Transcript Document

2010
Budget and Tax
Update
1
2010 BUDGET
2
Main Tax Proposals
• Personal income tax relief of R6.5 billion
• Fuel taxes to increase by 25.5 c per litre
• Voluntary disclosure programme
• Curbing of avoidance schemes
• Increased sin taxes
• Cash grant for hiring unskilled youth
3
Tax Tables - Individuals
2010/2011
Taxable Income (R)
2009/2010
Rates of Tax
Taxable Income (R)
Rates of Tax
0 - 140,000
18%
0 - 132,000
18%
140,001 - 221,000
R25,200 + 25%
132,001 - 210,000
R23,760 + 25%
221,001 - 305,000
R45,450 + 30%
210,001 - 290,000
R43,260 + 30%
305,001 - 431,000
R70,650 + 35%
290,001 - 410,000
R67,260 + 35%
431,001 - 552,000
R114,750 + 38%
410,001 - 525,000
R109,260 + 38%
552,001 and above
R160,730 + 40%
525,001 and above
R152,960 + 40%
4
Rebates
Primary Rebate
Under 65
Over 65
2011
R
10 260
5 675
2010
R
9 756
5 400
5
Tax Thresholds
Primary Rebate
Under 65
Over 65
2011
R
57 000
88 528
2010
R
54 200
84 200
6
Interest and Taxable Dividend
Exemption
Under 65
Over 65
Foreign
2011
R
22 300
32 000
3 700
2010
R
21 000
30 000
3 500
7
Capital Gains Tax Exemptions
2011
R
2010
R
Annual Exclusion
17 500
17 500
Primary Residence Exclusion
- disregard gains & losses if
proceeds do not exceed
1,5 m
1,5 m
2m
2m
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Company Tax Rates
Years of assessment ending between 1/4/10 and 31/3/11
2011 2010
Non-mining companies
28%
28%
Close corporations
28%
28%
Personal service provider companies
33%
33%
Non-resident companies
33%
33%
STC: 10% on net amount of dividends declared
9
Small Business Corporations
(Years of assessment ending between 1/4/10 and 31/3/11)
Taxable income
Rate of tax
R
0 -
57 000
0%
57 000 - 300 000 10% of the amount over R57 000
300 000 R24 580 + 28% of the amount over
R300 000
10
Turnover Tax For
Micro Businesses
(year of assessment ending 28/2/10 and 28/2/11)
Turnover (R)
0 -
Rate of tax
100 000 0%
100 001 -
300 000 1% of the amount over R100 000
300 001 -
500 000 R2 000 + 3% of the amount over R300 000
500 001 -
750 000 R8 000 + 5% of the amount over R500 000
750 001 -
R20 500 + 7% of the amount over
R750 000
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Individuals
• R6,5 billion relief: revised tax tables, rebates and
exemptions
• Focus on tax avoidance and tax structuring
• SITE to be abolished from 1 March 2011
• Gambling winnings to be taxed
12
Fringe Benefits
• Company car and other fringe benefit rules to be
revised
• Employer deductions to be fully reflected in
employee’s gross income
• Employee insurance packages to be taxed on a
monthly basis
13
Medical Aid Contributions
• Monthly caps to increase
 from R625 to R670 (7.2%) for each of the first
two beneficiaries and
 from R380 to R410 (7.9%) for each additional
beneficiary
• Proposed conversion to a tax credit system
deferred until 2012/13
14
Lump Sum Gratuities
• R30 000* exemption to be merged into the
retirement fund lump sum benefit system aggregation principle will apply.
* Last adjusted in 1984
15
Subsistence Allowances
• Travel in the Republic

meals and incidental costs: R276 (was R260)
per day

incidental costs only: R85 (was R80) per day
• Travel outside the Republic

daily amount per country
16
Estate Duty
• Double tax on death: CGT and Estate Duty
– Estate duty to be reviewed
17
Tax Administration
• Increased focus on enforcement and collections
• Level of tax compliance has "deteriorated”
• Third party information and "targeted lifestyle
audits"
• Enhanced focus on "large taxpayers and high-net
worth individuals”
18
Voluntary Disclosure Programme
• 1 Nov 2010 – 30 Oct 2011
• Some relief for

Penalties

Exchange control

Criminal prosecution
19
VAT
• Possible relief

for claw-back on temporary rentals by
developers

renting of furnished residential
accommodation
• 12-month claw-back rule to be relaxed on
deregistration (to avoid double-tax)
20
Youth Employment Grant
• Two-year cash grant

For tax-compliant businesses, non-governmental
organisations and municipalities
21
Urban Development Zone
(UDZ) Allowance
• New buildings: 20%(first year); 8% p.a. (next 10 yrs)
• Low cost housing in UDZ

New buildings: 25% (first year); 13% (next 5 yrs);
10% (year 7)

Improvements to existing buildings: 25% p.a.
• Enhanced allowances to be considered for private
developers who improve another party's land
22
Dividends Tax
•
•
•
•
•
Definition of “dividend” to be refined
New definition of “foreign dividend”
Transitional issues
Practical problems relating to in specie dividends
Further refinements to the withholding system
where companies would pay dividend tax on a
shareholder’s behalf
• Implementation 2011 (/2012?)
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Corporate Tax
•
•
•
•
Attack on sophisticated tax avoidance schemes
Interest cost allocation for financial institutions
Offshore protected cell companies
Schemes channeling deductible amounts to
residents
• Restricting the interest exemption for non-residents
investing in financial instruments other than South
African bonds, unit trusts or publicly available
interest bearing instruments
24
Headquarter Companies
• Exchange control and tax relief to be
considered for various types of headquarter
companies located in South Africa
25
Fuel Levies
• To be increased by 25,5c/l on 7 April 2010
 General fuel levy on petrol and diesel increases
by 10c/l
Additional 7.5c/l for the funding of the new
petroleum pipeline between Durban and Gauteng
 Road Accident Fund levy on petrol and diesel
increases by 8c/l cents per litre

• Total = 243.5 c/l on petrol; 228.51c/l on diesel
26
Green Taxes
• Carbon emissions tax to be introduced on new
passenger vehicles from 1 September 2010
• Congestion, pollution and landfill taxes to be
considered
27
Sin Taxes
• Tax on 
Cigarettes increases from R7.70 per pack of 20
cigarettes to R8.94

Beer increases from 79c to 85c on a 340ml can

Wine increases from R1.98 to R2.14 a litre
• Expected revenue: R2.3bn 2010/11
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2009
AMENDMENTS
29
Primary Residence Exclusion
(Para 45 (1) (b) of the Eighth Schedule)
• Capital gains & losses on proceeds up to R2million
disregarded
 Applies only where... (see Para 45(4))
 Effective for years of assessment commencing
on or after 1 March 2009
 NB: Primary residence exclusion remains at
R1,5m
30
Travel Allowance: Repeal of
Deemed Kilometer Method
(S 8 (1)(b)(ii) & Para. 1 of the Fourth Schedule)
• The deemed kilometre method (first 18 000 km
traveled per year deemed to be private travel) to be
repealed from 1 March 2010
• Amount included in “remuneration” increased from
60% to 80%
– from 1 March 2010
• Can still claim business travel expenses for actual
kilometers recorded in a log book
31
Conversion of the STC to
Dividend Withholding Tax
• 10% tax on dividends will fall on the
shareholders
• A number of exemptions (e.g. pension funds;
company-to-company)
• Treaty reductions (5% on re-negotiated DTAs)
32
Conversion of the STC to
Dividend Withholding Tax
• Withholding obligation on the company payer (or a
regulated intermediary)
• New definition of “dividend” and “contributed tax
capital”
• Anti-avoidance rules will become effective on
implementation
33
Controlled Foreign Companies
(S 9D)
“Foreign Business Establishment” definition
• Fixed place
• Located outside South Africa
• Conducted continuously and regularly
• Takes into account certain activities of CFC group
members if located in the same foreign country
34
Controlled Foreign Companies
(S 9D)
“Foreign Business Establishment” definition
• Establishment located in foreign country solely or
mainly for non-tax avoidance reasons
High tax jurisdictions
• CFCs will be exempt from tax in SA if subject to
high foreign country taxes
35
Depreciation on Improvements
(ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B)
• Amendments clarify that the depreciation allowance
applies equally to improvements associated with
underlying assets. Depreciation of improvements
should be determined as if the improvement were a
stand-alone asset.
36
Depreciation on Improvements
(ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B)
• Effective for expenditure incurred in respect of
years of assessment ending on or after 1
January 2010
37
Lease Improvements Allowance
(s 11(g))
• The prohibition against deducting improvements
where the lessor is tax-exempt will no longer apply
if:
– (i) the lessee is leasing land or buildings owned
directly by government (national, provincial or
municipal) or indirectly by government (through
institutions exempt in terms of section 10(1)(cA)
and section 10(1)(t)); and
38
Lease Improvements Allowance
(s 11(g))
• The prohibition against deducting improvements
where the lessor is tax-exempt will no longer apply
if:
– (ii) the lease is of a duration of 20 years or
more.
• Effective for improvements brought into use on or
after 1 January 2009
39
Pre-Trade Expenses
(s 11A)
• S 24J expenditure now included
• Effective for years of assessment ending on or
after 1 January 2005 (backdated)
40
Small Business Corporations
(S 12E(4)(a)(ii)(hh); para 3(f)(iii) of the Sixth Schedule)
• Inactive or dormant shelf companies added to the
list of permitted investments
– A shelf company is inactive or dormant until the
company trades or holds assets exceeding
R5 000
• Effective for years of assessment ending on or after
1 January 2010
41
Learnership Allowance
(S 12H)
Type of learner
Commencement
allowance
Completion
allowance
Basic
R 30 000 p.a.
R 30 000 x no. of
completed 12-month
periods
Learner with
disability
R 50 000 p.a.
R 50 000 x no. of
completed 12-month
periods
42
Example
Facts:
• Employer X enters into a learnership contract with a
learner.
• At the end of month 6, the learner leaves Employer X
and moves to Employer Y.
• The learner subsequently completes the learnership
with Employer Y.
• The learner has no disabilities and the learnership
spans a single year of assessment for both Employer X
and Employer Y.
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Example
Result:
• The commencement allowance is divided pro rata
between Employer X and Employer Y (each based on a
6/12 ratio).
• Employer X is entitled to a commencement allowance of
R15 000 (1/2 of R30000), and Employer Y is entitled to
a commencement allowance of R15 000 (1/2 of R30
000).
• Employer Y is also entitled to claim the completion
allowance of R30000 (i.e. the full amount).
44
Example
Facts:
• Employer X (Dec year-end) concludes a 3-year
learnership with a learner at the beginning of January
2010.
• The learner changes employment to Employer Y (Dec
year-end) at the end of June 2011.
• The learner subsequently completes the learnership
with Employer Y.
• Assume the learner does not have any disabilities.
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Example
Result:
2010: Employer X may claim the full R30 000
commencement allowance.
2011: Employer X may claim R15 000 of the
commencement allowance and Employer Y
claims the remaining R15 000.
2012: Employer Y claims the final R30 000
allowance as well as a R90000 completion
allowance (R30 000 x 3)
Source: Explanatory Memorandum
46
Venture Capital Companies (VCCs)
(s 12J)
100% Deduction
VCC
(FAIS Compliant)
Investor:
Indiv/Listed
Individual – R750 000 pa deduction limit
Listed – No limit; subject to 40%
shareholding limit in the VCC
Qualifying
SME
80% - R10m gross assets
47
VCC Allowance
(Section 12J)
• 100% upfront deduction for investments in VCC
ordinary shares
– Capped at R750 000 p.a. for individuals (with a
(R2.25 m life-time limit)
– No limit for listed companies (but 40% holding)
– Unlisted corporations are excluded
48
VCCs: Excluded Activities (s 12J)
• Dealing in or renting land (excluding hotel keepers)
• Financial services e.g. banking, insurance, money
lending, HP financing
• Provision of professional services e.g. legal, tax
advisory, broking, management consulting, auditing,
accounting and other related activities
• Casinos, other gambling-related activities and any other
games of chance
49
VCCs: Excluded Activities (s 12J)
• Manufacturing, buying or selling liquor, tobacco
products or arms
• Franchisees
• Businesses conducted mainly outside SA
• Investment income exceeds 20% of gross income
50
Exemption of Certified Emission
Reductions
(S 12K)
• CERs represent emission reductions that are verified and
certified by the Department of Energy
• Disposals of CERs are exempt from income tax in respect
of any person that carries the Clean Development
Mechanism (CDM) project registration and implements that
project
• Effective from 11 February 2009 and applies in respect of
disposals on or after that date
51
Energy Efficiency Allowance
(S 12L)
• Annual notional allowance for energy savings
achieved in the production of income
– South African National Energy Development
Institute (SANEDI) energy savings certificate
required
52
Energy Efficiency Allowance
(S 12L)
• Basic formula - Energy efficiency
Savings in kWh (x) Applied rate
2 (or a number by the Minister)
(Comes into operation on a date determined by
the Minister of Finance by notice in the Gazette)
53
Employer-Provided PostRetirement Medical Aid
(S 12M)
• Lump sum payment of post-retirement medical
scheme contributions to retired employees (or their
spouses/dependants) or to an insurer is deductible
when paid
– Applies to post-retirement medical scheme lump
sums paid on or after 1 September 2009
54
Medical Aid Contributions
(S 18 & para 12A(1) of the Seventh Schedule)
• Increase in monthly monetary caps from
1 March 2009:
– From R570 to R625 for first 2 beneficiaries, and
– From R345 to R380 for each additional
beneficiary
55
Medical Aid Contributions
(S 18 & para 12A(1) of the Seventh Schedule)
• Tax-free fringe benefit for medical scheme
contributions paid by employer removed from
1/3/2010
– All contributions by an employer will be taxable
and the employee will get a tax deduction for
contributions up to the cap
– Neutral tax impact for both employee and
employer
56
Provisional Tax Exemption For
Taxpayers Over 65
(para. 18(1)(d) of the Fourth Schedule)
• Exemption if
– Not company directors and
– Only receive employment income, interest,
rental or dividends and
• Taxable income up to R80 000: to increase
to R120 000
• Effective for years of assessment ending on
or after 1 January 2010
57
Provisional Tax
(para 19 of Fourth Schedule)
1. Second provisional payment
– Rules for calculating estimated taxable income
differ
• Tier 1
• Tier 2
2. 1st and 2nd provisional tax payments
– Basic amount increases by 8% a year if last
assessed more than a year previously
58
Tier One - Smaller Taxpayers
(to up to R1million )
• Largely reverts to previous basis
• No penalty if estimate of taxable income is at least
equal to the lesser of - The basic amount (adjusted) or
• 90% of actual taxable income for the year
59
Tier One - Smaller Taxpayers
(to up to R1million )
• Penalty of 20% of the shortfall if the estimated TI
is below this level
• Unless the estimate ‘‘was seriously calculated
with due regard to the factors having a bearing
thereon or was not deliberately or negligently
understated’’
60
Tier Two - Larger Taxpayers
• Estimated taxable income must be equal to at
least 80% of actual taxable income for the year
• 20% penalty of the shortfall if the estimate does
not reach this level
• Unless the estimate was ‘‘seriously
calculated…(etc)”
61
Residential Accommodation
Fringe Benefit
(para 9 of the Seventh Schedule)
• “B” in the formula increases from R46 000 to
R54 200
– Effective for years of assessment ending on or after
1 January 2010
62
Transfer of Properties Out of
Companies and Trusts
(S 9(20) of the Transfer Duty Act, para 51 of the Eighth Schedule, s64B(5)(k))
• Until 31/12/2011 a distribution of a domestic
residence from a company or trust to a sole
shareholder is treated as a CGT ‘roll-over event’
• The distribution is exempt from STC and transfer
duty
• Certain requirements must be met
63
Requirements to Qualify
(Para 51 of the Eighth Schedule)
• Transfer of an interest in a residence from a company or trust to
an individual who:
– Acquires that interest no later than 31/12/2011
– Lived (alone or with his/her spouse) in that residence and used it
mainly for domestic purposes from 11/2/09 until date of transfer
– Directly held 100% of share capital or members’ interest in the
company (alone or with spouse) from 11/2/09 to date of
registration in his/her/spouse’s name
• OR donated or sold that residence to the trust (or financed
expenditure)
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Case Law
• Anglovaal v SARS (411/08) [2009] ZASCA 109
Whether shares were acquired as a capital investment or
Trading stock
• Fourie Beleggings v CSARS (168/08) [2009] ZASCA 37
Payment in compensation for cancellation of a contract was
not capital nature
• Grundlingh v CSARS [2009] SAFSHC 88
Whether partnership income from Lesotho was taxable in
South Africa
65
Thank-you
Fasset Call Centre
086 101 0001
www.fasset.org.za
66