The table below illustrates the proposed increased inclusion rates:
|Individuals annual exclusion||R30 000||R40 000|
The maximum effective capital gains tax rate for individuals has increased from 13.7% to 16.4%, and for companies from 18.6% to 22.4%. The effective capital gains tax rate relating to trusts increases from 27.3% to 32.8%.
The new rates will become effective for years of assessment beginning on or after 1 March 2016.
A number of fairly subtle amendments have been proposed in relation to the taxation rules governing pension and provident funds, as well as the rules around employee/employer contributions to such funds. These include –
- aligning the deductions available to employers for amounts contributed to retirement funds to ensure that they match the calculation of the fringe benefit tax raised against the employee;
- clarifying that taxpayers are entitled to deduct retirement annuity contributions made by them against passive or non-trading income earned by them, up to a certain limit so that these deductions are not only set off against non-passive income;
- introducing a roll-over mechanism to allow for the roll-over of excess contributions to retirement annuity funds and pension funds accumulated up until 29 February 2016;
- ensuring that the contributions made to certain retirement funds which are taxed as a fringe benefit are clearly specified, and that there is no ambiguity as to the quantum of the amount that falls within the scope of this section;
- the rules around pay-outs from retirement funds and compulsory acquisitions of annuities upon retirement have been controversial in recent times. Certain technical amendments will be made to clarify when the purchase of an annuity will or will not be required particularly with regard to a forced transfer from one fund to another.
Fringe benefits tax
A number of issues surrounding private travel and the calculation of fringe benefit tax have come up in recent times. This is particularly so with employers providing private travel to expatriate employees who are located in South Africa. What comprises “private travel” for the purposes of the Income Tax Act has different meanings in different parts of the act. This concept and the meaning of “private travel” is to be aligned to create clarity going forward.
The tax-free investments account was recently introduced to encourage savings amongst South Africans. As with other dispensations, a number of proposed changes have been suggested –
- certain structures have been identified which allow individuals to transfer proceeds of the tax-free investment account to a beneficiary of a long-term insurance policy with the result that no estate duty is payable.
- amendments are proposed to prevent the avoidance of estate duty;
- the implementation date allowing transfer as a tax-free investments between service providers has been postponed from 1 March 2016 to 1 November 2016 to ensure that the necessary processes are in place.
Share incentive schemes
The taxation of share incentive schemes is always controversial. A number of clarifications to the share incentive scheme have been proposed including –
- a technical amendment will be introduced clarifying that the taxation of share incentive schemes will be dealt with in terms of section 8C of the Act and not within the general definition of “taxable income” in section 1 of the Income Tax Act;
- SARS is constantly looking for structures which may circumvent the provisions of section 8C of the Income Tax Act. It is perceived that one such scheme relies on the dividend exemption which, in certain circumstances, results in a cash flow that is not taxed under the share scheme rules which is unintended and will be closed;
- certain dividends received in respect of employee share schemes are not exempt from normal tax. These dividends are to be brought within the PAYE regime to ensure pre-payment of the tax due;
- there are a number of circumstances in which employers must obtain a directive from the SARS as to the amounts to be withheld from lump-sums paid to employees. It does not cover all such payments and any exceptions to this rule are to be removed resulting in all such payments being subject to the employer obtaining a SARS directive.
Specific voluntary disclosure relief
The Minister of Finance has announced that a Special Voluntary Disclosure Programme will commence from 1 October 2016 to 31 March 2017, to give non-compliant taxpayers an opportunity to voluntarily disclose offshore assets and income from a tax and exchange control perspective.
With a new global standard for the automatic exchange of information between tax authorities providing SARS with additional information from 2017, time is now running out for taxpayers who still have undisclosed assets abroad.
Proposed tax relief
Only 50% of the total amount used to fund the acquisition of offshore assets (also known as “seed money”) will be excluded from taxable income and subject to normal tax, where those funds did not comply with a tax act administered by SARS before 1 March 2015.
Investment returns in respect of those offshore assets received or accrued from 1 March 2010 onward will be included in taxable income in full and subject to normal tax. Therefore investment returns prior to 1 March 2010 will be exempt.
Interest on tax debts will only commence from 1 March 2010; and no understatement penalties will apply to the tax debt, if the application is successful.
SARS will not pursue any criminal prosecution under the Special Voluntary Disclosure Programme.
Exchange control relief
Applicants who are granted administrative relief in respect of unauthorised foreign assets or structures will only be required to pay reduced penalties of -
- 5% of the leviable amount if the regularised assets or the sale proceeds thereof are repatriated to South Africa;
- 10% of the leviable amount if the regularised assets are kept offshore,
on the current market value at 29 February 2016, rather than the 10% – 40% penalty that would be imposed in normal circumstances.