On the Budget Speech, Einstein and Income Taxes
When asked about his income tax form, Albert Einstein is believed to have said, “This is a question too difficult for a mathematician. It should be asked of a philosopher”. To assist us on this difficult topic, Deon Claase, a lecturer in the School of Financial Planning and Insurance, sheds some light on the recently delivered Budget Speech and the implications for our income tax forms for the year ahead.
Finance Minister Tito Mboweni delivered the Budget Speech last Wednesday, 26 February 2020. Expectations prior to the Budget Speech predicted a combination of tax hikes in the major areas (personal, corporate and VAT), expenditure cuts and economic reforms to boost the growth. However, no major tax increases were announced and there were no big changes in matters impacting on the financial planning industry.
Instead, South Africans can look forward to lower taxes, with some personal income tax relief. The corporate income tax rate will also be reduced in the near future, with the aim of helping businesses grow.
According to SARS’ Budget Tax Guide, the main tax proposals for the 2020/21 tax year are:
- Providing personal income tax relief through an above-inflation increase in the brackets and rebates.
- Further limiting corporate interest deductions to combat base erosion and profit shifting.
- Restricting the ability of companies to fully offset assessed losses from previous years against taxable income.
- Increasing the fuel levy by 25c/litre, consisting of a 16c/litre increase in the general fuel levy and a 9c/litre increase in the RAF levy, to adjust for inflation.
- Increasing the annual contribution limit to tax-free savings accounts with R3 000 from 1 March 2020 to R36 000.
- Increasing excise duties on alcohol and tobacco by between 4.4 and 7.5 per cent.
Individuals and special trusts
An above-inflation increase has been made to the personal income tax brackets. The personal income tax rates for the 2020/2021 tax year are shown below:
Similarly, there has been an above-inflation increase to the tax-free thresholds for personal income taxes to the following:
The primary, secondary and tertiary rebates (deductible from tax payable) were increased to the following:
- Primary rebate: R14 958
- Secondary rebate (applicable only to taxpayers aged 65 to 74: R8 199
- Tertiary rebate (applicable only to taxpayers aged 75 and over): R2 736.
Medical tax credits
Monthly tax credits for medical scheme contributions were increased by 2.8% to the following:
- R319 per month per beneficiary for the first two beneficiaries
- R215 per month for each additional beneficiary.
The annual cap on contributions to tax-free investments has been increased from R33 000 to R36 000 from 1 March 2020 with the lifetime limit remaining at R500 000.
No transfer duty is payable on the purchase of property up to the value of R1 million. This has been increased from R900 000 from the 2019/2020 tax year.
Additional tax proposals for the 2020 legislative cycle
Deon also highlighted the tax reforms announced for the 2020 legislative cycle that particularly stood out for him.
“In the retirement sphere, government and the National Economic Development and Labour Council have agreed to proceed with retirement reform related to the harmonisation of all retirement benefits, including provident funds. A new development is, however, the announcement that the concept of emigration as recognised by the Reserve Bank will be phased out.
Currently, the concept is relevant in the retirement field as individuals are able to withdraw funds from their pension preservation fund, provident preservation fund and retirement annuity fund when they emigrate for exchange control purposes through the South African Reserve Bank. Instead of the concept of emigration, a new trigger for individuals to withdraw these funds will be introduced – however, any such amendments will only come into effect from 1 March 2021.
It was also good to see that government wants to encourage South Africans working abroad to maintain their ties to South Africa. This they seek to achieve, as mentioned above, by phasing out the concept of emigration and to allow such individuals more flexibility, provided funds are legitimately sourced and their tax affairs are in good standing with the South African Revenue Service. Also, the cap on the exemption of foreign remuneration earned by South African tax residents is increased from R1 million to R1.25 million per tax year, and that already takes effect from 1 March 2020.”
All in all, a budget speech that was not as difficult as Einstein may have believed about taxes, but definitely one with good philosophical underpinnings to ensure South Africa is on the right track for the 2020/2021 tax year.
BUDGET 2020/21 TAX GUIDE and associated supporting documentation.
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06 Mar 2020