Pravin Gordhan’s 2014 budget speech didn’t deliver many surprises, but there are a few changes and proposals that may affect your clients. This article outlines the most significant changes put forward.
Income tax
There is a general reduction in income tax payable, but the impact of the reduction will be felt more amongst lower income earners. Those earning under R100 000 per year will effectively pay 10%-46% less tax in 2014/2015 than they did in the 2013/2014 tax year. The percentage reduction of tax payable for someone earning R750 000 per year is considerably lower, with the monetary amount working out to about R4 400 less tax in 2014/2015. Whilst the R4 400 saving on tax seems to be a handy amount, one needs to consider the effect of an inflation-linked salary increase. The reality is that you may very likely end up with a heavier tax burden with an inflation-linked salary increase than an income tax relief.
Other than the increase in rebates and tax thresholds seen in the diagram below, there aren’t any other changes to the income tax, VAT, CGT inclusion , donations tax or estate duty rates.
Table 1 compares some of the changes in tax thresholds and rebates over the 2013/2014 and 2014/2015 tax year.
Table 1
| Tax thresholds for individuals | 2013/2014 tax year | 2014/2015 tax year |
| Rebates and thresholds | ||
| Primary rebate | R 12 080 | R 12 726 |
| Secondary rebate(over 65s) | R 6 750 | R 7 110 |
| Tertiary rebate (over 75s) | R 2 250 | R 2 367 |
| Tax threshold for under 65 | R 67 111 | R 70 700 |
| Tax threshold for 65s and over | R 104 611 | R 110 200 |
| Tax threshold for 75s and over | R 117 111 | R 123 350 |
| Interest and foreign dividend exemption | ||
| Interest income under 65s | R 23 800 | No change |
| Interest income over 65s | R 34 500 | No change |
| Tax deductible monthly medical aid tax credits (as a credit against tax payable) | ||
| For member and first dependant | R 242 | R 257 |
| For each additional dependant | R 162 | R 172 |
| Capital gains tax | ||
| Effective rate (individuals) | 13.3% (max) | No change |
| Annual exclusion for individuals | R 30 000 | No change |
| Exclusion for deceased estates | R 300 000 | No change |
Table 2 below compares the income tax rates and bracket adjustments.
Table 2
| 2013/2014 tax year | 2014/2015 tax year | ||
| Taxable income (R) | Rate of tax (R) | Taxable income (R) | Rate of tax (R) |
| R0 – R165 600 | 18% of taxable income above R1 | R0 – R174 550 | 18% of taxable income above R1 |
| R165 601 – R258 750 |
R29 808 + 25% of taxable income above R165 600 |
R174 551 – R272 700 |
R31 419 + 25% of taxable income above R174 550 |
| R258 751 – R358 110 |
R53 096 + 30% of taxable income above R258 750 |
R272 701 – R377 450 |
R55 957 + 30% of taxable income above R272 700 |
| R358 111 – R500 940 |
R82 904 + 35% of taxable income above R358 110 |
R377 451 – R528 000 |
R87 382 + 35% of taxable income above R377 450 |
| R500 941 – R638 600 |
R132 894 + 38% of taxable income above R500 940 |
R528 001 – 673 100 |
R140 074 + 38% of taxable income above R528 000 |
| R638 601 and above | R185 205 + 40% of taxable income above R638 600 |
R673 101 and above |
R195 212 + 40% of taxable income above R673 100 |
Retirement lump sum tax tables
The tables for retirement fund lump sum withdrawals and retirements have been amended, effective 1 March 2014. The tax-free portion of lump sum withdrawals has been increased from R22 500 to R25 000 and the tax-free portion of retirement fund lump sum withdrawals has been increased from R315 000 to R500 000. The taxable income brackets have also been increased by approximately 10% so as to provide greater relief at the bottom end of the tax table.
Table 3
| 2013/2014 tax year | 2014/2015 tax year | ||
| Retirement fund lump sum – withdrawal benefits | |||
| Lump sum amount | Rates of tax | Lump sum amount | Rates of tax |
| 0 – R22 500 | 0% | 0 – R25 000 | 0% |
| R22 501- R600 000 |
18% of each R above R22 500 |
R25 001- R660 000 |
18% of each R above R25 000 |
| R600 001 – R900 000 |
R103 950 + 27% of each R above R600 000 |
R660 001 – R990 000 |
R114 300 + 27% of each R above R660 000 |
| R900 001 + | R184 950 + 36% of each R above R900 000 |
R990 001 + | R203 400 + 36% of each R above R990 000 |
| Retirement fund lump sum – retirement/death benefits | |||
| Lump sum amount | Rates of tax | Lump sum amount | Rates of tax |
| 0 – R315 000 | 0% | 0 – R500 000 | 0% |
| R315 001 – R630 000 |
18% of each R above R315 000 |
R500 001 – R700 000 |
18% of each R above R500 000 |
| R630 001 – R945 000 |
R56 700 + 27% of each R above R630 000 |
R700 001 – R1 050 000 |
R36 000 + 27% of each R above R700 000 |
| R945 001 and above | R141 750 + 36% of each R above R945 000 |
R1 050 001 and above |
R130 500 + 36% of each R above R1 050 000 |
Even though there is an increase in the tax benefits one would receive on withdrawal and retirement, it is important to remember the negative impact that a withdrawal can have on your tax benefits at retirement. The increase of the tax-free portion from R315 000 to R500 000 is a great incentive for South Africans who need to save towards their retirement.
Tax-preferred savings account
Once again, Treasury has made clear their intention to introduce a tax-preferred savings account. As previously mentioned, this account will have an annual contribution limit of R30 000, to be increased in line with inflation, capped at a lifetime contribution limit of R500 000.
The account will allow investments in bank deposits, collective investment schemes, exchange traded funds as well as retail savings bonds. Eligible service providers will include banks, asset managers, life assurers and brokerages. Growth within the investment as well as proceeds paying out will be tax free. This allows clients to enjoy tax benefits similar to those of unit trusts within the fund, as well as the benefits of an endowment when the investment is cashed in. This is a fantastic opportunity for all South Africans and it is imperative that clients are informed so that they can adjust their finances ahead of the launch.
Four funds taxation of long term insurance policies
Long terms insurers offer both risk (eg. life and disability policies) as well as investment (eg. endowment and sinking funds) policies. Currently, a life assurer’s activities are taxed in one of four funds (individual policyholder, company policyholder, untaxed policyholder and the corporate fund). Government is currently proposing that the risk business of an insurer be taxed in the corporate fund, which is similar to the manner in which short term insurers are taxed. At the moment there don’t seem to be any proposals to change the tax treatment of investment policies.
