Budget Highlights

Personal income tax
- Relief through an increase in the brackets and rebates.
Medical tax credits
- Increase in medical credits.
Foreign remuneration exemption
- Exemption will be limited to R1.25m from 1 March 2020.
Corporate interest on debt
- Deductions to be limited to combat base erosion and profit shifting.
Corporate assessed losses
- Offset against taxable income limited to 80% of taxable income.
Fuel levy
- Increased by 25c/litre from 1 April 2020:
  - 16c/litre increase in the general fuel levy
  - 9c/litre increase in the RAF levy
Tax-free savings investments
- Annual contribution limit increased to R36 000.
Excise duties
- Alcohol and tobacco duties increased by between 4.4 and 7.5 per cent.
Transfer duty
- Brackets will be adjusted for inflation from 1 March 2020.
Carbon tax
- Rate will increase from R120 per tonne to R127.
Plastic Bag Levy
- Proposal to raise the levy to 25 cents per bag effective 1 April 2020.

Capital Gains Tax

Persons subject to CGT

CGT is payable on capital gains that arise by the following persons:

Residents are subject to CGT on all assets including overseas assets
Non-residents are subject to CGT on immovable property or any right or interest in a property situated in South Africa and any asset of a permanent establishment through which a trade is carried on in South Africa (SA)

Note: Any right or interest in a property includes a direct or indirect interest of at least 20% held alone or together with any connected person in the equity share capital of a company, where at least 80% of the value of the net assets of the company is, at the time of the disposal, attributable to immovable property in SA.

Exclusions

The following are the main exclusions from CGT:

Primary residences with capital gains up to R2 million
Personal use assets
Retirement benefits
Long-term assurance
Small business assets with capital gains up to R1.8 million (applicable when a person is over the age of 55 where the maximum market value of the small business assets does not exceed R10 million)
Annual exclusion for natural persons: R40 000
Annual exclusion on death for natural persons: R300 000

Calculation and inclusion rates

A capital gain or loss is calculated separately in respect of each asset disposed. Once determined, gains or losses are combined for that year of assessment and if it is:

an assessed capital loss, it is carried forward to the following year, or
a net capital gain, it is multiplied by the inclusion rate and included in taxable income

The inclusion rates are as follows:

PERSON	2019	2020	2021
Natural person and special trust	40%	40%	40%
Company	80%	80%	80%
Trust	80%	80%	80%

Withholding tax – prepayment CGT

The purchaser must withhold CGT on the purchase price where assets are purchased from a non-resident except where the amount payable by the purchaser is less than R2 million. This withholding tax is not a final tax and is merely a prepayment of the expected CGT. The following withholding tax rates are applicable and are based on the proceeds on disposal:

Capital Incentive Allowances

ASSET TYPE	CONDITIONS FOR ANNUAL ALLOWANCES	ANNUAL ALLOWANCES
Industrial Buildings	Cost of buildings or improvements, provided building is used wholly or mainly for carrying on a process of manufacture or similar process	Either 2%,5%, or 10% depending on date cost incurred
Commercial & Residential Buildings in Designated Urban Areas (no deduction allowed if building or part of building is brought into use by the taxpayer on or after 31 March 2020)	Refurbishment of existing building (excluding low-cost residential units)	20%
	Construction of new building and extension to existing buildings (excluding low-cost residential units)	20% in 1st year 8% in each of 10 subsequent years
	Low-cost residential units: New buildings or extension/additions to existing buildings where taxpayer incurs the cost	Year 1: 25% of the cost Year 2 – 6: 13% of the cost Year 7: 10% of the cost
	Low-cost residential units: Improvements to existing buildings where the existing structure is preserved and where taxpayer incurs the cost	Year 1: 25% of the cost Year 2 – 4: 25% of the cost
	Low-cost residential units: New buildings or extension/additions to existing buildings where taxpayer purchased building from developer	Year 1: 55% × 25% of the cost Year 2 – 6: 55% × 13% of the cost Year 7: 55% × 10% of the cost
	Low-cost residential units: Improvements to existing buildings where the existing structure is preserved and where taxpayer purchased building from developer	Year 1: 30% × 25% of the cost Year 2 – 4: 30% × 25% of the cost
Hotel Buildings	Cost of portion of building or improvements used	5%
Hotel Buildings	Improvements that do not extent the exterior framework of the building	20%
Commercial Buildings	Cost of erecting any new and unused building as well as new and unused improvements wholly or mainly used for the purpose of producing income in the course of trade	5%
	Taxpayer acquires part of a building that is new and unused wholly or mainly to be used for producing income in the course of trade	55% × 5% of the cost
	Taxpayer acquires part of a building that has new and unused improvements to be wholly or mainly used for producing income	30% × 5% of the improvement
Aircraft & Ships	Must be used for purposes of trade	20%
Plant & Machinery	New or unused manufacturing assets	40% in 1st year 20% in each of the 3 subsequent years
Plant & machinery	New and unused plant or machinery used by the taxpayer directly in a process of manufacture by a Small Business Corporation	100% of cost
Renewable Energy – Machinery – Supporting Infrastructure	Small scale embedded solar photovoltaic renewable energy with generation capacity not exceeding 1000 kW Road & fences where the electricity production will exceed 5 MW	100% of cost 100% of cost
Residential Units – at least five units must be owned	New & unused units, erected or improved, situated in South Africa, owned & used by the taxpayer for the purposes of a trade he carries on.	Normal Unit 5% Low Cost unit 10%*
	New & unused units acquired, situated in South Africa, used by the taxpayer for the purpose of a trade he carries on	Normal unit 55% × 5% Low cost unit 55% × 10%
	Unit acquired with a new and unused improvement, situated in South Africa, used by the taxpayer for the purpose of a trade he carries on	Normal unit 30% × 5% Low cost unit 30% × 10%

*a building not exceeding cost of R300 000 or an apartment not exceeding a cost of R350 000

Tax Table Test

ASSET TYPE	CONDITIONS FOR ANNUAL ALLOWANCES	ANNUAL ALLOWANCES
Industrial Buildings	Cost of buildings or improvements, provided building is used wholly or mainly for carrying on a process of manufacture or similar process	Either 2%,5%, or 10% depending on date cost incurred
Commercial & Residential Buildings in Designated Urban Areas (no deduction allowed if building or part of building is brought into use by the taxpayer on or after 31 March 2020)	Refurbishment of existing building (excluding low-cost residential units)	20%
	Construction of new building and extension to existing buildings (excluding low-cost residential units)	20% in 1st year 8% in each of 10 subsequent years
	Low-cost residential units: New buildings or extension/additions to existing buildings where taxpayer incurs the cost	Year 1: 25% of the cost Year 2 – 6: 13% of the Year 7: 10% of the cost
	Low-cost residential units: Improvements to existing buildings where the existing structure is preserved and where taxpayer incurs the cost	Year 1: 25% of the cost Year 2 – 4: 25% of the cost
	Low-cost residential units: New buildings or extension/additions to existing buildings where taxpayer purchased building from developer	Year 1: 55% × 25% of the cost Year 2 – 6: 55% × 13% of the cost Year 7: 55% × 10% of the cost
	Low-cost residential units: Improvements to existing buildings where the existing structure is preserved and where taxpayer purchased building from developer	Year 1: 30% × 25% of the cost Year 2 – 4: 30% × 25% of the cost
Hotel Buildings	Cost of portion of building or improvements used	5%
Hotel Buildings	Improvements that do not extent the exterior framework of the building	20%
Commercial Buildings	Cost of erecting any new and unused building as well as new and unused improvements wholly or mainly used for the purpose of producing income in the course of trade	5%
	Taxpayer acquires part of a building that is new and unused wholly or mainly to be used for producing income in the course of trade	55% × 5% of the cost
	Taxpayer acquires part of a building that has new and unused improvements to be wholly or mainly used for producing income	30% × 5% of the improvement
Aircraft & Ships	Must be used for purposes of trade	20%
Plant & Machinery	New or unused manufacturing assets	40% in 1st year 20% in each of the 3 subsequent years
Plant & machinery	New and unused plant or machinery used by the taxpayer directly in a process of manufacture by a Small Business Corporation	100% of cost

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TEST July 2017 Newsletter

Translate this newsletter by clicking here and using the “Translate” button in the top left corner of your browser.

TAX SEASON 2017 NOW OPEN

Tax Season 2017 officially opened on Saturday, 1 July 2017 for eFilers. To assist you we have prepared some helpful information below.

Not everyone needs to file an income tax return. Taxpayers do not have to submit an income tax return if:

Their total salary for the year before tax is not more than R350 000
They only receive employment income from one employer for the full year of assessment
They have no other form of income
They don’t have any additional allowable tax deductions to claim

Ensure that you have all your documents ready:

Proof of income such as:
- IRP5/IT3(a) from your employer or pension fund
- Tax certificates for investment income IT3(b)
- Tax Free Investments certificate(s) IT3(s)
- Financial statements (e.g. for business income), etc.

Proof of deductions such as:
- Medical aid contribution certificates and receipts
- Completed confirmation of diagnosis of disability form (ITR-DD) if you want to claim any disability expenses
- Retirement annuity contribution certificates
- Information relating to foreign tax credits withheld
- Travel logbook (if you receive a travel allowance or use a company car), etc.

Submission Deadlines:

eFiling
- Non Provisional taxpayers – 24th November 2017
- Provisional taxpayers – 31 January 2018

Manual – 22 September 2017

Should you require professional assistance in completing your return please do not hesitate to contact our offices.

National Health Insurance (NHI) – Tax Credits to be forgone to fund?

Health Minister Aaron Motsolaedi recently announced that medical scheme members are likely to lose their tax credits to help pay for the first set of benefits to be rolled out under National Health Insurance. The recently gazetted white paper outlines the following funding scenarios as detailed in the table below:

Alternative tax scenarios in 2025/26 to fund a R71.9 billion (2010 prices) NHI funding shortfall

The most preferred option for revenue generation for NHI will be through Scenario B which is predominantly funded through general revenue allocations, supplemented by: (1) a payroll tax payable by employers and employees, and (2) a surcharge on individuals’ taxable income.

As the NHI evolves, the tax treatment of medical expenses and medical scheme contributions will be reviewed. It is also expected that there will be a reduction in the need for medical scheme contributions and/or the level of coverage required. The resulting saving in tax expenditure could help to reduce to proposed tax increases. With the implementation of NHI, the role of medical schemes in the health system must change. A key step in leading to this change is that the State will have to identify all the funding for medical scheme contribution subsidies and tax credits paid to various medical schemes and reallocate these funds towards the funding required for NHI.

What this essentially means is that the current tax deductions, which have a current annual tax saving of approximately R20billion per annum, will be forfeited once the NHI is implemented to fund its implementation.

We will keep you informed as this policy evolves.

Public Interest entities – Rule on Mandatory Audit Firm Rotation

On 2nd June 2017, the CEO of the Independent Regulatory Board for Auditors, Bernard Agulhas, published the rule on Mandatory Audit Firm Rotation (MAFR) for auditors of all public interest entities, as defined in section 290.25 to 290.26 of the amended IRBA Code of Professional Conduct for Registered Auditors.

The key elements are as detailed below:

REQUIREMENTS

An audit firm, including a network firm as defined in the IRBA Code of Professional Conduct for Registered Auditors, shall not serve as the appointed auditor of a public interest entity for more than 10 consecutive financial years
Thereafter, the audit firm will only be eligible for reappointment as the auditor after the expiry of at least five financial years

EFFECTIVE DATE

The requirement is effective for financial years commencing on or after 1 April 2023. Therefore, if the audit firm has served as the appointed auditor of a public interest entity for 10 or more consecutive financial years before the financial year commencing on or after 1 April 2023, then the audit firm shall not accept re-appointment and will be required to rotate
When the auditor determines that an audit client becomes a public interest entity, the length of time the audit firm has served the audit client as the auditor before the client becomes a public interest entity shall be included in determining the timing of audit firm rotation

TRANSITIONAL PROVISIONS

If, at the effective date, the public interest entity has appointed joint auditors and both have had audit tenure of 10 years or more, then only one audit firm is required to rotate at the effective date and the remaining audit firm will be granted an additional two years before rotation is required
This provision will only be applicable at the effective date

Implementation of an automated Pay-As-You-Earn (PAYE) Dispute Management process

On 30 June 2017, SARS introduced an automated dispute management process for PAYE as part of their ongoing commitment to delivering a better service to taxpayers. The new automated system now enables employers to lodge disputes via eFiling and electronically at any SARS branch, manage their tax profiles better and have a consolidated view of all disputes lodged for Personal Income Tax, Corporate Income Tax, Value-Added Tax and now PAYE.

The new PAYE dispute management process has a wide range of benefits that will make managing tax affairs more efficient and these include:

It provides the ability to lodge disputes including Request for Remission (RFR), Notice of Objection (NOO) and Notice of Appeal (NOA)
The ability to Request for Reasons (RFRE)
The ability to Request suspension of payment
The ability to submit reasons for late submission of the Dispute
All dispute correspondence can be viewed at the click of a button, and where applicable, supporting documents can be uploaded
Employers will have a consolidated view of all disputes lodged for Personal Income Tax, Corporate Income Tax, Value-Added Tax and now PAYE.
Outcome letters for RFRs and NOOs, Request for late submission as well as Suspension of Payment are conveniently available on the taxpayer’s profile.
The process provides the ability to dispute multiple periods on one dispute form up to a maximum of 12 periods for VAT and PAYE.
The ability to submit disputes will be based on user submission rights.

Should you wish to have further clarification on the dispute management process please do not hesitate to contact our offices for professional advice.

Sincerely,

We bear no responsibility and also disclaim all liability for any loss, damage or liability either directly or indirectly, attributable to the use of, or reliance upon information provided in this email. The contents are of a general nature and should not be used or relied upon as legal or other professional advice.All references to the masculine gender shall include the feminine (and vice versa).To remove your email address from our database please click on the unsubscribe button below.

Welcome to Online Adviser

Online Adviser is an online advisory service that helps business successfully implement their strategy by following a a dynamic set of processes ensuring a positive result.

Because we are cloud based our operation is scalable and allows us to collaborate with our international network of consultants working off a common platform.

Economic Growth Under Pressure

Policy makers are in a quandary as to what economic policy to follow. The sluggish economy needs stimulus to move forward, yet inflation is starting to rise. The South African Reserve Bank (SARB) has kept rates fairly consistent but will soon be forced to make a decision. A number of economists have called on the SARB to be bold and even cut rates to stimulate the economy before the inevitable rate increases.

Growth has been pitched at 2.1% year on year for the 1^st quarter compared to 1.9% in the first quarter of last year. This is way down on where South Africa needs to be and issues such as ongoing strikes and load shedding will only make the scenario worse.

So what can we do to keep our heads above water in a time of economic decline? There is a classic story about an emigrant to America who ran a hot dog stand. He worked hard and was able to educate his son who became a well-known economist. He heard over the news that America was going through an economic decline so he asked his educated son what he should do in his hot dog business. His son advised him to start reducing inputs like butter, size of sausage etc. Sure enough his son was smart and sales were soon declining and so it went on until he was out of business.

Essentially his son’s advice was poor advice. It was more of a case of cutting costs as opposed to following something more enterprising. He would have been better off considering some of the following options:

Be innovative and look at new ways to grow your business
Take stock of where you are at and “sweat” your existing assets
Build on relationships with existing customers
Consider expanding your business by taking it “online”

If you are in a position where you need to develop a strategy to see you through the next three years we would gladly assist you in developing an innovative strategy.