2012 Budget and Tax Update

1. 2012 Budget and Tax Update

2. 2012 BUDGET

3. Main Tax Proposals • Personal income tax relief of R9.5 billion (2011: R8.1 billion) • Implementing the dividend withholding tax at 15% • An increase in effective capital gains tax rates • Reforms to the tax treatment of contributions to retirement savings • Further reforms to the tax treatment of medical scheme contributions • Tax preferred savings and investment vehicles for individuals are to be introduced • Relief for micro and small businesses

4. Tax Tables - Individuals

5. Rebates

6. Tax Thresholds

7. Interest and Taxable Dividend Exemption

8. Capital Gains Tax Exclusions

9. Capital Gains Tax Exemptions

10. Capital Gains Tax Effective RatesDisposals after 1 March 2012

11. Travel Allowance Deemed Expenditure Table • Changed with effect from 1 March 2012 • Page 8 of notes • Number of bands remain the same • Limit on cost remains R480,000 • Reimbursive travel allowance where business km’s less than 8,000 p/a increased from R3.05/km to R3.16/km

12. Retirement Fund Lump Sum Withdrawal Benefits 2012/ 2013 rates are unchanged from 2011/ 2012

13. Retirement Fund Lump Sum Benefits on Retirement or Severance 2012/ 2013 rates are unchanged from 2011/ 2012

14. Corporate Tax Rates Years of assessment ending between 1 April and 31 March

15. Dividends Tax

16. Small Business Corporations Years of assessment ending between 1 April and 31 March

17. Turnover Tax For Micro Businesses Year of assessment ending 28/2/13 and 29/2/12

18. Subsistence Allowances • Travel in the Republic • meals and incidental costs: R303 (was R286) per day • incidental costs only: R93 (was R88) per day • Travel outside the Republic • daily amount per country also changed from 1 March 2012 (pg 9 to 12 of notes)

19. Transfer Duty (No change)Natural and juristic persons – agreement on or after 23 Feb 2011

20. Fuel Levies • To be increased by 28c/l on 4 April 2012 • General fuel levy on petrol and diesel increases by 20c/l (2011 - 10c/l) • Road Accident Fund levy on petrol and diesel increases by 8c/l (2011 – 8c/l) • Total = 289.5 c/l on petrol; 274.51c/l on diesel • Percentage of pump price at Feb 2012 – Petrol 26,9% Diesel 26,7% compared to Feb 2011 – Petrol 29,6% Diesel 30,3%

21. Sin Taxes • Excise duties increases: • Cigarettes from R9.74 per pack of 20 cigarettes to R10.32 (6%) • Traditional beer no increase • Beer from 91c to 101c on a 340ml can (11%) • Wine from R2.32 to R2.50 a litre (8%) • Sparkling wine from R6.97 to R7.53 a litre (8%)

22. National Health Insurance • NHI to be phase in over 14 years beginning in 2012/13 • Green paper released in 2011 • Detailed discussion in Chapter 6 of budget review • 3 phases • First 5 years – strengthening the public sector, pilot projects • Funded by general taxes • Considerations for funding longer term • Payroll tax (payable by employers) • Increase in the VAT rate • Surcharge on individual’s taxable income

23. Encouraging Savings • Tax preferred savings and investment accounts to be introduced • Target date April 2014 • Alternatives to the current exempt portion of interest • Returns in the form of interest, dividends and capital gains will be exempt • Contributions are likely to be limited • Annual R30,000 • Lifetime R500,000 • Look out for discussion document by May 2012

24. Retirement Reforms • Changes to be introduced from 1 March 2014 • Employer’s contributions to pension, provident and RA funds will be deemed a taxable benefit • Employee will be allowed a deduction of • up to 22,5% if aged below 45 years, or • up to 27,5% if aged 45 and over • of the higher of employment or taxable income • Annual deduction limited to • R250 000 if aged below 45 years • R300 000 if aged 45 and over

25. Retirement Reforms • Above deduction will be subject to a minimum annual threshold of R20,000 to encourage higher saving by low income earners • Non deductible contributions will be carried forward and exempt on withdrawal whether lump sum or annuity

26. Medical deductions converted to medical tax credits • 2011 Amendment Act introduced the concept of tax credits in place of tax deductions • Monthly deduction caps for contributions removed for 2013 y.o.a • Conversion to a tax credit system will be introduced on 1 March 2012 • In addition under 65s (including those with disabilities), excess contributions and medical expenses are eligible for tax deduction • Age 65 and over – no credits, 100% of contributions and expenses can be deducted

27. Medical deductions converted to medical tax credits (cont.) • Budget proposals announced following changes - • Monthly medical scheme tax credits from 1 March 2012 • Taxpayer and first dependant – R230 • Each additional dependant – R154 • 2013 and 2014 will see the hybrid deduction/tax credit system continue • 1 March 2014 conversion of all taxpayers to tax credit system

28. Medical deductions converted to medical tax credits (cont.) • Medical deductions (above 7,5% of TI) will be converted to tax credits • Under 65s - @ 25% of deductible amount • Employer contributions to medical schemes for ex-employees will be a fringe benefit and ex-employee can claim tax credit • Age 65 and older and disabled taxpayer (or with disabled dependant) can convert • contributions in excess of 3 times the tax credit, plus • out of pocket expenses • @ 33,3%

29. Gambling • Proposal in 2011 budget has been changed • Now a national gambling tax on gross gambling revenue • Effective 1 April 2013 • Additional 1% national levy on the provincial gambling tax base • Similar tax base will be used to tax the national lottery

30. Business Taxes • Limiting excessive debt in businesses • Rules to deeming certain debt to be shares • 2013 consider ‘across-the-board’ % ceiling on interest deductions relating to EBITDA • Special economic zones • Build on the IDZ policy • Focused support for businesses – reduction in tax rate, exemption for operators, additional deduction for low level employees

31. International Tax • Rationalisation of withholding tax on foreign payments • Royalties withholding in place • Interest from 1 Jan 2013 • Dividends from 1 April 2012 • Co-ordinate procedures, rates and timing for withholding • Uniform 15% proposed

32. Taxation of luxury goods • Effective 1 October 2012 • Ad valorem tax • Aeroplanes and helicopters with mass between 450kg and 5 000kg – 7% • Motorboats and sailboats longer than 10m – 10%

33. Miscellaneous • False job terminations • Resign in order to get access to retirement funds and immediately thereafter rehired, no longer permissible • Value of fringe benefits • A formula is currently prescribed in some cases. Where the employer can determine or obtain the actual cost of providing the benefit, actual cost should be allowed to be used. E.g. Actual business vs. private mileage for a company car and a rental car provided to an employee

34. Miscellaneous • Learnership allowances • Requirement to have registered the learner in order to qualify for the deduction will be re-examined. Delays in registration will no longer negatively impact the allowances • Debt cancellation and restructuring • In light or weak economic climate, tax consequences will be investigated

35. Miscellaneous • Company law reform • New Co’s Act provisions will be reviewed to consider whether the tax reorganisation provisions need updating • Taxing of Government Grants • Unless specifically exempt, grants are taxable. A review of which grants should be exempt is being undertaken and an explicit list will be published • Sale of trading stock to connected person • Currently tax cost to purchaser is lower of cost to purchaser or cost to seller. Cost manipulation is a concern for CGT but is unlikely to be used for trading stock and this provision will be scrapped for trading stock

36. Miscellaneous • Share issue mismatch • Concern that this is being used to shift value. Value of shares issued in excess of consideration received will become taxable

37. Miscellaneous • UDZ incentive (13quat) • Set to expire in 2014, extension will be considered and in addition qualifying date is currently date buildings are brought into use, consideration will be given to change this to date of initial construction • South African investment into Africa • H Co often funds foreign Subco by way of loans. Transfer pricing is an issue if these loans are interest free. Consideration to be given to treating these loans as share capital.

38. Miscellaneous • Clarification of the date of liability for VAT registration • On date of reaching compulsory registration threshold vendor has 21 days to apply for registration. Vat cannot be charged on supplies until registered as a vendor with SARS. Transition rules will be clarified to streamline transition from non-vendor to vendor

39. Miscellaneous • Tax policy projects for 2012/13 • Reforms to the primary, secondary and tertiary rebates in the context of a review of the means testing for the old age grant with the intention of introducing a child and/or dependant tax rebate/credit • Taxation of income from capital (interest, dividends, capital gains and rental) to be reviewed to ensure greater equity and minimise opportunity for arbitrage

40. 2012 AMENDMENTS

41. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule ) • Conversion from a deduction to a credit system • Phased introduction • 2013 – combination for under 65s and persons with disability • Age 65 and over • Not moved to the credit system • Retained full deduction system • Longer term – move everyone to only tax credits (refer 2012 budget)

42. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • ‘Dependant’ definition has been broadened for purposes of the section 18 deduction only and not for purposes of calculating the section 6A tax credit • Previously ‘dependant’ limited to rules of medical scheme • New section 18(4A) – ‘dependant’ means • Spouse • Child and spouses child • Member of immediate family if taxpayer is liable for family care and support, and • Any dependant recognised by the rules of a medical scheme • Meaning of immediate family?

43. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • Section 6A tax rebate has been inserted for 2013 • Medical scheme fees tax credit • Natural persons under age 65 including those with a disability • Applies to contributions paid to- • Registered SA medical aid scheme • Foreign medical aid scheme • Amount of the tax credit (irrespective of level of contribution) - • Taxpayer – R230 • First dependant – R230 • Additional dependants – R154 • The credit is not refundable and cannot exceed the tax payable

44. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • Limitation of medical deduction for 2012 (under 65 and no disability) • Part 1 - Capped amounts relating to contributions • Part 2 - • Contributions above the capped amount, plus • Other qualifying medical expenses, as exceeds 7.5% of taxable income • Taxable income • Excluding lump sum benefits • Before Part 2 of the medical expenditure deduction • Age 65 and over and under 65 with disability – no limitations

45. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • Limitation of medical deduction for 2013 (under 65 no disability) • Contributions to medical aid schemes • In excess of 4 times the tax credits • Plus • Sum of other qualifying medical expenses • As exceeds 7.5% of taxable income • Taxable income • Excluding lump sum benefits • Before this deduction

46. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • Limitation of medical deduction for 2013 (under 65 with disability) • Contributions to medical aid schemes • In excess of 4 times the tax credits • Plus • Sum of other qualifying medical expenses – no limitation

47. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • Medical deduction 2013 - taxpayers aged 65 and over • No limitation of deduction for- • Contributions to a medical scheme, plus • Qualifying medical expenses

48. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • 7th Schedule amendments • Medical scheme contributions made by an employer for the benefit of an employee are regarded as a taxable benefit • Nil value if • The employee is retired • Dependants on death of current or retired employee • Employee aged 65 and above • Nil value has been removed • For PAYE and IPR5 purposes, employer must now account for both the fringe benefit and the deduction

49. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • 4th Schedule – 2013 • Employer deducts from remuneration – if employee under 65 and with or without a disability • No deduction allowed • Employer deducts from remuneration – if employee 65 or older • Medical aid contributions, no limit • Employer deducts from employees’ tax • Medical scheme fees tax credit, if • Employer effects payment, or • Employee effects payment and provides employer with proof

50. Medical Scheme Credits (Sections 6A and 18, para 2(4) of the 4th Schedule andpara 12A(5)(d) of the 7th Schedule • See page 42 and 43 of notes to work through example