Well we have been waiting for the Budget Speech, to see how this will affect us personally and in our businesses.  So here is a brief overview of the changes and how they affect you and your business.

 

Main tax proposals

•   Personal income tax relief of R9.5 billion

•   Relief for micro and small businesses

•   Implementing the dividend withholding tax at 15 per cent

•   An increase in effective capital gains tax rates

 

Proposals affecting individuals

 

Personal income tax relief

To ensure that the direct personal income tax burden on individuals remains reasonable, personal income tax brackets and rebates are adjusted to take account of inflation or “bracket creep”, as well as provide limited real tax relief. The 2012 Budget proposes direct personal income tax relief to individuals amounting to R9.5 billion.

 

The primary rebate has been increased to R11 440 per year for all individuals. The secondary rebate, which applies to individuals aged 65 years and over, is increased to R6 390 per year. The third rebate, which applies to individuals aged 75 years and over, is increased to R2 130 per year. The threshold below which individuals are not liable for personal income tax is increased to R63 556 of taxable income per year for those below the age of 65, R99 056 per year for those aged 65 to 74, and R110 889 for age 75 and over. For the rates for the 2011/12 tax year and the proposed rates for 2012/13 Click Here. 

 

Implementation of dividend withholding tax

As announced previously, the dividend withholding tax will come into effect on 1 April 2012, bringing an end to the secondary tax on companies. Pension funds that are exempt from income tax will receive their dividends tax free. For equity reasons it is proposed that the dividend withholding tax come into effect at 15 per cent – five percentage points higher than the previous secondary tax on companies’ rate. Income from capital can be derived as interest income, dividends or capital gains, all of which should be taxed equitably.

 

High-income individuals tend to receive a larger portion of their income in the form of dividends and capital gains. The higher rate will also help to mitigate some of the revenue losses when switching from the secondary tax on companies to the new tax. The estimated net loss as a result of these changes will be R1.9 billion.

 

Increase in effective capital gains tax rates

Capital gains tax was introduced in 2001 at relatively modest rates and has remained unchanged for the past 10 years. This reform has helped to ensure the integrity and progressive nature of the tax system. To enhance equity, effective capital gains tax rates will be increased. The inclusion rate for individuals and special trusts will increase to 33.3 per cent, shifting their maximum effective capital gains tax rate to 13.3 per cent. The inclusion rate for other entities (companies and other trusts) will increase to 66.6 per cent, raising the effective rate for companies to

18.6 per cent and for other trusts to 26.7 per cent. These changes will come into effect for the disposal of assets from 1 March 2012

Proposed capital gains tax inclusion rates,     2011/12 – 2012/13

Proposed capital gains tax inclusion rates

 

	Current rates 2011/12	Proposed rates 2012/13
For individuals and special trusts For other persons	25% 50%	33.3% 66.6%

To limit the impact of capital gains taxation on middle-income households, the exemption thresholds for individual capital gains and for primary residences will be adjusted significantly. The following exemptions for individual capital gains are increased from 1 March 2012:

• The annual exclusion from R20 000 to R30 000
• The exclusion amount on death from R200 000 to R300 000
• The primary residence exclusion from R1.5 million to R2 million
• The exclusion amount on the disposal of a small business when a person is over age 55 from R900 000 to R1.8 million
• The maximum market value of assets allowed for a small business disposal for business owners over 55 years increases from R5 million to R10 million.

 

Business taxes                                                                 

In addition to the dividend withholding tax and adjustments to capital gains tax discussed earlier, several business tax measures are proposed.

 

Turnover tax for micro businesses

Several reforms of the turnover tax for micro businesses (with annual turnover below R1 million) were announced in 2011. Building on these reforms, micro businesses will be given the option of making payments for turnover tax, VAT and employees’ tax at twice-yearly intervals from

1 March 2012. It is further envisaged that a single combined return will be filed on a twice-yearly basis from 1 March 2013. The number of returns required for these taxes will fall from about

18 per year to only two a year in 2013. The build-up of tax liability will require such taxpayers to ensure that funds are available when payment is due.

 

Small business corporations

To encourage the growth of small incorporated businesses, government proposes to increase the tax-free threshold for such firms from R59 750 to R63 556. Taxable income up to R300 000 is taxed at 10 per cent; this threshold is now increased to R350 000 and the applicable rate reduced to 7 per cent. For taxable income above R350 000, the normal corporate tax rate of 28 per cent applies. These amendments will come into effect for years of assessment ending on or after 1 April 2012.

 

 

Carrie-Anne Diniz

CentsAccountability

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