The 2018 Tax Changes & Their Impact on Personal Financial Planning

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The 2018 Tax Changes & Their Impact on Personal Financial Planning

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On 21 February 2018, Finance Minister Malusi Gigaba delivered the 2018 Budget Speech to Parliament and the nation. It contained a few not-so-unexpected surprises, such as the increase in the VAT rate, the new sugar tax and an increase in the excise duty on luxury items. However, with regard to the realm of personal financial planning, not much has changed.

Herewith a brief overview of the changes that will impact on your personal financial planning:

Personal income tax

Although the good news is that there has not been the addition of another tier to the personal income tax table, the bad news is that the table was not fully adjusted for inflation. Only individuals who pay tax at a marginal rate of 31% or less have received a 3% adjustment. The rest of the tiers have remained the same. Accordingly, if you pay tax at a marginal rate of 36% or more and you received a salary increase in line with inflation, you will now effectively pay close to 1% more in tax.

However, the light at the end of the tunnel is that the rebates available to all individuals have been increased, in line with inflation, by 4.2%. This offers you some measure of relief on your tax burden.

Medical tax credits

In lieu of the proposed National Health Insurance, we expect Government to gradually decrease the medical tax credits available to individuals. This is evident in the fact that the monthly tax credit for the first two beneficiaries increased by only 2.3% (from R303 per beneficiary to R310) and for the remainder of the beneficiaries by 2.5% (from R204 per beneficiary to R209) this year.

If you jointly contribute to the medical scheme, contribution or medical cost of another individual, you will now not be allowed the full credit, but an apportioned credit. An example of this would be where two siblings jointly contribute to the medical aid and medical costs of a parent. This is due to Government’s concern that some taxpayers may be excessively benefiting from this rebate.[1]

Estate duty and donations tax

If you are one of the few and fortunate individuals with a dutiable estate in excess of R30 million, effective from 1 March 2018, your estate duty rate will be 25% for the amount in excess of R30 million. This is in contrast to the previous rate of 20%. To discourage persons in their final days from merely donating their full estate in order to avoid this increased rate, the donations tax rate has also been increased from 20% to 25% for donations in excess of R30 million in any one year.

Official rate of interest

This is the rate used to quantify the fringe benefit of low interest rate loans provided by employers and the amount of a donation for low interest loans to trusts by connected persons.[2] Currently the rate is 7.75% (repo rate + 1%), but given that rates in the market are generally closer to the prime lending rate (currently 10.25%), it is being proposed that the official rate of interest be changed to a rate linked to prime.

So, if you have a loan provided by your company or provide a loan to a trust, be aware of the change that is coming and plan accordingly.

 

Article by Pietro Odendaal, Milpark Education

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[1] ANNEXURE C: ADDITIONAL TAX POLICY AND ADMINISTRATIVE ADJUSTMENTS pg. 131 http://www.treasury.gov.za/documents/national%20budget/2018/review/Annexure%20C.pdf

[2] ANNEXURE C: ADDITIONAL TAX POLICY AND ADMINISTRATIVE ADJUSTMENTS pg. 135 http://www.treasury.gov.za/documents/national%20budget/2018/review/Annexure%20C.pdf

19 Jul 2018