PREMIUMS & PROBLEMS
Edition No. 105
July 2012
A journal to provide an information service and a forum for the discussion of problems and new developments in financial planning. The opinions expressed by contributors are not necessarily those of Old Mutual Life Assurance Company (SA) Ltd, a Licensed Financial Services Provider. FSP License Number 26/10/703.
Calculations and illustrations should under no circumstances be used in quotations.
Copyright reserved.
Kindly note that this edition has been updated in accordance with the Budget Speech delivered in February 2012. Certain interpretations are based on the editors’ understanding of the Budget Speech and correspondence with the Commissioner for Inland Revenue.
Contributions and enquiries are welcome and must be sent to: The Editors
Premiums & Problems
Personal Financial Advice Human Resources Legal Department Old Mutual PO Box 66 Cape Town 8000. e-mail: premiums&[email protected]
Editors
David Hands B Comm, LLB, LLM (Tax), CFP® Jim Dawson BA (Hons), LLB, ICMQ, CFP® Soré Cloete B Com LLB, CFP® H Dip Tax
Tristan Naidoo LLB (UWC) Adv. PG Dip in Fin. Plan CFP® Julia le Roux B.A. LLB, CFP®
Carl Muller BLC LLB LLM (Tax Law) Adv. PG Dip. in Fin Plan CFP® Gerald Peter LLB, CFP® Adv. PG Dip. in Fin Plan
The Editors wish to thank the following persons for their contributions to the Business Assurance chapter:
Jean-Louis Fourie FIA
Mostafa Abdou BCom (Accounting) Robert Spiers FIA
Angus Lawrie BCom LLB, CFP®, H Dip Tax (UNISA)
Published by Old Mutual Personal Financial Advice Human Resources Legal Department
Design and layout: Debbie Sampson
Proofreading: Tristan Naidoo
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Table of Contents
A - Income & Capital Gains Tax
General notes ... A1 1. Introduction ... A1 2. Residence-based tax ... A1 3. The taxpayer ... A3 4. Employee’s Tax and Provisional Tax ... A3 5. The steps in calculating the tax liability of a natural
person ... A5 6. Gross income ... A6 7. Exempt income ... A20 8. Deductions ... A27 9. Calculating the tax liability ... A31
Income tax rates for natural persons & special trusts ... A31 Income Tax Calculation Sheet ... A35 Provisions relating to persons who are married ... A36 1. Income deemed to have accrued to the spouse - s.7(2) ... A36 2. Spouses married in community of property ... A37 Dividends Withholding Tax ... A38 1. Regulated Intermediary (RI) ... A39 2. Exemptions (s 64F, read with s 64FA(2), 64G(2),
& s64H(2)(a), Income Tax Act) ... A40 3. Generic Product Examples ... A43 4. Impact of DWT on allowable deduction for retirement annuity contributions ... A44 5. Impact of DWT on companies and shareholders ... A44
Capital Gains Tax ... A45 1. Who is liable for CGT?. ... A45 2. What is capital gain?. ... A45 3. Assets ... A46 4. Disposals ... A46 5. Exclusions from capital gains tax ... A47 6. Determining the base cost ... A50 7. Attribution of capital gains ... A52 8. Aggregate capital gain or aggregate capital loss ... A53 9. Capital losses ... A54 10. Record-keeping ... A54 Summary of capital gains tax liability calculation ... A56 B - Investment Planning
General notes ... B1 What is investment planning? ... B1 The investment planning process ... B1 Main factors affecting client’s investment strategy ... B4 1. Risk ... B4 2. Liquidity ... B10 3. Taxation ... B10 4. Inflation. ... B13 Miscellaneous Investment Formulae ... B14 1. Bank acceptances ... B14 2. Values of gilts (e.g. Eskom stock) in phases of rising and falling interest rates ... B14 3. Calculation to determine return on redemption of
existing debt (e.g. bond on house or motor vehicle lease) .. B15 4. A guide to interest rate calculations using basic interest tables ... B19
Bond Redemption Table ... B22 Bond Redemption Table ... B23 Bond Redemption Table ... B24 Investment Planning Worksheet ... B26 1. Step 1: Financial data. ... B27 2. Step 2: Income growth objective ... B30 3. Step 3: Determine investor’s marginal rate of tax ... B30 4. Step 4: Determine whether debt should be repaid
from capital available ... B32 5. Step 5: Invest the capital required for emergency
purposes at the best available call rate ... B33 6. Step 6: Provide for future capital needs ... B33 7. Step 7: Determine income deficit in year 6 ... B33 8. Step 8: Determine the amount to be invested in an
income portfolio ... B34 9. Step 9: Determine future cash flows ... B35 10. Step 10: Determine total annual income from
income portfolio ... B36 11. Step 11: Incorporating the figures determined in
steps 7 to 10 do a comprehensive cash flow analysis ... B36 12. Step 12: Investment of balance of capital ... B38 Investment comparison ... B39 Collective Investment Scheme ... B45 1. What is a collective investment scheme? ... B45 2. Benefits of collective investment schemes ... B45 3. Classification of collective investment schemes ... B46 4. Funds not specifically categorised ... B49 5. Factors to consider when investing in unit trusts ... B49 6. Categories of unitised investment products ... B50
Offshore investments ... B54 1. Introduction ... B54 2. Diversifying risk. ... B54 3. Exploiting international markets and enhancing
returns ... B54 4. Selecting an offshore centre ... B54 5. Offshore Investment Options for SA Residence ... B57 6. Estate Planning & Tax implications ... B60 7. Exchange Control Odds & Ends ... B63 C - Retirement Planning
Retirement Planning Worksheet ... C1 Notes to Retirement Planning Worksheet ... C2 Table A: Capital preservation ... C4 Table B: Annuity rates ... C6 Retirement planning vehicles: A comparison ... C8 Preservation Funds ... C20 Severance benefits ... C23 Comparison between defined benefit and defined
contribution funds ... C24 Retirement Annuity Calculation Sheet ... C25 Calculating the tax payable where the taxpayer retires from more than one retirement fund (after 1 October 2007) ... C26 Calculating the tax payable where the taxpayer
retires from a retirement fund
after having withdrawn or retired from another fund
Techniques to reduce income tax at retirement ... C29 Introduction ... C29 1. Investment of capital in investments generating
tax-free returns ... C29 2. Limiting lump sums to tax-free amount ... C29 3. Preserve retirement fund benefits upon withdrawal ... C29 4. Retire later from Retirement Annuities ... C29 Divorce Order Awards from Retirement Funds ... C30 Divorce Orders and the Government Employees Pension Fund (GEPF) ... C32 D - Business Assurance
Business entities: A comparison ... D1 Business entities - Advantages and Disadvantages ... D10 1. Sole proprietorship ... D10 2. Partnership ... D12 3. Close corporation ... D13 4. Company ... D15 Company Act 71 of 2008 – New structure of
companies...D16 Company-owned policies - Summary of tax
implications ... D18 1. Paragraph (m) of the definition of gross income ... D18 2. Paragraph (d) of the definitions of gross income ... D18 3. Deductibility of premiums - Section 11(w) ... D20 4. Exemptions ... D22 5. Summary of developments ... D26 Deferred compensation ... D30 1. Definition ... D30 2. Income tax implications ... D30
3. Estate duty implications ... D33 4. Capital gains tax implications ... D33 Keyperson assurance ... D34 1. Definition ... D34 2. Income tax implications ... D34 3. Estate duty implications ... D34 4. Capital gains tax implications ... D35 5. Keyperson valuation ... D35 6. Keyperson valuation guideline ... D37 7. Calculation of cover required where policies are
owned by third parties ... D38 Preferred compensation ... D42 1. Definition ... D42 2. How the plan works ... D42 3. Income tax implications ... D42 4. Estate duty consequences ... D43 5. Important considerations ... D43 6. Capital Gains Tax Implications ... D43 Buy-and-sell agreement ... D45 1. Definition ... D45 2. The elements of a buy-and-sell agreement ... D45 3. How the plan works ... D46 4. Income tax implications ... D47 5. Estate duty implications (s.3(3)(a)(iA)) ... D47 6. Capital gains tax implications ... D48 Income tax implications of restraint of trade
payments ... D49 1. Implications for the company ... D49 2. Implications for the employee ... D50
Loan account cover ... D51 1. Debit loan accounts ... D51 2. Credit loan accounts. ... D51 Loan account redemption plan ... D53 1. Introduction ... D53 2. Income tax implications ... D54 3. Estate duty implications ... D54 4. Capital gains tax implications ... D54 Business contingency plan ... D55 1. Introduction ... D55 2. Working of the plan ... D55 3. Income tax implications ... D55 4. Estate duty implications ... D56 5. Capital gains tax implications ... D56 The balance sheet: Business assurance leads ... D57 Introduction ... D57 Assurance leads ... D57 Valuing business interests ... D61 1. Introduction ... D61 2. Assumptions used in Business Valuations ... D61 3. Valuation Method ... D62 4. Earnings Yield Method ... D64 5. Dividend Yield Method ... D65 6. Super Profits Method ... D66
Financial ratios ... D70 Introduction ... D70 1. Liquidity ratios ... D70 2. Solvency ratios ... D72 3. Profitability ratios ... D72 E - Estate Planning Introduction ... E1 Methods to save Estate Duty... E2 Ways to limit growth in the estate ... E2 Capital Gains Tax and Estate Planning ... E3 Disposals by the deceased ... E3 Disposals by the estate ... E4 Taxation of trusts ... E5 Donations Tax: Exemptions ... E6 Estate Pegging Worksheet
Comparison of costs and benefits ... E7 Costs involved in transferring assets ... E8 Costs involved in the setting up and administration
of trusts ... E9 The taxation of trust income ... E10 Tax rates ... E11 Interest-free loans ... E14 1. Income tax considerations ... E14 2. Donations tax considerations ... E15 3. CGT Consequences ... E15
Anti-tax avoidance measures... E16 1. Section 7 ... E16 2. Sections 54 - 64 (Donations tax) ... E16 3. Section 80A ... E16 4. Section 103(5) (Cession of interest) ... E17 Tax implications of retaining control in estate planning. .... E19 1. Trusts ... E19 2. Companies: Unquoted shares ... E19 Limited interests ... E21 1. Tax implications ... E21 2. Valuing limited interests for estate duty purposes:
Deaths before and after 1 April 1977 ... E23 3. Valuation of limited interests: Examples ... E24 Tables for valuation of limited interests……….E28 - E33 Estate duty: Rebate of duty on successive deaths ... E34 How to calculate the estate duty that may be apportioned to policies owned by third parties/ where there is a third- party beneficiary ... E35 ANC marriage - Estate Duty Worksheet ... E37 ANC marriage and residue is bequeathed to
surviving spouse - Estate Duty Worksheet ... E38 Community marriage - Estate Duty Worksheet ... E40 Community marriage and residue is bequeathed to
surviving spouse - Estate Duty Worksheet ... E42 Calculation of residue which accrues to the
surviving spouse ... E44 Estate planning - Liquidity analysis ... E45 Capital Needs Analysis Worksheet... E46 Trust Worksheet - Income tax saving ... E47
Calculation of accrual in terms of the accrual system ... E48 Life assurance and estate planning ... E49 Retirement fund lump sums ... E51 Intestate succession ... E53 1. The surviving spouse ... E53 2. Descendants ... E54 The Wills Act, No. 7 of 1953 - The signing of wills ... E56 1. Wills in respect of which the testator has died before
1 October 1992 ... E56 2. Wills in respect of which the testator has died after
1 October 1992 ... E57 F - General Report writing ... F1 1. Introduction/Background ... F1 2. Areas of concern ... F1 3. Objectives ... F1 4. Possible courses of action and their appraisal
and evaluation... F2 5. Conclusion/Recommendations ... F2 Exchange control guidelines ... F3 1. Capital Transactions ... F3 2. Portfolio Investments by South African Institutional
Investors ... F3 3. Emigration ... F4 4. The Single Discretionary Allowance ... F5 5. Credit and/or Debit Cards ... F6 6. Estates and transfers to beneficiaries ... F6
Section S54 of the Long-term Insurance Act ... F8 Definitions ... F8 Provisions relating to policies (excluding annuities) ... F10 Provisions relating specifically to annuities ... F11 Basic interest calculations on a financial calculator ... F14 Valuation of market value of long-term gilts
(e.g. Eskom stock) ... F17 Nominal and effective rate of interest ... F18 Simple vs compound interest ... F18 Simple vs compound interest. ... F19 Debt repayments ... F19 Resultant Rate ... F20 Life Expectancy Tables... F21 Compound Interest Tables ……….………..F23 - F34 Present Value Tables ………..………….…………F35 - F41 Medical Schemes ... F42 1. Introduction ... F42 2. Purpose of the Act... F42 3. Role-players ... F42 4. Medical Schemes ... F49 5. Duties and obligations of the broker ... F56 6. Penalties ... F61
Money Laundering. ... F62 1. Introduction ... F62 2. Prevention of Organised Crime Act 121 of 1988 (POCA) ... F62 3. Financial Intelligence Centre Act 38 of 2001 (FICA) ... F64 Compliance in terms of the Policyholder Protection
Rules (Long-term Insurance Act 52/1998) ... F77 The Financial Advisory and Intermediary Services
Act. ... F78 1. Introduction ... F78 2. Pertinent definitions ... F78 3. Licensing ... F80 4. Key Individuals ... F80 5. Representatives ... F81 6. Fit and Proper requirements ... F82 7. Compliance Officer ... F85 8. General Code of Conduct for FSP’s and
Representatives ... F86 9. Record Keeping ... F96 10. Offences & Penalties ... F97
Income Tax,
Capital Gains
Tax
&
Dividends
Withholding Tax
General notes
1. Introduction
In South Africa income tax is levied in terms of the Income Tax Act No. 58 of 1962 (as amended). This Act contains provisions for the levying of four different types of tax, i.e. income tax, dividends withholding tax (DWT), donations tax and capital gains tax (CGT). In these notes we will deal only with income tax, CGT, and DWT. Income Tax and CGT are taxes levied on all persons who have a taxable income and/or capital gains. The word "person" in this context does not only refer to natural persons, but also to companies, close corporations, estates of deceased persons, clubs, trusts and any other legal entity subject to tax. In these notes the focus is on the normal tax payable by a natural person and, more specifically, the employed person earning a salary.
2. Residence-based
tax
A “residence minus” tax system became effective on 1 January 2001 and South African residents have since been taxed on their world-wide income. To avoid double taxation all foreign taxes paid by these residents will, however, be allowed as a credit against the South African tax liability (subject to certain limitations). Certain categories of income and activities undertaken outside South Africa will be exempt from South African tax. A Double Taxation Agreement may also apply. All non-residents will be taxed on their South African sourced income.
Who is a resident? Individuals
A resident is defined as either:
A person who is ordinarily resident (namely, whether that person’s permanent home in South Africa is the home to which he or she will return). This is the subjective part of the definition, or
A person who is in the Republic for more than 91 days in aggregate during the year of assessment; and was in total, during the preceding five years of assessment, physically present in the Republic for a period exceeding 915 days; and physically present in the Republic for a period exceeding 91 days, in aggregate, in each of such five preceding years.
(This is the more objective part of the definition known as the “physical presence” test.)
It should also be noted that where a person who is a resident, in terms of the above definition, is physically outside South Africa for a continuous period of 330 full days, such a person shall be deemed not to be a SA resident from the day on which such a person left the RSA. This does, however, not apply to persons who are resident in the Republic because of the ordinary resident test.
In summary, then, a person may be a resident in terms of either the physical presence test or the ordinarily resident test. However, where the person is a resident in terms of the physical presence test only, but is physically outside of South Africa for a continuous period of 330 days, that person is deemed not to be an SA resident.
Companies
A company is a resident if it is incorporated, formed or established in South Africa, or has its place of effective management is in South Africa.
Certain specific exclusions
How will the income of a controlled foreign entity (CFE) be taxed?
A CFE is a foreign entity which is controlled by South African residents as defined in Section 9D. Control means where South African residents hold more than 50 per cent of the participation rights or votes in the entity or control the entity.
Such income, whether active or passive, will be taxed in the hands of the residents controlling the CFE. Note that there are exceptions to this general principle.
How will foreign losses be treated?
Foreign losses of a CFE will be ring-fenced in the CFE and not taken into consideration in determining the tax liability of the South African resident controlling the CFE.
3. The
taxpayer
The term "taxpayer" means any person chargeable with any tax levied in terms of the Act (s.1 "taxpayer").
All taxpayers (other than companies, close corporations and trusts) are taxed according to one tax table.
Note:
For income tax purposes, a minor is taxed in his/her own right unless the provisions of section 7 apply.
A deceased estate is regarded as a taxpayer (represented by the executor) and is taxed according to the tables applicable to natural persons. If the taxpayer dies during the year that he/she would have turned 65, the deduction of the secondary rebate is allowed s.6(1) and 6(2). However, the rebate will be apportioned, depending on how far into the year of assessment death occurs.
4. Employee’s Tax and Provisional Tax
Tax is collected by way of employees’ tax and provisional tax. (Fourth Schedule) Employees’ tax refers to the tax deducted by an employer from remuneration paid or payable to any employee. This method of collecting tax is also referred to as the pay-as-you-earn system (PAYE). Provisional tax refers to the estimated amounts of tax that are paid at periodic intervals.
The First Period (at half year)
o Half of the total tax for the full year;
o Less the employee’s tax deducted for this period (6
months);
o Less any allowable foreign tax credits for this period (6
months).
The Second Period (at year end)
o The total estimated tax for the full year; o Less the employee’s tax paid for the full year;
o Less any allowable foreign tax credits for the full year; o Less the amount paid for the first period.
The Third Period: (voluntary top up six months after year end unless year end is February in which case seven months after year end).
o The total tax payable for the full year;
o Less the employee’s tax paid for the full year;
o Less any allowable foreign tax credits for the full year; o Less the amount paid for the 1st and 2nd provisional tax
periods.
A provisional taxpayer is:
Any person (other than a company) who derives income, other than remuneration or an allowance or advance as contemplated in section 8(1).
Any Company excluding Public Benefit Organisations and Recreational Clubs.
Any person who is notified by the Commissioner that he is a provisional taxpayer.
As from the 2007 year of assessment, directors of private companies and members of close corporations are not required to register as provisional taxpayers.
The following persons / natural persons are not required to pay provisional tax:
Any person whose income is derived solely from
remuneration.
Any person who does not carry on a business and whose income does not exceed the tax threshold:
2011/2012 Tax Year 2012/2013 Tax Year
Below age 65 R59 750 R63 556
Age 65 and over R93 150 R99 056
The taxable income of any person which is derived from interests, dividends, and rental from the letting of fixed property will not exceed R20 000.
Any person, who apart from income derived from
remuneration, receives investment income which does not exceed R22 800 for persons under 65 or R33 000 for persons over 65.
Any person 65 years or older is exempt from the payment of provisional tax if: the taxable income for the tax year does not exceed R120 000 and consists of remuneration, pension, interest, dividends or rental income from the letting of fixed property; and he /she do not carry on any business.
Non-resident ship and aircraft owners that are required to make payment under section 33 of the Act are exempt from paying provisional tax.
When any taxpayer’s liability for normal tax for the year of assessment is calculated by the South African Revenue Service (SARS), these amounts of employees’ tax and provisional tax payments are then set off against the taxpayer’s final liability for tax. If the sum of the tax paid the taxpayer’s total liability for tax, the excess is refunded, but if the amount of tax paid is insufficient, the taxpayer must pay in the shortfall.
It has previously been proposed that SITE be repealed given that the personal income tax threshold for taxpayer’s younger than 65 is approaching the SITE ceiling of R60 000.
5. The steps in calculating the tax liability of a
natural person
The following steps are used to determine the liability for normal tax of a natural person:
Determine gross income
Lessexemptions = Income
Less deductions
Plus taxable capital gains = Taxable income Apply normal tax rates = Tax per scale
Lessrebates = Tax payable.
6. Gross
income
6.1 General
formula
Gross income means, in relation to any year or period of assessment:
in the case of any resident: the total amount, in cash or otherwise, received by or accrued to or in favour of such resident and
in the case of any person other than a resident: the total amount in cash or otherwise received by or accrued to or in favour of such person from a source within or deemed to be within the Republic during such year of assessment, but excluding receipts or accruals of a capital nature.
Although the definition refers to amounts received by or accrued to the taxpayer, there are certain provisions which deem amounts received by persons other than the taxpayer, to have been received by the taxpayer. These include:
income received in certain circumstances by a married person from his or her spouse (s.7(2));
income received in certain circumstances by a minor child (s.7(3) and s.7(4));
income flowing from a donation, settlement or other
disposition (s.7(5), s.7(6), s.7(7))and s.7(8));
lump sums payable by approved funds after the death of the taxpayer (Second Schedule par. 5(1));
certain types of investment income (s.9D). Trade income
Trade includes every profession, trade, business, employment, calling, occupation or venture, including the letting of any property and the use of any patent, design, trademark or copyright or any property which is of a similar nature (s.1 "trade").
6.2 Shares
and
Tax
Section 9CAll “qualifying shares” that have been held for a continuous period of three years or more, are regarded as capital in nature, and are
automatically subject to capital gains tax. Whereas previously it was necessary to look into the facts and circumstances of each case, including the intention of the holder of the shares, now only the length of time for which those shares are held is relevant. Where the shares are acquired on different dates, the taxpayer is deemed to have disposed of the shares held for the longest period of time.
Note, however, that a share held for under three years may still be regarded as capital, depending on the intention of the holder thereof.
The definition of a “qualifying share” includes listed and unlisted shares, shares in private companies, interests in close corporations, and certain collective investment schemes (unit trusts). Among the exclusions are interests in share block schemes, former rollover schemes, hybrid equity investments, shares that are not equity shares (for example non-participating preference shares) and shares in unlisted foreign companies. There is no election to be able to treat shares as either capital or revenue in nature. The amendments are favourable to taxpayers who hold onto shares for more than 3 years; in that the highest effective rate of CGT for individuals of 10% is lower than the marginal rates of income tax applicable to taxable income.
In respect of the sale of shares held for more than three years, the taxpayer must, however, include in his income any expenditure in respect of the shares which the taxpayer previously enjoyed a deduction for in that year or previous years.
6.3 Off-shore investment income
Section 9DThis section introduces certain anti-avoidance measures in relation to the income of controlled foreign entities (CFE), as well as investment income arising from certain donations, settlements or other dispositions.
The important definitions in section 9D are the following:
Controlled foreign company means a foreign company in which any resident/residents, individually or jointly, directly or indirectly, have more than 50 per cent of the participation rights or are
entitled to exercise more than 50 per cent of the votes, i.e. control the entity.
Foreign company means any association, corporation, company arrangement or scheme (excluding a CC or public benefit organisation (PBO)) which is not a resident.
Participation rights means the right to participate directly or indirectly in the share capital, share premium, current or accumulated profits or reserves of the foreign company, whether of a capital nature or not.
There will be included in the income of affected residents a proportional amount of the net income of the foreign entity, which is attributable to the participation rights of the resident in such entity.
This provision will not apply to a resident who, together with connected persons, holds less than 10% (in aggregate at all times during the tax year) of participation rights and voting rights in the CFE.
Section 9D(9) sets out various amounts that are exempt from the provisions of section 9D, e.g. if the net income of the CFE is subject to income tax in South Africa, the provisions of section 9D will not be applicable.
6.4 Specific
inclusions
The definition of gross income lists certain specific amounts that are included in gross income, e.g. annuities (including commuted annuities), rewards for services, lump-sum benefits, pension fund benefits, fringe benefits, dividends, restraint of trade payments, pension and provident fund surpluses and the proceeds of certain policies.
6.5 Fringe
benefits
The cash equivalent of the value of all fringe benefits, as determined under the provisions of the Seventh Schedule, granted in respect of employment or to the holder of any office must be included in gross income. In terms of the Seventh Schedule the following perks give rise to a taxable benefit if they are provided to the employee or holder of office for consideration which is less than the actual value or cost:
the acquisition of an asset;
the right of use of any asset (other than residential accommodation and motor vehicles);
private use of an employer-owned motor vehicle (company car);
meals and refreshments or a voucher for such meals or refreshments;
the use of residential accommodation; free or cheap services;
interest-free or low-interest loans; housing loans or subsidies;
payment of an employee’s debt or release from obligation to pay a debt;
contributions to a medical aid fund. Note:
It has been proposed that employer contributions to retirement funds be fringe benefit taxed. [Proposed effective date: 1 March 2014]
“Employee” in relation to any employer is defined in the Seventh Schedule as any person who is an employee in relation to such employer for purposes of the Fourth Schedule, i.e. for purposes of employees’ tax, including a person who was previously employed by, or was a director of, a private company if such person is or was the sole shareholder or one of the controlling shareholders in such company. Also included are persons who were released by their employer from an obligation which arose before retirement to reimburse the employer for an amount paid by the employer on their behalf or to pay any amount which became owing by them to the employer before their retirement.
6.6 Subsistence allowances (section 8(1)(c))
A subsistence allowance is not regarded as taxable provided that it does not exceed a set daily rate (See Government Gazette 35044):
(i) R303 per day (previously R286), inside the RSA (if the allowance is paid to defray cost of meals and other incidental subsistence expenses).
(ii) R93 per day (previously R88), if the allowance is paid to defray cost of incidental subsistence expenses.
(iii) Where the accommodation to which the allowance or advance relates is outside the RSA and is paid to defray the cost of meals and incidental costs, the amount per day is determined in accordance with a table for the country in which the accommodation is located (among them: Angola: US$340, Australia: Aus$188, Botswana: Pula518, Canada: Can$157, Democratic Republic of Congo: US$288, Egypt: US$118, France: EUR141, Germany: EUR107, India: 4791 Indian Rupees, Pakistan 5775 Pakistani Rupees, Mozambique: US$69, United Kingdom: GBP124, USA: US$142, Zimbabwe: US$120).
(iv) The employee may be entitled to a larger allowance if he/she can prove that such larger amount was actually expended.
(v) These amounts apply in respect of year of assessment commencing 1 March 2012.
6.7 Travelling
allowances (section 8(1)(b))
(i) Any portion of a travelling allowance received which is not expended on business travel is included in the employee’s taxable income.
(ii) Travel between the employee’s place of residence and his/her place of work is not business travel.
(iii) Where the taxpayer receives a travelling allowance, the amount of the deduction to be claimed for business travel may be based on the actual cost incurred or on a kilometre rate established in accordance with the tariffs set out in a notice published by the Minister of Finance in the Government Gazette.
(iv) Where a travel allowance has been given to an employee who has also been granted the use of an employer-owned vehicle, that portion of the travel allowance which is not subject to tax in the employee’s hands is based on the
employee’s actual business travelling expenditure and not the deemed expenditure determined according to the statutory rate per kilometre scale.
(v) The following formulae may be used in calculating the amount expended on business travel:
(a) travelled km total km business actual x 1 costs actual (b) actual business km x km rate
An accurate log book must have been kept.
(vi) In determining the rate per kilometre, a distinction is drawn between the fixed-cost element (which includes depreciation, licence fees, registration fees, etc.), the fuel element and the maintenance element. These elements are based on the determined value of the vehicle.
(vii) Determined value in relation to a motor vehicle means:
o where the vehicle was acquired under a bona fide
agreement of sale or exchange concluded by parties dealing at arm’s length, the original cost thereof, including sales tax or VAT, but excluding any finance charges or interest payable; or
o where the vehicle is/was held under a financial lease the
cost to the lessor or the selling price of the vehicle plus any sales tax or VAT paid; or
o in any other case the market value of the vehicle at the
time when the taxpayer first obtained the vehicle or the right of use thereof plus any sales tax or VAT which would have been payable had it been purchased.
(viii) Where any motor vehicle which is owned or leased by an employee, his/her spouse or child, whether directly or indirectly, by virtue of an interest in a company or trust or otherwise, has been let to the employer or any associated institution in relation to the employer, the sum of the rental paid and any expenditure defrayed in respect of the vehicle, shall be deemed to be an allowance paid to the employee in respect of transport expenses.
(ix) The fixed-cost element (which includes depreciation, licence fees, registration fees, etc.) allowed in any year is a fixed amount ascertained according to the determined value of the vehicle in accordance with the gazetted table.
(x) The rate per kilometre will be the fixed amount divided by the total number of actual kilometres travelled, whether for business or private purposes. A separate rate per kilometre is provided in respect of the fuel element and the maintenance element.
(xi) The scale setting out the three components of the gazetted rates per kilometre (see Government Gazette 35064) which may be used in determining the allowable deduction for business travel, where no records are kept (effective 1 March 2012) is as follows:
Where the value of the vehicle (including VAT)
Fixed cost (R p.a.) Fuel cost (c/km) Maintenance (c/km) R0 – R60 000 R60 001 - R120 000 R120 001 - R180 000 R180 001 – R240 000 R240 001 – R300 000 R300 001 – R360 000 R360 001 – R420 000 R420 001 – R480 000 R480 001 and above 19 492 38 726 52 594 66 440 79 185 91 873 105 809 119 683 119 683 73.7 77.6 81.5 89.6 102.7 117.1 119.3 133.6 133.6 25.7 29.0 32.3 36.9 45.2 53.7 65.2 68.3 68.3 Note:
The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.
Where the allowance is based on the actual distance travelled on business or the recipient can prove the actual distance and the distance travelled in the vehicle for actual business purposes during the year of assessment does not exceed 8 000 kilometres, the rate per kilometre shall, at the option of the recipient, and provided that no other compensation in the form of an allowance or reimbursement is payable by the employer to the employee in respect of such vehicle, be determined in accordance with a scale of 316 cents per kilometre.
(xii) The steps in calculating the deductible travel expenses are as follows:
Step 1: List: (a) total km actually travelled: ……….
(b) determined value: ……….
Step 2: Use the amount in Step 1 and the “fixed cost” amount from the above table to work out the fixed cost:
= fixed cost / total kilometres) x (y/365)= …………... y: If the motor vehicle was used for business purposes
for less than 365 days, the fixed cost must be
apportioned accordingly.
Step 3: Obtain the fuel and maintenance costs per km from the above table:
Fuel costs = ……….… cents per km
Maintenance costs = …….…… cents per km Note: The fixed cost amount is a rand amount so convert the fuel and maintenance amount (in cents) into a rand amount for step 4. Step 4: Add Step 1 and Step 3 amounts together to get the total
cost per km:
Fixed cost + fuel costs + maintenance costs = …….…… total R costs/km
Step 5: Now work out the deduction allowable against allowance:
Business kilometres (per logbook) x total cost per kilometre (step 4)
= R . . . Note:
The deduction may not exceed the amount received as a travel allowance.
To ensure that the correct amount of income tax is collated through the PAYE system during the year, 80% of a person’s monthly vehicle allowance will be subjected to tax.
6.8 Private use of employer-owned motor vehicles
(company cars) - Paragraph 7 of Seventh
Schedule
(i) The value of the taxable benefit is calculated according to a scale based on the determined value of the vehicle.
(ii) The exclusion from the determined value of the VAT paid on the acquisition of the vehicle changed from 1 March 2011. With effect from this date the determined value must now include the VAT paid on the acquisition of the vehicle. (iii) The “determined value” is based on the original cost (to the
employer) excluding finance charges and interest but including VAT and any maintenance plan purchased (excluding extended maintenance plans).
(iv) The monthly benefit is calculated by multiplying the determined value of the vehicle by:
o 3.5% where the vehicle was the subject of a
maintenance plan, or
o 3.25% where the vehicle was the subject of a
maintenance plan at the time the employer acquired the vehicle.
(v) With effect from 1 March 2011, only 80% of the taxable value of this benefit is subject to the deduction of employees’ tax. Where the employer is satisfied that at least 80% of the use of motor vehicle will, during the year of assessment be for business purposes, then 20% of the taxable value of the benefit is subject to the deduction of employees’ tax.
(vi) On assessment, the fringe benefit for the tax year is reduced by the ratio of distance travelled for business purposes (substantiated by a logbook) divided by the actual business travelled during the tax year.
(vii) Further relief may also be available on assessment in respect of the cost of licence, insurance, maintenance, and fuel for private travel (where the full cost is borne by the employee and if the distance travelled for private purposes is substantiated by a logbook.)
Exemptions:
“Pool vehicle”
A vehicle available to and used by other employees; and the private use is of an infrequent nature or merely
incidental to its business use; and
the vehicle is not kept at or near the employee’s residence outside of business hours.
“Restricted use
Where the nature of the employee’s duties requires the use of the vehicle out of business hours and the only private use permitted is travel between his/her residence and work.
6.9 Residential accommodation - Paragraph 9 and
10A of the Seventh Schedule
(i) No taxable benefit arises where the employee is provided with accommodation away from his/her normal place of residence for purposes of performing his/her duties.
(ii) The benefit is taxed on the basis of the employee’s level of remuneration and not on the actual value of the housing provided.
(iii) The value of accommodation provided to expatriate employees is taxable to the extent that it exceeds an amount equal to R25 000 multiplied by the number of months for which the benefit will apply. (Para 9(7B)(ii)(B) of Seventh Schedule). The employee is exempt from fringe benefits for a maximum of two years from date of first arrival in the RSA. Fringe benefits tax will apply where the employee was present in the RSA for a period exceeding 90 days during the year of assessment prior to arrival.
(iv) The taxable benefit that is derived, may be the rental value of such accommodation calculated in terms of the formula in (v) below, less any rental actually paid by the employee for the accommodation or any rental consideration paid by the employee for household goods supplied and any charge made to the employee by the employer in respect of power or fuel provided with the accommodation.
(v) The rental value to be placed on any accommodation provided to an employee is calculated in terms of the formula: (A - B) x 100 C x 12 D
“A” = A remuneration factor representing
remuneration derived by the employee from his/her employer during the preceding year of assessment, in terms of which the remuneration received is deemed to be grossed up to an annual amount where the employee worked for the current employer for part of the previous year, or is an amount equal to the employees monthly salary divided by the amount of days in that month and multiplied by 365 where the employee worked for a different employer in the previous year.
“Remuneration” includes directors’ fees but excludes (amongst others):
the benefit derived from residential
accommodation;
the benefit derived from the private use of any motor vehicle;
“B” = an abatement of R59 750 (from 1 March 2012).
The abatement is not available where: the employer is a private company and
the employee or his/her spouse controls the company or is one of the persons controlling the company.
the employee, his/her spouse or minor child owns or has some right to acquire the property.
“C” = a factor which determines the value to be placed on the accommodation and varies
depending on the size of the accommodation and facilities supplied:
17, if less than four rooms, or more than four, but unfurnished and without power; 18, if four or more rooms with either
furnishing or power supplied;
19, if four or more rooms with both furnishing and power supplied.
“D” = the number of months in the year of
assessment during which the employee was entitled to occupation of the accommodation. (vi) Where the employee is provided with two or more residential
units the cash equivalent will be that of the unit with the highest rental value over the full period during which the employee was entitled to occupy more than one unit.
(vii) Where accommodation which is provided as a benefit to an employee is not owned by the employer or an associated person in relation to the employer, or where the employee has an interest in the particular accommodation, said employee will be taxed on the amount equal to the greater of:
o the value determined or
o total amount of rentals and other expenditure paid by
employer. Rental payable is not taxable in the hands of the employee or connected person in order to avoid double taxation.
An employee will be deemed to have an interest in the accommodation if:
such accommodation is owned by the employee, his/her spouse or child, or by a company in which the employee, his/her spouse or child has a substantial shareholding, or by a trust in which the employee, his/her spouse or child is a beneficiary; or
any increase in the value of the accommodation in any manner whatsoever, directly or indirectly, accrues for the benefit of the employee, his/her spouse or child; or
such employee, or a connected person in relation to such employee, has a right to acquire the accommodation from the employer.
The following criteria apply:
The formula above will not apply, where it is customary for an employer in the industry concerned to provide free or subsidised accommodation to its employees, and
It is necessary for the particular employer to provide free or subsidised accommodation to its employees:
o for the proper performance of their duties; or
o as a result of the frequent movement of employees; or
o as a result of the lack of employer-owned
accommodation.
The benefit is provided solely for bona fide business purposes.
The formula method in (v) above will, however, still apply.
6.10 Subsidies - Paragraph 2 and 12 of the Seventh
Schedule
(i) Taxable benefit arises when an employer pays a subsidy in respect of capital or interest payments due by the employee on any loan.
(ii) Cash equivalent of the taxable benefit in all cases is equal to the full amount of the subsidy.
(iii) Where a financial institution or other body grants a loan to an employee of any employer at a low rate of interest subject to an additional payment by the employer to compensate the financial institution for the consequent loss of interest income, the additional payment will be regarded as a taxable subsidy in the hands of the employee, if the payment by the employer - the amount calculated using the official rate of interest. If it does not exceed this amount, the benefit will be taxed as a low-interest loan.
6.11 Housing and other loans - Paragraph 11 of the
Seventh
Schedule
(i) A low or no-interest loan to an employee gives rise to a taxable benefit calculated with reference to the difference between the interest charged at the official rate (7% pa with effect from 1 October 2010) and the interest which the employee actually pays.
(ii) The value of the taxable benefit is the difference between the amount of interest, which would be payable on the loan at the official rate of interest and the amount of interest actually paid by the employee on the loan.
(iii) No taxable benefit arises from:
o any casual loans which in aggregate do not exceed R3
000. (Para 11(4)(a) of Seventh Schedule)
o a loan granted to enable an employee to further his own
studies.
6.12 Payment of employee’s debt or release from
obligation to pay a debt - Paragraph 13 of the
Seventh
Schedule
(i) Where an employer pays any amount owing by the
employee or releases him/her from the obligation to repay any debt, a taxable benefit accrues to the employee.
(ii) The employee will be taxed on the amount of the debt he/she is released from paying.
(iii) If an employer pays an employee’s subscriptions to a professional body, membership of which is a condition of employment, it is not regarded as a taxable benefit.
6.13 Free or cheap services - Paragraph 10 of the
Seventh
Schedule
Travel facility
(i) The general rule is that travel facilities paid for by an employer for an employee’s private use will be taxable at cost to the employer.
(ii) No taxable benefit is attached to a transport service rendered by an employer to convey employees from home to work.
(iii) In certain circumstances employees of airlines, railways, etc. will not be taxed on the benefit of free travel.
Other services
All other services are taxable at cost to the employer unless: the services are rendered at the employer’s place of work to enable employees to perform their services more effectively or (in the case of recreational facilities) are rendered at a place set aside for employee’s recreation in general.
6.14 Contributions to a medical aid fund
The full amount of any contribution made by the employer to a medical scheme for the benefit of any employee or the employee’s dependants is deemed to be a medical aid contribution made by the employee and is a taxable fringe benefit, irrespective of the employee’s age. (Effective 1 March 2012).
The value of the benefit is equal to the value of the monthly employer contribution. Where a lump sum contribution is made by the employer, a formula is used to determine the fringe benefit based on an apportionment amongst all affected employees. The fringe benefit has no value where the contribution is in respect of either:
An employee retired due to superannuation (reaches normal retirement age according to the rules of the employer’s
superannuation fund) or ill-health; or Dependants of a deceased employee.
However, the amount of contributions paid by the employer on behalf of an employee who is 65 years and older AND HAS NOT RETIRED from that employer, will still be a taxable fringe benefit.
7. Exempt
income
Gross income less exemptions equals income. Some of the more common exemptions are:
7.1 The basic interest and foreign dividend
exemption s.10(1)(i)(xv) and (xvi)
The interest and foreign dividend exemption threshold has not been revised. The domestic interest income exemption for the tax year 2012/2013 remains unchanged at:
R22 800 per annum for taxpayers under the age of 65, R33 000 per annum for taxpayers aged 65 years and older, Interest includes distributions from property unit trusts and foreign interest and dividends. As from 1 March 2012, the foreign interest and dividend exemption falls away.
Example
If it is assumed that an investor can earn interest of 4.5% on a money market investment:
Taxpayers younger than 65 can invest up to R506 667 before paying tax.
Taxpayers 65 and older can invest up to R733 333 before paying tax.
Note:
The current exemptions for interest will possibly be phased out. To encourage greater savings, tax-preferred savings and investment accounts are proposed to be introduced by April 2014, as alternatives to the current tax-free interest-income caps as above. This will encourage a new generation of savings products. Whilst returns generated within these savings and investment vehicles (including interest, capital gains and dividends) and withdrawals will be tax exempt, it is unclear what the impact will be on interest earned in other investment vehicles, given the review of the above mentioned tax-free interest income caps.
It is proposed that a cap of R30 000 per year (with a lifetime limit of R500 000) per taxpayer be placed on aggregate annual contributions, to ensure that high net-worth individuals do not benefit disproportionately. The design and costs of these savings and investment vehicles may be regulated to help lower-income earners to participate.
7.2 Dividends
-
s.10(1)(k)
The exemption for South African dividends has been retained despite the introduction of a dividends withholding tax (DWT) from 1 April 2012, as DWT is a separate tax and withheld and paid to SARS on behalf of the beneficial owner. Dividends are therefore included in gross income but don’t affect taxable income as they remain exempt.
(See section 3 on page A38 for more detail on DWT).
7.3 The tax-free portion of voluntary purchase
annuities - s.10A
The capital element of a voluntary purchase annuity is exempt from tax in the hands of the purchaser or his/her spouse or surviving spouse or deceased/insolvent estate of purchaser spouse. The capital element includes the capital element of a purchased annuity where the purchaser of the annuity has died or has been sequestrated and where the final payment under the annuity contract becomes payable to the purchaser’s deceased or insolvent estate.
The following requirements must be met before this exemption applies:
There must be an agreement between an insurer and a natural person.
The annuity must be payable until the death of the annuitant or the expiry of a specified term.
The annuity must be payable to the purchaser or his/her deceased or insolvent estate or spouse or surviving spouse. It must not be an annuity payable by the insurer under the
rules of a pension, provident or retirement annuity fund. The capital element of the annuity is determined in accordance with the following formula:
Capital element B A
x C where:
A = the amount of the total cash consideration given by the annuity purchaser.
B = the total expected return of all the annuities to be paid (where the annuity is a temporary life annuity the total expected return must be calculated using the life expectancy tables based on age last birthday).
C = the amount of the annuity. Example
A male aged 66 buys a temporary life annuity for R70 000. He receives an annuity of R8 000 per annum. His life expectancy is 13.131 years. The total expected return of all the annuities is R8 000 x 13.131 = R105 048. Capital element 048 R105 000 R70 x R8 000 = R5 331 The taxable portion of the annuity:
R8 000 - R5 331 = R2 669
If the annuitant is required to render a return, a copy must be attached to the tax return.
Commutation of voluntary purchase annuity - s.10A(3)(c) The commuted value of a voluntary purchase annuity is now taxable as gross income less an exempt amount determined in accordance with the following formula:
X = A - D, in which formula:
X = the exempt amount;
A = the amount of the total cash consideration
given by the purchaser under the annuity
contract; and
D = the sum of the capital elements of all annuity amounts payable under the annuity contract prior to the commutation.
Example
A taxpayer purchases a temporary life annuity for R50 000. The annual annuity is R7 000 of which the capital element is R4 000.
After three years the taxpayer commutes the annuity and receives a commuted value of R41 000. What amount will form part of gross income?
Exemption = X = A - D
= R50 000 - R12 000
= R38 000
Taxable portion = commuted value - exemption
= R41 000 - R38 000
= R3 000
7.4 Transfer costs - s.10(1)(nB)
Where an employer bears certain expenses of transfer of any employee:
on taking up employment;
on transfer from one place of employment to another; on termination of employment;
no taxable benefit accrues to the employee. The exempt expenses are:
transport of the employee, his/her household and his/her possessions;
“settling-in” expenditure at the new place of residence; the hiring of temporary accommodation (up to a maximum
of 183 days) pending the obtaining of permanent residential accommodation.
7.5 Share incentive schemes - s.10(1)(nE)
An amount (including any taxable fringe benefits) received by or accrued to an employee under a share incentive scheme operated for the benefit of employees which was derived -
upon the cancellation of a transaction under which the employee purchased the shares under the scheme; or
upon repurchase from the employee at a price not exceeding the selling price to him/her of the shares under the scheme,
is exempt from tax, if the employee does not receive compensation or a consideration in excess of the purchase price he/she actually paid for the shares.
7.6 Employment outside South Africa s.10(1)(o)
Income earned by a resident from employment outside South Africa on behalf of any employer, resident or non-resident, will be exempt if services are rendered outside South Africa and the taxpayer was outside South Africa for periods exceeding 183 days (in aggregate) during any 12-month period commencing or ending during the year of assessment and for a continuous period exceeding 60 full days during such 12-month period. Such service must have been rendered during such periods.Basic steps to be followed in determining the exemption: See also SARS Interpretation Note 16 - 27 March 2003.
Is the taxpayer a person referred to in a 9(1)(e) of the Income Tax Act?
Was remuneration received or did it accrue in respect of services rendered outside the Republic during the year of assessment?
Was the taxpayer outside the Republic for more than 183 days in total during a twelve-month period that commences or ends during the above
mentioned year of assessment?
Was the taxpayer’s absence continuous for more than 60 days during the same twelve-month period above?
Were the services rendered during the 183-day and 60-day period?
No No exemption Yes No No No Yes Yes Yes Yes Exemption No
7.7 Foreign
pensions
Foreign pensions received by or accrued to any resident are not at present taxable s.10(1)(gC).
7.8 Bursaries
-
s.10(1)(q)
Bona fide scholarships or bursaries granted to any person to enable or assist that person to study at a recognised educational or research institute are exempt from tax. If the scholarship or bursary is granted by an employer or any associated institution in relation to the employer to an employee or to a relative of an employee, the amount will be taxable in the following circumstances:
if the bursary is received by means of a current or future “salary sacrifice”; or
if the bursary is received by a relative of an employee who earns in excess of R100 000 per annum; and
so much of the bursary contemplated in (ii) above as in the case of any such relative - R10 000 during the year of assessment.
8. Deductions
8.1 General formula - s.11(a) read with s.23(g)
The general formula allows the deduction of: expenditure and losses actually incurred
during the year of assessment in the production of income not of a capital nature
laid out or expended for the purposes of trade.
The general formula provides for the deduction of those expenses not covered in the list of special deductions. Included hereunder would be travelling expenses, recurring business expenses, advertising, legal costs, salaries, interest paid on money borrowed to produce income, etc.
The Income Tax Act specifies various special deductions allowable against income. These deductions are generally meant to expand the general deduction formula.
8.2 Entertainment expenditure
Self-employed taxpayers can deduct entertainment expenses under the general deduction formula, (sec.11(a) and sec.23(g)). Note:
Where an agent or representative derives an income “mainly” in the form of commissions, qualifying expenditure may be deducted. The word “mainly” has been interpreted to mean that more than 50% of the agents total remuneration is made up of commission payments. See also SARS interpretation note 13.
8.3 Medical Aid Contribution and Expenses
Deduction
Effective 1 March 2012, the medical tax credit regime replaces the previous medical aid contribution deduction for taxpayers under the age of 65.
The new tax credit system aims to bring about greater equality across income levels in terms of tax relief for medical aid contributions.
This tax credit system will only apply to taxpayers under the age of 65. Taxpayers who are 65 years and older will, for the time being, continue to enjoy a full deduction for all their medical related expenses.
As it stands, the tax credit (applied in the same way as the rebates to the final tax liability) for the taxpayer and the first dependent is R230 and R 154 for each additional dependent.
In addition to this:
taxpayers under the age of 65 may deduct their out of pocket medical expenses plus the amount of their medical scheme contributions that exceed four times the medical tax credit to which they are due, as, in aggregate, exceed 7.5% of the taxpayers’ taxable income.
taxpayers with disabilities (including their spouses or children with disabilities) may deduct their full out of pocket
expenses as well as the amount of their medical scheme contributions that exceed four times the medical tax credits to which they are due.
Note:
The list of illnesses qualifying as “mental illnesses” exceed 200 and includes for example depression, anorexia, ADD, ADHD, anxiety, bereavement, etc.
Qualifying expenses consist of:
Contributions paid to a registered medical scheme (Note: where contributions are paid by an employer of a taxpayer, they are deemed to have been paid by the taxpayer to the extent that such amount had already been included in the income of the taxpayer as a taxable benefit).
Expenses paid in respect of medical services and prescribed medical supplies not recovered from a medical scheme; and
Other expenditure necessarily incurred and paid in
consequence of any physical disability. Example
Taxpayer 1 has a taxable income of R900 000 per year (before the medical aid deduction), attracting a marginal rate of 40%. He has a wife and 3 children who are dependants on his medical aid. Previously, his allowable deduction was: (R720 + R720 + R440 + R440 + R440) x 12 = R33 120. This reduced his annual taxable
income by R33 120 (equating to a tax saving of R13 248).
Taxpayer 2 has a taxable income of R150 000 per year (before the medical aid deduction) with a marginal tax rate of 18%. He also has a wife and 3 children who are dependants on his medical aid. Previously, his allowable deduction was R33 120. This equated to a tax saving of R5 961.60.
Higher income earners were seen to derive a larger benefit from the previous regime as opposed to lower income earners.
Under the medical tax credits regime:
Taxpayer 1 has a tax liability of R349 245 before medical tax credits. He qualifies for a credit of R11 064, and his final liability will be R338 181.
Taxpayer 2 has a tax liability of R16 245. As he has the same number of dependents, he will have the same medical credit of R11 064, and his final liability will be R5 181.
8.4 Donations to public benefit organisations
(PBO’s) - s.18A
Bona fide donations to any approved public benefit organisation may be claimed as a deduction by a taxpayer. The deduction is limited to 10% of the taxpayer’s taxable income before the deduction of a claim in respect of any donation or medical expenditure, but inclusive of any taxable capital gains.
Donations to transfrontier parks are deductable if the donation equals, or is less than, the amount of R1 million with effect from 1 March 2008.
8.5 Deductions in respect of current and arrear
pension fund contributions - s.11(k)
See Retirement Planning.
8.6 Deductions in respect of current and arrear
retirement annuity fund contributions - s.11(n)
See Retirement Planning.9. Calculating the tax liability
9.1 The tax tables
Different income tax rates apply to natural persons, non-natural taxpayers and trusts. See section E for the tax rates applicable to trusts. The tables that follow contain the income tax rates applicable to natural persons for the current and previous two years of assessment.
Income tax rates for natural persons and special trusts
Year of assessment ending 28.2.2012 Taxable income (R) Rate of tax
0 - 150 000 18% of each R1
150 001 - 235 000 R27 000 + 25% of the amount above R150 000 235 001 - 325 000 R48 250 + 30% of the amount above R235 000 325 001 - 455 000 R75 250 + 35% of the amount above R325 000 455 001 – 580 000 R120 750 + 38% of the amount above R455 000 580 001 and above R168 250 + 40% of the amount above R580 000
Year of assessment ending 28.2.2013 Taxable Income (R) Rate of tax
R0 - R160 000 18% of taxable income
R160 001 - R250 000 R28 800 + 25% of taxable income above R160 000 R250 001 - R346 000 R51 300 + 30% of taxable income above R250 000 R346 001 - R484 000 R80 100 + 35% of taxable income above R346 000 R484 001 - R617 000 R128 400 + 38% of taxable income above R484 000 R617 001 R178 940 + 40% of taxable income above R617 000
Year of assessment ending 28.2.2011 Taxable income (R) Rate of tax
0 - 140 000 18% of each R1
140 001 - 221 000 R25 200 + 25% of the amount above R140 000 221 001 - 305 000 R45 450 + 30% of the amount above R221 000 305 001 - 431 000 R70 650 + 35% of the amount above R305 000 431 001 - 552 000 R114 750 + 38% of the amount above R431 000 552 001 and above R160 730 + 40% of the amount above R552 000
Deceased estates, special trusts (set up for the benefit of persons suffering from mental or physical disabilities) and testamentary trusts established for the benefit of minor children will also be taxed at these rates. All other trusts are taxed at a flat rate of 40%.
Trusts do not qualify for any rebates or for the exemption on interest granted to natural persons.
9.2 Tax
Thresholds
2011/2012 Tax Year 2012/2013 Tax Year
Below age 65 R59 750 R63 556
Age 65 and over R93 150 R99 056 Age 75 and over R104 262 R110 889
This means that a taxpayer
younger than 65 and earning a taxable income of R63 556 or less per annum, or
a taxpayer older than 65 but younger than 75 and earning a taxable income of R99 056 or less per annum, or
a taxpayer of 75 years and older and earning a taxable income of R110 889 or less per annum,
9.3 Tax
rebates
Taxpayers who are natural persons are entitled to certain rebates. These rebates are determined by the age of the taxpayer (section 7).
The rebates are as follows:
2011/2012 Tax Year 2012/2013 Tax Year Primary Rebate R10 755 R11 440
Secondary Rebate (applicable only to taxpayers aged 65 and over)
R6 012 R6 390
Tertiary Rebate (applicable only to taxpayers aged 75 and over)
R2 000 R2 130
The secondary and third rebate will also be available if the taxpayer dies during the tax year in which he/she would have turned 65 or 75 respectively.
Where the period of assessment is less than 12 months, the rebate is reduced proportionately.
9.4 Small business: tax stimulus
(Section
12E(4)(a)(i))
The tax rates applicable to Small Business Corporations (gross income under R14 million) for financial years ending on any date between 1 April 2012 and 31 March 2013 are:
Taxable Income (R) Rate of Tax
R0 - R63 556 0%
R63 557 – R350 000 7% of the amount above R63 556 but less than R350 000
