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2010 Budget and Tax Update

2010 Budget and Tax Update. 2010 BUDGET. Main Tax Proposals. Personal income tax relief of R6.5 billion Fuel taxes to increase by 25.5 c per litre Voluntary disclosure programme Curbing of avoidance schemes Increased sin taxes Cash grant for hiring unskilled youth.

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2010 Budget and Tax Update

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  1. 2010 Budget and Tax Update

  2. 2010 BUDGET

  3. Main Tax Proposals • Personal income tax relief of R6.5 billion • Fuel taxes to increase by 25.5 c per litre • Voluntary disclosure programme • Curbing of avoidance schemes • Increased sin taxes • Cash grant for hiring unskilled youth

  4. Tax Tables - Individuals

  5. Rebates

  6. Tax Thresholds

  7. Interest and Taxable Dividend Exemption

  8. Capital Gains Tax Exemptions

  9. Company Tax RatesYears of assessment ending between 1/4/10 and 31/3/11

  10. Small Business Corporations(Years of assessment ending between 1/4/10 and 31/3/11)

  11. Turnover Tax ForMicro Businesses (year of assessment ending 28/2/10 and 28/2/11)

  12. Individuals • R6,5 billion relief: revised tax tables, rebates and exemptions • Focus on tax avoidance and tax structuring • SITE to be abolished from 1 March 2011 • Gambling winnings to be taxed

  13. Fringe Benefits • Company car and other fringe benefit rules to be revised • Employer deductions to be fully reflected in employee’s gross income • Employee insurance packages to be taxed on a monthly basis

  14. Medical Aid Contributions • Monthly caps to increase • from R625 to R670 (7.2%) for each of the first two beneficiaries and • from R380 to R410 (7.9%) for each additional beneficiary • Proposed conversion to a tax credit system deferred until 2012/13

  15. Lump Sum Gratuities • R30 000* exemption to be merged into the retirement fund lump sum benefit system - aggregation principle will apply. * Last adjusted in 1984

  16. Subsistence Allowances • Travel in the Republic • meals and incidental costs: R276 (was R260) per day • incidental costs only: R85 (was R80) per day • Travel outside the Republic • daily amount per country

  17. Estate Duty • Double tax on death: CGT and Estate Duty • Estate duty to be reviewed

  18. Tax Administration • Increased focus on enforcement and collections • Level of tax compliance has "deteriorated” • Third party information and "targeted lifestyle audits" • Enhanced focus on "large taxpayers and high-net worth individuals”

  19. Voluntary Disclosure Programme • 1 Nov 2010 – 30 Oct 2011 • Some relief for • Penalties • Exchange control • Criminal prosecution

  20. VAT • Possible relief • for claw-back on temporary rentals by developers • renting of furnished residential accommodation • 12-month claw-back rule to be relaxed on deregistration (to avoid double-tax)

  21. Youth Employment Grant • Two-year cash grant • For tax-compliant businesses, non-governmental organisations and municipalities

  22. Urban Development Zone (UDZ) Allowance • New buildings: 20%(first year); 8% p.a. (next 10 yrs) • Low cost housing in UDZ • New buildings: 25% (first year); 13% (next 5 yrs); 10% (year 7) • Improvements to existing buildings: 25% p.a. • Enhanced allowances to be considered for private developers who improve another party's land

  23. Dividends Tax • Definition of “dividend” to be refined • New definition of “foreign dividend” • Transitional issues • Practical problems relating to in specie dividends • Further refinements to the withholding system where companies would pay dividend tax on a shareholder’s behalf • Implementation 2011 (/2012?)

  24. Corporate Tax • Attack on sophisticated tax avoidance schemes • Interest cost allocation for financial institutions • Offshore protected cell companies • Schemes channeling deductible amounts to residents • Restricting the interest exemption for non-residents investing in financial instruments other than South African bonds, unit trusts or publicly available interest bearing instruments

  25. Headquarter Companies • Exchange control and tax relief to be considered for various types of headquarter companies located in South Africa

  26. Fuel Levies • To be increased by 25,5c/l on 7 April 2010 • General fuel levy on petrol and diesel increases by 10c/l • Additional 7.5c/l for the funding of the new petroleum pipeline between Durban and Gauteng • Road Accident Fund levy on petrol and diesel increases by 8c/l cents per litre • Total = 243.5 c/l on petrol; 228.51c/l on diesel

  27. Green Taxes • Carbon emissions tax to be introduced on new passenger vehicles from 1 September 2010 • Congestion, pollution and landfill taxes to be considered

  28. Sin Taxes • Tax on - • Cigarettes increases from R7.70 per pack of 20 cigarettes to R8.94 • Beer increases from 79c to 85c on a 340ml can • Wine increases from R1.98 to R2.14 a litre • Expected revenue: R2.3bn 2010/11

  29. 2009 AMENDMENTS

  30. Primary Residence Exclusion(Para 45 (1) (b) of the Eighth Schedule) • Capital gains & losses on proceeds up to R2million disregarded • Applies only where... (see Para 45(4)) • Effective for years of assessment commencing on or after 1 March 2009 • NB: Primary residence exclusion remains at R1,5m

  31. Travel Allowance: Repeal of Deemed Kilometer Method(S 8 (1)(b)(ii) & Para. 1 of the Fourth Schedule) • The deemed kilometre method (first 18 000 km traveled per year deemed to be private travel) to be repealed from 1 March 2010 • Amount included in “remuneration” increased from 60% to 80% • from 1 March 2010 • Can still claim business travel expenses for actual kilometers recorded in a log book

  32. Conversion of the STC to Dividend Withholding Tax • 10% tax on dividends will fall on the shareholders • A number of exemptions (e.g. pension funds; company-to-company) • Treaty reductions (5% on re-negotiated DTAs)

  33. Conversion of the STC to Dividend Withholding Tax • Withholding obligation on the company payer (or a regulated intermediary) • New definition of “dividend” and “contributed tax capital” • Anti-avoidance rules will become effective on implementation

  34. Controlled Foreign Companies (S 9D) “Foreign Business Establishment” definition • Fixed place • Located outside South Africa • Conducted continuously and regularly • Takes into account certain activities of CFC group members if located in the same foreign country

  35. Controlled Foreign Companies (S 9D) “Foreign Business Establishment” definition • Establishment located in foreign country solely or mainly for non-tax avoidance reasons High tax jurisdictions • CFCs will be exempt from tax in SA if subject to high foreign country taxes

  36. Depreciation on Improvements (ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B) • Amendments clarify that the depreciation allowance applies equally to improvements associated with underlying assets. Depreciation of improvements should be determined as if the improvement were a stand-alone asset.

  37. Depreciation on Improvements (ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B) • Effectivefor expenditure incurred in respect of years of assessment ending on or after 1 January 2010

  38. Lease Improvements Allowance (s 11(g)) • The prohibition against deducting improvements where the lessor is tax-exempt will no longer apply if: • (i) the lessee is leasing land or buildings owned directly by government (national, provincial or municipal) or indirectly by government (through institutions exempt in terms of section 10(1)(cA) and section 10(1)(t)); and

  39. Lease Improvements Allowance (s 11(g)) • The prohibition against deducting improvements where the lessor is tax-exempt will no longer apply if: • (ii) the lease is of a duration of 20 years or more. • Effectivefor improvements brought into use on or after 1 January 2009

  40. Pre-Trade Expenses(s 11A) • S 24J expenditure now included • Effective for years of assessment ending on or after 1 January 2005 (backdated)

  41. Small Business Corporations (S 12E(4)(a)(ii)(hh); para 3(f)(iii) of the Sixth Schedule) • Inactive or dormant shelf companies added to the list of permitted investments • A shelf company is inactive or dormant until the company trades or holds assets exceeding R5 000 • Effective for years of assessment ending on or after 1 January 2010

  42. Learnership Allowance(S 12H)

  43. Example Facts: • Employer X enters into a learnership contract with a learner. • At the end of month 6, the learner leaves Employer X and moves to Employer Y. • The learner subsequently completes the learnership with Employer Y. • The learner has no disabilities and the learnership spans a single year of assessment for both Employer X and Employer Y.

  44. Example Result: • The commencement allowance is divided pro rata between Employer X and Employer Y (each based on a 6/12 ratio). • Employer X is entitled to a commencement allowance of R15 000 (1/2 of R30000), and Employer Y is entitled to a commencement allowance of R15 000 (1/2 of R30 000). • Employer Y is also entitled to claim the completion allowance of R30000 (i.e. the full amount).

  45. Example Facts: • Employer X (Dec year-end) concludes a 3-year learnership with a learner at the beginning of January 2010. • The learner changes employment to Employer Y (Dec year-end) at the end of June 2011. • The learner subsequently completes the learnership with Employer Y. • Assume the learner does not have any disabilities.

  46. Example Result: 2010: Employer X may claim the full R30 000 commencement allowance. 2011: Employer X may claim R15 000 of the commencement allowance and Employer Y claims the remaining R15 000. 2012: Employer Y claims the final R30 000 allowance as well as a R90000 completion allowance (R30 000 x 3) Source: Explanatory Memorandum

  47. Venture Capital Companies (VCCs) (s 12J) VCC (FAIS Compliant) 100% Deduction Investor: Indiv/Listed Qualifying SME Individual – R750 000 pa deduction limit Listed – No limit; subject to 40% shareholding limit in the VCC 80% - R10m gross assets

  48. VCC Allowance(Section 12J) • 100% upfront deduction for investments in VCC ordinary shares • Capped at R750 000 p.a. for individuals (with a (R2.25 m life-time limit) • No limit for listed companies (but 40% holding) • Unlisted corporations are excluded

  49. VCCs: Excluded Activities (s 12J) • Dealing in or renting land (excluding hotel keepers) • Financial services e.g. banking, insurance, money lending, HP financing • Provision of professional services e.g. legal, tax advisory, broking, management consulting, auditing, accounting and other related activities • Casinos, other gambling-related activities and any other games of chance

  50. VCCs: Excluded Activities (s 12J) • Manufacturing, buying or selling liquor, tobacco products or arms • Franchisees • Businesses conducted mainly outside SA • Investment income exceeds 20% of gross income

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