Taxation Laws Amendments 2008

1. Taxation Laws Amendments 2008 Select Committee on Finance 15 May 2008

2. 2 Outline of Key Amendments Rates and thresholds Adjustments New thresholds plus depreciation Urgent matters Pension Streamlining and codification of interpretations Anti-avoidance Miscellaneous policy amendments Holdovers from 2007 New isolated amendments Miscellaneous administrative amendments *More complex substantive policy amendments to follow in the Revenue Laws Amendment Bills

3. 3 Rates and Thresholds(Appendix I; also see Explanatory Memorandum) Key Rates PIT adjustments CIT 28% rate Gold mining 34% formula Foreign owned South African branch 33% rate Adjustments to fuel levy and excise duties Key Thresholds Income tax threshold Below 65 yrs � R46 000 65 yrs and above � R74 000 Interest exemption R19 000 (under age 65) Interest exemption R27 500 (from age 65) CGT exclusion R16 000 Bursary (R100 000 salary/R10 000 exemption) PBO housing ceiling: R7 500 household income per month

4. 4 Home Associations(Section 10(1)(e)) Current Law: Sectional title, share block companies and other home associations are generally taxable except for homeowner levies Proposal: Up to R50 000 of investment income (e.g. interest) will be exempt per annum

5. 5 Depreciation Issues Water Pipelines for Electricity Power Plants (Section 12D(1)) 5% depreciation allowed Small Business Company Option (Section 12E(1A)): Non-manufacturing small business companies may use the current 50:30:20 rate or a rate more generally available Allows for the 100% small equipment rate Sale-Lease Situations (Section 23D) Old regime limited depreciation for landlord to the lesser of the landlord�s/licensor�s cost or the cost of all previous connected tenants/licensees New regime clarifies the tenant/licensee look back goes only 2 years

6. Pension Tax Amendments Streamlining

7. 7 Overall Retirement Issues General objective To streamline and clarify the retirement tax dispensation Specific proposals: Ensuring the continued tax-free dispensation for retirement savings Allowing more flexibility within the retirement sector without triggering a tax charge Aligning retirement definitions in the Income Tax Act with provisions in the Pension Funds Act

8. 8 Preservation Funds(New definitions section 1) Preservation funds are registered as pension or provident funds for tax purposes A number of problems arose due to this registration process, including Limited choice of funds upon termination of employment Lack of portability between preservation funds Membership linked to employment Problems addressed in the new stand-alone preservation fund definitions

9. 9 Preservation Funds (2)(Section 10 & Para. 6 of the 2nd Schedule) Growth within preservation funds will remain tax-free Tax-free transfers between preservation funds and other retirement funds Same tax treatment as other retirement funds upon a member�s: Retirement; or Withdrawal from the fund

10. 10 Retirement Lump Sums and Provisional Tax (Para. 19 of the 4th Schedule) Provisional tax is payable on amounts not subject to withholding tax The tax is calculated with reference to a prior year�s taxable income Only recurring taxable income from a prior year should be taken into account and once-off amounts should be excluded Retirement lump sums (like capital gains) are not recurring payments and will accordingly be excluded from the provisional tax base

11. Urgent Matters Intra-Group and Cross-Border Avoidance (Media Statement Release)

12. 12 Intra-Group 2008 Amendments(Section 45) 2007 Amendments Group definition changed to exclude all taxpayers not subject to worldwide tax (including foreign companies) The narrowed group definition legislatively triggers a de-grouping charge for pre-1 October 2007 transactions Changes to be effective 1 January 2009 Proposed 2008 Modifications Foreign companies with a South African tax residence (i.e. effective management) will remain in the group All taxpayers subject to legislative de-grouping via the amendment will be exempt from the de-grouping charge The legislation will be effective as of 21 February 2008

13. 13 Company Groups