benefits are taxable.
Upon formal emigration an individual is able to withdraw the full fund interest from a retirement annuity fund, after paying the retirement fund withdrawal benefits tax. Government will consider changing the laws this year to allow a withdrawal upon emigration for preservation funds as well, in other words in addition to the current one allowed withdrawal from a preservation fund.
The transfer of fund amounts between, or within, retirement funds at the same employer has inadvertently led to a tax liability for members, due to the current wording of the legislation. In principle, there should be no additional tax consequence for members if the transfers refer to amounts that have already been contributed to the retirement fund.
Legislative amendments will be retrospectively introduced to correct these unintended tax liabilities.
No change in the percentage applicable (27.5%) nor in the limit (R350 000).
No change in the table
In 2017, amendments were made to allow the transfer of pension or provident fund amounts to a retirement annuity fund after the retirement date of an employee. This allowed an individual to postpone retirement. It is proposed to cater for transfers to pension preservation and provident preservation funds in legislation, because, after investigation into the matter, it was found that the administration required to disallow once-off withdrawals of the transferred amount from these funds was not too onerous, as previously thought.
Government proposes to raise VAT from 14% to 15%, effective 1 April 2018. The increase is necessary to meet new spending commitments and prevent further erosion of the public finances. VAT was last adjusted in 1993, and is lower than the global and African averages.
In the current tax rules regarding interest paid to a non-resident beneficiary from a trust, it is unclear who bears the withholding obligation after vesting. Furthermore, the rules dealing with trust income and beneficiaries do not deem the trust to have paid interest to beneficiaries if they are non-residents. A rule will be considered to address this anomaly.
The Tax Administration Act will be amended to deregister non-compliant tax practitioners. The SARS Commissioner will notify the practitioner of this.
To ease administration, the requirement for a person receiving a tax-exempt dividend to submit a return will be repealed.
The Income Tax Act was amended to introduce the risk policy fund for long-term insurers, effective from 2016. The tax treatment of long-term insurers was also amended due to the introduction of the solvency assessment and management framework. Recent amendments affecting the risk policy fund did not take effect when the fund was introduced. It is proposed that the effective date of the relevant amendments be so changed.
Government proposes to increase the general fuel levy by 22c/litre and the Road Accident Fund levy by 30c/litre, effective 4 April 2018.