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​​​​​​​​​​​​​​​​​​​It’s All About That Tax

By Succession Financial Planners, 14th March 2017

The 2017 National Budget Speech, delivered on 22 February by Pravin Gordhan, was notable for one thing.

It’s All About That Tax.

Specifically the new top income tax bracket of 45%.

Simply put, if you earn more than R1.5-million a year, any amount above that level will now be taxed at 45% – the top marginal tax rate. The last time South Africa had a 45% tax bracket was in the late 1980s (although it had been higher during the 1970s, at a whopping 60% – refer to Table 2.1 here). Levels of all other tax brackets have been upwardly adjusted by 1%.

 

Other tax changes are as follows:

  • Income tax on trusts will be raised from 41% to 45%, starting on March 1, 2017.
  • Medical tax credits on monthly contributions to medical schemes will also be adjusted – the first two beneficiaries from R286 to R303 per month, and the remaining beneficiaries from R192 to R204, as of March 1, 2017.
  • The allowance on tax-free savings accounts adjusts from R30 000 to R33 000 per annum.
  • Transfer duty on residential property purchases increases from R750 000 to R900 000, from March 1, 2017.
  • The Capital Gains Tax maximum rate adjusts upwards from 16.4% to 18%, from March 1, 2017.
  • There are no changes to deductions for retirement fund contributions, neither are there changes to the tax on lump sums at withdrawal or retirement.
  • Estate duty is unchanged at 20% on property of both residents and non-SA residents, with the abatement remaining at R3.5-million.
  • There is no change on taxation of retirement funds from the 2016 retirement tax tables.
  • Donations tax is unchanged at 20% – the first R100 000 is still tax-free, and donations between spouses is still exempt.
  • As of February 22, 2017, the dividend withholding tax rate increases to 20%. This is to reduce the difference between this tax and the marginal tax rate.
  • Government proposes to increase the withholding tax on immovable property sales by non-residents: 5% to 7.5% for individuals; 7.5% to 10% for companies; 10% to 15% for trusts.
  • South African residents face amendments to foreign employment income-tax exemption, namely that the foreign employment income will only be exempt from South African tax if it is subject to tax in that foreign country. This removes the ‘benefit’ of double non-taxation.

What does this all mean for upper-income bracket earners?

In December 2016, Stats SA recalculated its basket of goods and services that make up the Consumer Price Index. This fresh look at the cost of living factors in spending patterns of newly-minted middle- and upper-income earners. Costs like sectional-title levies, diesel, and driving lessons are just some of the interesting new components. This points to a change in higher-LSM household spending patterns, which in turn are an indicator of upwardly-mobile household incomes. However, just what differences can be expected in inflation numbers might not become evident until there is sufficient historical data to recalculate various LSM categories, but – in the meantime – a useful tool for personal consumer inflation is available on the Stats SA website, here.

Naturally, new money is being taxed accordingly, and this year’s budget speech let taxpayers know just how closely they are being scrutinised. Bracket creep in the known tax categories is minimal, but the advent of the new top tax bracket sounds a warning to South Africans that top earners are going to see a new dent in their payslips or remuneration figures. Significant increases in the Road Accident Fund levy and the general fuel levy mean that business owners will have increased transportation and delivery bills, affecting the bottom line. Excise duties on tobacco and alcohol will be cause for a hangover or two – 6% to 10% is going to be noticed, one way or another.

Last year’s shortfall of R30-billion in expected tax receipts is going to be felt, particularly amongst top earners.

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