While this year’s national budget did not hold major wealth tax surprises Kuhle Kunene, Head Wealth Advisory at Standard Bank Wealth and Investment, says a stronger focus on growth and driving business is to be applauded.
“The Budget really focused on regaining fiscal prudence as the basis of South Africa’s economic recovery. It will potentially stimulate much-needed entrepreneurial activity, which is a key driver of wealth creation and generation for high net worth clients and entrepreneurs,” says Kunene.
There was limited relief for higher income tax earners with average tax rates with taxable earnings above ZAR1 million remaining the same as last year. The top marginal rate remains at 45%, the second year it has remained the same.
“No changes were made to personal income tax brackets, but there was some relief provided by tax-free threshold for personal income taxes increasing from ZAR78 150 to ZAR79 000.”
Some of the changes to taxes for those working overseas need to be factored in, but Kunene welcomed the prospect of further debate in this regard. From 1 March 2020, South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds ZAR1 million.
“What was stated in the Budget was in order to prevent monthly withholding of income tax both in South Africa and the host country, it is proposed that South African employers be allowed to reduce their monthly local pay-as-you-earn (PAYE) withholding by the amount of foreign taxes withheld on the employment income,” he explains.
“This is a positive move as those working overseas need more clarity on the process and the potential impact on their capacity. We welcome the fact that due to the large amount of interest in this proposal a workshop will be held to consult taxpayers on their administrative concerns before implementation,” he says.
Resulting amendments will be processed during the 2019 legislative cycle.
An important announcement on retirement was to encourage annuitisation, regular payments in retirement. The current position is that once a member of a retirement fund retires and receives an annuity as a retirement benefit, any contributions to the retirement fund that did not qualify for a deduction when determining the member’s taxable income are tax-exempt.
“But this exemption did not apply to annuities received from a provident or provident preservation fund. It is proposed that this exemption be extended to provident and provident preservation fund members who receive annuities,” says Kunene.
The exemption would apply retrospectively to contributions made after 1 March 2016.
Another proposal to be noted relates to spouses receiving monthly spousal pension funds. It is proposed to permit a split from a spouse’s other income, so there is no aggregation of income forcing them into a higher tax bracket.
It is proposed that Surviving spouses are provided with effective communication relating to tax and financial issues, the monthly spousal pension be subject to PAYE withholding at a specified flat rate and tax rebates should not be taken into account in the calculation of spousal pensions.
“Any PAYE excessively withheld as a result of this proposal will be refunded upon assessment,” notes Kunene.
In 2018, amendments were proposed in the Taxation Laws Amendment Bill to tax the profits of some collective investment schemes as revenue instead of capital.
“It was announced that more time is needed before this can be implemented to work with industry to find solutions that will not negatively affect the relevant groups,” says Kunene.
This study is proposed for the 2019 legislative cycle.
Taxpayers do not get off easily in the Budget, however, especially those who smoke and drink. Excise duties on alcohol and tobacco products are increased by between 7.4 per cent and 9 per cent.
The fuel levy is increased by 29c/litre, consisting of a 15c/litre increase in the general fuel levy, a 5c/litre increase in the Road Accident Fund (RAF) levy and the introduction of a carbon tax on fuel of 9c/litre.
With entrepreneurial activity a leading component of wealth creation, corporate taxes and dividend withholding taxes are very important considerations.
“Fortunately, there were no direct tax increases with the rate applicable for corporate income for both resident and non-resident companies a flat 28%. The rate of dividends tax increased from 15% to 20% for any dividend paid on or after 22 February 2017, but was not increased this year,” says Kunene.
Estate duty and donations tax for values over R30 million remain at 25% after being increased from 20% last year.
The single discretionary allowance also remains the same. This is an allowance within an overall limit of ZAR1 million per calendar year which a South African resident over the age of 18 years can access for any legal purpose abroad, without the need for a tax clearance certificate. This can also be used for investment purposes.
Added to this, a taxpayer in good standing and over the age of 18 years, can invest up to R10 million in his/her name outside the Common Monetary Area (CMA-Lesotho, eSwatini, South Africa and Namibia), per calendar year. For this, though, a Tax Clearance Certificate (in respect of foreign investments) must be obtained. This also did not change.
According to Kunene, managing, growing and protecting generational wealth needs to remain a key priority for individuals and their families in the face of the Budget changes.
“Whatever your investment, lifestyle and financial goals are, it is important to navigate the economy and this year’s Budget. Our aim is to accompany you through each stage of your life, giving purpose to your wealth and ensuring you can leave a lasting legacy. SA investors are increasingly open to offshore exposure and are likely to begin diversifying more of their money offshore in the years ahead,” concludes Kunene.