South African Budget 2018 - Personal income tax, estate duty & SVDP

Publication February 2018

Tax rates

 The new tax brackets are illustrated below:

2017 / 2018

2018 / 2019

Taxable income (R)

Rates of tax

Taxable income (R)

Rates of tax

R0 - R189 880

18% of each R1

R0 - R195 850

18% of each R1

R189 881 – R296 540

R34 178 + 26% of the amount above R189 880

R195 851 – R305 850

R35 253 + 26% of the amount above R195 850

R296 541 – R410 460

R61 910 + 31% of the amount above R296 540

R305 851 – R423 300

R63 853 + 31% of the amount above R305 850

R410 461 – R555 600

R97 225 + 36% of the amount above R410 460

R423 301 – R555 600

R100 263 + 36% of the amount above R423 300

R555 601 – R708 310

R149 475 + 39% of the amount above R555 600

R555 601 – R708 310

R147 891 + 39% of the amount above R555 600

R708 311 - R1 500 000

R209 032 + 41% of the amount above R708 310

R708 311 – R1 500 000

R207 448 + 41% of the amount above R708 310

R1 500 001 and above 

R533 625 + 45% of the amount above R1 500 000 

R1 500 001 and above

R532 041 + 45% of the amount above R1 500 000

Rebates:2017/2018Rebates:2018/2019
Primary R13 635 Primary R14 067
Secondary R7 479 Secondary R7 713
Third R2 493 Third R2 574
Tax threshold:2017/2018Tax threshold:2018/2019
Below age 65 R75 750 Below age 65 R78 150
Age 65 and over R117 300 Age 65 and over R121 000
Age 75 and over R131 150 Age 75 and over R135 300

Splitting of medical fees tax credits

The Income Tax Act provides a medical tax credit for individuals and it consists of two components: contributions to approved medical schemes; and additional out-of-pocket medical payments. There is a concern that some taxpayers may be benefiting excessively from this rebate, specifically in instances where multiple taxpayers contribute toward the medical scheme or expenses of another person (for example, adult children jointly contributing to their elderly mother’s medical scheme).  It is proposed that in instances where taxpayers carry a share of the medical scheme contribution or medical cost, the medical tax credit should also be apportioned between the various contributors.

Medical tax credit

 In the next three years, below-inflation increases in the medical tax credits will assist Government in funding the implementation of national health insurance.

 The medical tax credit will be increased as follows –

  • for the first two beneficiaries from R303 to R310 per month; and
  • for the remaining beneficiaries from R204 to R209 per month.

 

Retirement reforms

  • Tax treatment of contributions to retirement funds situated outside South Africa: The Income Tax Act currently exempts from taxation all retirement benefits from a foreign source for employment rendered outside of South Africa. The current tax provisions will be reviewed taking into account the application of Double Taxation Agreements, to ensure that contributions will only be deductible in cases where benefits are taxable.
  • Align tax treatment of preservation funds upon emigration: Upon formal emigration, an individual is able to withdraw the full value of their retirement annuity, after paying the applicable taxes. Government will consider aligning the tax treatment of other types of retirement fund withdrawals in similar circumstances. 
  • Allowing transfers to pension and provident preservation funds after retirement: In 2017, amendments expanded the choice of available retirement funds if an individual decided to postpone retirement. However, these rules excluded pension preservation and provident preservation funds due to the complexity of their administration. It is proposed that transfers to pension preservation and provident preservation funds will now be catered for in the legislation. 
  • Rectifying tax anomalies on the transfer of retirement funds: Retrospectively amendments will be introduced to correct unintended tax liabilities arising where a fund amount is transferred between, or within, retirement funds at the same employer.

 

Estate Duty

In line with the Davis Tax Committee’s recommendation relating to wealth taxes, the estate duty on estates worth more than R30 million is increasing from 20% to 25%. In line with this amendment, and to prevent the staggering of donations to avoid estate duty, any donations above R30 million in one tax year will also be taxed at 25%.

Special Voluntary Disclosure Program (SVDP)

The SVDP process came into effect on 1 October 2016. The process afforded South African taxpayers the opportunity to regularise any undeclared foreign assets to SARS and the South African Reserve Bank (SARB) and pay a penalty as determined by the regulators.  The last date of submission for the SVDP was 31 August 2017.

The Minister of Finance has announced that over 2 000 applications were received. However, the review of these applications is still not finalised.  The Minister believes that R3 billion will be collected from the SVDP process by the end of the 2017/2018 tax year (being 31 March 2018).


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