Budget 2016 Review

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‘We do have a plan, to:
  • Manage our finances in a prudent and sustainable way,
  • Re-ignite confidence and mobilize the resources of all social partners,
  • Collectively invest more in infrastructure to increase potential growth,
  • Give hope to our youth through training and economic opportunities,
  • Protect South Africans from the effects of the drought,
  • Continuously improve our education and health systems,
  • Accelerate transformation towards an inclusive economy and participation by all,
  • Strengthen social solidarity and extend our social safety net.

The Budget rests on the idea of an inclusive social contract, encompassing an equitable burden of tax and a progressive program of expenditures.’ Pravin Gordhan

First the GOOD-ish News:

The value of social grants will increase in 2016/17 to ensure that grants keep up with inflation. Increases to the Social Protection budget will also cater for a rise in the number of beneficiaries, mostly those receiving the old-age pension grant and the child-support grant. This rise in beneficiaries is largely as a result of government’s improving provision of healthcare and basic services over the years – old people are living longer and child mortality rates are falling.

SOCIAL GRANTS 2015/16 2016/17
STATE OLD AGE GRANT R 1 415 R 1 505
AOAG, OVER 75s R 1 435 R 1 525
WAR VETERANS GRANT R 1 435 R 1 525
DISABILITY GRANT R 1 415 R 1 505
FOSTER CARE GRANT R 860 R 890
CARE DEPENDENCY GRANT R 1 415 R 1 505
CHILD SUPPORT GRANT R 330 R 350

PERSONAL INCOME TAX – HOW WILL THE PERSONAL INCOME TAX CHANGES AFFECT YOU?

  • Treocians there are no changes in the conduit other than the fact that the minimum threshold has been increased to R75 000
TAX THRESHOLDS TAX YEAR: 2015/16 TAX YEAR: 2016/17
Below age 65 R 73 650 R 75 000
Age 65 to 74 R 114 800 R 116 150
Age 75 and over R 128 500 R 129 850

MEDICAL SCHEME TAX CREDITS TAX YEAR: 2015/16 TAX YEAR: 2016/17
Each of the first two beneficiaries R 270 R 286
Each additional beneficiary R 181 R 192

Tax payable by individuals for the tax year ending 28 February 2017.

TAXABLE INCOME OF INDIVIDUALS (R) TAX PAYABLE (R)
0 to 188 000 18% of taxable income
188 001 to 293 600 33 840 + 26% of taxable income above 188 000
293 601 to 406 400 61 296 + 31% of taxable income above 293 600
406 401 to 550 100 96 264 + 36% of taxable income above 406 400
550 101 to 701 300 147 996 + 39% of taxable income above 550 100
701 301 and above 206 964 + 41% of taxable income above 701 300

Estate Duty – Estate duty is levied at a flat rate of 20% on property of residents and South African property of non-residents.

A basic deduction of R3.5 million is allowed in the determination of an estate’s liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses

Trusts other than special trusts Rate of tax 41% – no changes here

Our current taxes on wealth are under review by the Davis Committee. Higher capital gains inclusion rates are proposed, together with an increase in the annual amount above which capital gains become taxable. EXPECT higher CGT inclusion rates!

Only The transfer duty rate on properties above R10 million will increase from 11 per cent to 13 per cent, no changes in the Treoc type property transfer duty. Taxable Income (R) Rate of Tax (R)

Value of property (R) Rate
0 – 750 000 0%
750 001 – 1 250 000 3% of the value above R750 000
1 250 001 – 1 750 000 R15 000 + 6% of the value above R 1 250 000
1 750 001 – 2 250 000 R45 000 + 8% of the value above R 1 750 000
2 250 001 – 10 000 000 R85 000 +11% of the value exceeding R2 250 000
10 000 001 and above R937 500 +13% of the value exceeding R10 000 00

INCOME TAX: COMPANIES

Financial years ending on any date between 1 April 2016 and 31 March 2017

Type Rate of Tax (R)

Companies 28% of taxable income

INCOME TAX: SMALL BUSINESS CORPORATIONS

Financial years ending on any date between 1 April 2016 and 31 March 2017

Taxable Income (R) Rate of Tax (R)
0 – 75 000 0% of taxable income
75 001 – 365 000 7% of taxable income above 75 000
365 001 – 550 000 20 300 + 21% of taxable income above 365 000
550 001 and above 59 150 + 28% of taxable income above 550 000

TURNOVER TAX FOR MICRO BUSINESS

Financial years ending on any date between 1 March 2016 and 28 February 2017

0 – 335 000 0% of taxable turnover
335 001 – 500 000 1% of taxable turnover above 335 000
500 001 – 750 000 1 650 + 2% of taxable turnover above 500 000
750 001 and above 6 650 + 3% of taxable turnover above 750 000

THE TAX RATES in summary

This Budget provides for some changes to personal income tax, including adjustments to the three lower taxable income tax brackets and the primary rebate, to provide some relief for lower income individuals from the effect of inflation. The higher CGT inclusion rate is BAD NEWS if you SELL your property.

SIN TAXES RISE IN TOBACCO AND ALCOHOL DUTIES

SUGAR TAX introduced! Government propose to introduce a tax on sugar-sweetened beverages.

Excise duties on alcoholic beverages (particularly beer, ciders, fruit beverages and spirits) will increase by between 6.7 and 8.5 per cent.

The increases in excise duties are as follows: (summarized)

INCREASES BY: Malt beer 11c per 340ml can Unfortified wine 18c per 750ml bottle Fortified wine 27c per 750ml bottle Sparkling wine 59c per 750ml bottle Ciders and alcoholic fruit beverages 11c per 340ml bottle Spirits R3.94 per 750ml bottle

Cigarettes 82c per packet of 20 Cigarette tobacco 94c per 50g Pipe tobacco 27c per 25g Cigars R4.32 per 23g

SUMMARY

Other than the fact that they will pay more tax for their SIN’s, the astute among us need to focus on the type of property and the fact that we buy property for income and Capital growth. The transfer duty is staying the same up to the high priced properties above R10 000 000.

The Tax threshold has lifted to R75 000 which increases the amount that can be earned (in distribution) BEFORE you start paying tax. (Conduit of taxation responsibility in the trust)

  • The Tax threshold has been increased for the distribution of benefit (but keep in mind that the increase of 1.8% is lower than the inflation rate of +- 7% so in ‘real terms’ the threshold is lower.

Capital gains on the disposal of assets are included in taxable income.

  • This will also be distributed between the beneficiaries which means the client will not pay more than he would have in his personal capacity.

Maximum effective rate of tax:

  • Individuals and special trusts 16.4%
  • Companies 22.4%
  • Other trusts 32.8%

Trust taxation stayed the same – however we expect higher CGT inclusion rates. Capital gains tax inclusion rate for individuals, special trusts and insurers’ individual policyholder funds increases from 33.3% to 40%, and for other taxpayers from 66.6% to 80%

  • Property investers do not sell their houses, we keep our houses and rent them out!

Assets transferred through a loan to a trust are to be included in the estate of the founder at death and interest-free loans to trusts are to be treated as donations.

  • We are uncertain as to how this will be interpreted (prospectively or retrospectively) and will provide you with comprehensive feedback in future communication.
  • Our CFO has already made contact with SAICA for clarification on the matter.
  • Property investers have always been made aware of the fact that the loan account is an asset in their estate and we address this by providing insurance to cover the loan.

In the mean-time, make use of the TAX FREE SAVINGS opportunities – Government will endorse investment opportunities.

Get a good bookkeeper asap

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