Following the annual national budget speech delivered by Finance Minister Pravin Gordhan on 22 February, we highlight some of the most significant matters arising below:
A new tax bracket will be introduced targeting the wealthy as well as trusts. It is proposed that trusts will from now on be taxed at 45% on all taxable income, while individuals earning more than R1.5million per tax year will pay 45% income tax on such income (estimated to be around 103,000 individuals);
- The dividends withholding tax rate is proposed to be increased from 15% to 20%. This is linked to the above increase in individual income tax rates to prevent wealthy individuals from exploiting the arbitrage opportunity that may exist in receiving fees in a company and having these paid out as a dividend;
- The much debated VAT rate has been left unchanged, which was widely expected given the political sensitivity coupled with the effect that this may have on the poor;
- Increase in withholding taxes on non-residents disposing of immovable property situated in SA;
- The “duty free” threshold for transfer duty (tax levied on purchasers of immovable property) has been increased from R750,000 to R900,000;
- The corporate income tax, donations tax and estate duty rates have been left unchanged;
- The CGT inclusion rate (40% for individuals, 80% for companies or trusts) was left unchanged too;
- The above and other most significant changes can be summed up as follows:
| WAS | NOW | |
| Top marginal PIT rate | 41% | 45% |
| Dividends tax | 15% | 20% |
| Tax rate for trusts | 41% | 45% |
| Estate duty abatement | R3.5 m | R3.5 m |
| CGT annual exclusion | R40,000 | R40,000 |
| Primary rebate for individuals | R13,500 | R13,635 |
The Minister also alluded to the following matters which could expect legislative intervention or refinement during the course of the year:
- Renewed focus on transfer pricing and cross-border tax avoidance schemes;
- Further refinements to anti-avoidance legislation introduced in 2016 as applies to trusts;
- Section 42 “asset-for-share” relief to be extended to also provide for the assumption of contingent liabilities (as opposed to only applying to the issuing of shares or the assumption of existing debt);
- Share issue and buy-back transactions (commonly used as part of corporate restructurings whereby CGT is avoided) are to be addressed as part of an anti-avoidance effort;
- The anti-avoidance provisions linked to “third-party back shares” (section 8EA) are to be relaxed;
- Further refinement and relaxation of the VCC regime as relates to rules restricting such investments;
- Measures will be introduced whereby foreign companies held by foreign trusts with SA beneficiaries will be drawn into the SA tax net under the “controlled foreign company” regime
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
