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Articles in Category: Tax

Provisional Tax Estimate - The Risk of using the Basic Amount

on Sunday, 06 August 2017. Posted in General, Tax

Provisional Tax Estimate - The Risk of using the Basic Amount

Many tax practitioners have reverted to the easy option of using the basic amount as an estimate for provisional tax. Many tax professionals are also under the incorrect impression that this is within the ambit of the income tax act to use the basic amount as an estimate.

The actual purpose of the basic amount is twofold:
1. It serves as the minimum estimate.
2. It is used as a limit to calculate underestimation penalties if the taxpayer's assessed income it below R1 million.

A brief examination of the income tax law will substantiate statements one and two above:

Paragraph 19 of the Fourth Schedule of the Income Tax Act 58 of 1962:

19. (1)(a) Every provisional taxpayer (other than a company) shall, during every period within which provisional tax is or may be payable by that provisional taxpayer as provided in this Part, submit to the Commisioner (unless the Commissioner direct otherwise) a return of an estimate of the total taxable income which will be derived by the taxpayer in respect of the year of assessment in respect of which provisional tax is or may be payable by the taxpayer: Provided that such estimate will not include any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit or any severance benefit received by or accrued to or to be received by or accrue to the taxpayer during the relevant year of assessment.

(b) Every company which is a provisional taxpayer shall, during every period within which provisional tax is or may be payable by it as provided in this Part submit to the Commissioner (unless the Commission directs otherwise) a return of an estimate of the total taxable income which will be derived by the company in respect of the year of assessment in respect of which provisional tax is or may be payable by the company.

(c) The amount of any estimate so submitted by a provisional taxpayer (other than a company) during the period referred to in paragraph 21(1)(a), or by a company (as a provisional taxpayer) during the period referred to in paragraph 23(a), shall not be less than the basic amount applicable to the estimate in question, as contemplated in item (d), unless the circumstances of the case justify the submission of an estimate of a lower amount.

It is clear that the basic amount serves as a minimum estimate when
paragraph (a), (b) and (c) are read together.

An important point to note is that paragraph (c) does not absolve the taxpayer of the obligation to estimate the taxable income and instead fall back on the basic amount.

Paragraph 20 of the Fourth Schedule of the Income Tax Act 58 of 1962:

20. (1) If the actual taxable income, as finally determined under this Act, for the year of assessment in respect of which the final or last estimate of his or her taxable income is submitted in terms of paragraph 19(1)(a) by a provisional taxpayer other than a company, or the estimate of its taxable income in respect of the period contemplated in paragraph 23 (b) is submitted in terms of paragraph 19(1)(b) by a company which is a provisional taxpayer, in respect of any year of assessment is--

(a) more than R1 million and such estimate is less than 80 per cent of the amount of the actual taxable income for such year of assessment, a penalty, which is deemed to be a percentage based penalty imposed under Chapter 15 of the Tax Administration Act, equal to 20 per cent of the difference between--

(i) the amount of normal tax, calculated at the rates applicable in respect of such year of assessment and after taking into account any amount of a rebate deductible in terms of this Act in the determination of normal tax payable, in respect of a taxable income equal to 80 per cent of such actual taxable income; and

(ii) the amount of employees' tax and provisional tax in respect of such year of assessment paid by the end of the year of assessment;

(b) R1 million or less and the estimate is less than 90 per cent of the amount of such actual taxable income and is also less than the basic amount applicable to the estimate in question, as contemplated in paragraph 19(1)(d), the taxpayer shall, subject to the provisions of subparagraphs (2), (2B) and (2C), be liable to pay to the Commissioner, in addition to the normal tax payable in respect of his or her taxable income for such year of assessment, a penalty, which is deemed to be a percentage based penalty imposed under Chapter 15 of the Tax Administration Act, equal to 20 per cent of the difference between--

(i) the lesser of--

(a)(a) the amount of normal tax, calculated at the rates applicable in respect of such year of assessment and after taking into account any amount of a rebate deductible in terms of this Act in the determination of normal tax payable, in respect of a taxable income equal to 90 per cent of such actual taxable income; and

(b)(b) the amount of normal tax calculated in respect of taxable income equal to such basic amount, at the rates applicable in respect of such year of assessment and after taking into account any amount of a rebate deductible in terms of this Act in the determination of normal tax payable; and

(ii) the amount of employees' tax and provisional tax in respect of such year of assessment paid by the end of the year of assessment...

It is evident from paragraph 20 that the basic amount is used as a limit when calculating the understatement penalty for taxpayers where the assessed taxable income was below R1 million.

It is tempting to use the basic amount as a default estimate for the provisional tax. However, risk is involved in doing so.

Let us take a situation where the taxpayer had a basic amount of R900 000 and thus based his / her taxable income estimate for the provisional tax on this amount. If the actual assessed income is R1 200 000 paragraph 20(a) will apply (since actual taxable income above R1 000 000). Thus the basic amount will not be used as a limit to calculate an underestimation penalty.

The taxpayer's estimate was less than R960 000 (80% of R1 200 000) and therefore according to paragraph 20(a), an understatement penalty will be issued. The fact that the taxpayer's basic amount was used will not be a justification to avoid the penalty, however, if the taxpayer can provide another legitimate reason SARS may remit the penalty.

The conclusion is that the taxpayer should estimate taxable income and not rely on the basic amount as a default. The basic amount was not intended for this purpose and SARS does not accept it as such.

 Author: Chris Herbst - CH Consulting

Contact us for tax consulting: https://www.chconsulting.co.za/contact

 

Tax and small business owner remuneration

on Saturday, 08 April 2017. Posted in General, Consulting, Tax

The tax consequences of profit extraction by directors of owner managed companies.

Tax and small business owner remuneration

 

Introduction

A question that we often receive from directors is how to compensate yourself if the company is owner managed. In other words a business where the owners are the directors and have discretion in how they are going to structure their own remuneration, or how they are going to extract the profit from the company.  Let us explore three possible scenarios.

1. Building up a loan account

We often find that the owners draw money at will and build up a loan account with the company. Some directors are under the impression that this method attracts no tax. They are wrong. 

The first factor to consider here is the interest rate that the company is charging the director. In most cases this is 0%. In normal circumstances a company would charge an interest rate to someone it lends money to. Thus in this case the 0% or lower than market related interest rate is directly attributed to the fact that the director is a connected person to the company. In other words the director is receiving a benefit due to his / her employment or connection with the company. This  equates to remuneration and as you know remuneration is taxable. 

The way the income tax act deals with this situation is by a concept called a deemed dividend. The logic behind this is that the interest free \ low interest loan to the director is (substance over form) the same as a dividend. At the tax year end the balance of the director’s debit (owing to the company) loan account is used to calculated the deemed dividend. The difference between the interest rate that the company charged the director and the official interest rate (repo rate plus 1%) is used to calculated the amount of interest that “should” have been charged were the director not  a connected person. The balance times the interest rate that “should” have been charged is now deemed a dividend and off course dividend tax (currently 20%) is payable on this amount.

Let me illustrate by way of an example:

Director A of company ABC has a loan account debit balance with the company at year end of R100 000. The company did not charge any interest to the director. The current repo rate is 7% and thus the official interest rate is 8% (7% + 1%). 

Thus the deemed dividend is R8 000.00 (R100 000 x 8%) and the dividend witholding tax on that is  R1 600.00 (R8 000.00 x 20%).

Some directors might think that this is not a bad deal R1 600.00 on R100 000 cash withdrawn from the company. They are again wrong. Remember since the loan is of a capital nature it does not get deducted on the income statement as for example a salary, thus it does not decrease your taxable income. So in effect you can argue that the company pays 28% income tax on the R100 000 (since this would have been deductible if it was a salary. Already you are at R28 000 (R100 000 x 28%) plus R1 600.00 deemed dividend which is R29 600. Again the director might think that this is better than a normal dividend of R72 000 (the after tax profit R100 000 - R28 000) which would have resulted in R14 400 witholding tax (R100 000 x 20%) plus the R28 000 income tax which would which would have resulted in a total of R42 400.

In the loan account situation your total tax was R29 600 at an effective tax rate of 29.6% (R29 600 / R100 000) and in the dividend situation your total tax was R42 400 at an effective tax rate of 42.4% (R42 400 / R100 000). Well that might seem that the loan account is the better option, but the differentiating factor is that the same deemed dividend will be charged on the same R100 000 (plus interest from previous year) in the next year. In other words your effective tax rate in the loan account situation keeps on growing each year that the loan has its balance outstanding. Effectively the director is being taxed multiple times on the same initial R100 000.

2. Paying a dividend

This was basically covered in the previous section. If the director declares a dividend to him / herself the effective tax rate is 42.4%. Simply due to the fact that the company pays 28% tax on the profit and the director pays 20% dividend tax on the dividend allocated from after tax profit.  

An example:

The company has R100 000 taxable income (which the director would like to allocate to him \ herself. Thus the company pays R28 000 income tax and the after tax profit is R72 000 (R100 000 - R28 000). The company can declare a dividend on the after tax profit to the director which results in R14 400 dividend witholding tax (R72 000 x 20%). In other words the company and director paid a total tax of R42 400 (R28 000 plus R14 400) which is an effective percentage of 42.4 (R42 400 / R100 000).

3. Paying a salary

The director can also pay him \ herself a salary. For some reason many directors are under the impression that this is the least tax efficient. In many cases this is actually the most tax efficient.

The tax rate off course varies based on the total salary that the director receives from the company. However the effective tax rate is less than 42.4% (as with the dividend) for a total annual salary of up to R5 961 949 (based on the 2018 individual tax rate table, a corporate income tax rate of 28% and a dividend witholding tax rate of 20%).

Conclusion

Many factors have been left out for simplification in the discussion above. My advice would be to always contact a tax professional to evaluate your specific situation. If I had to make a rule of thumb, I would say it is simple, if your company’s taxable profit that you would like to extract is less than R5 961 950 (for 2018 tax year) extract the profit by way of a salary, if it is more than R5 961 950 (for 2018 tax year), extract the R5 961 950 as a salary and the amount above that as a dividend. What about loan accounts? I would say, stay away!

Contact us for assistance: https://www.chconsulting.co.za/contact

 Author: Chris Herbst

How the new Tax Compliance Status (TCS) (the replacement of Tax Clearance Certificates (TCC)) works.

on Wednesday, 22 June 2016. Posted in Tax

As from 18 April 2016 the old Tax Clearance Certificate system made way for the new Tax Compliance Status system.

How the new Tax Compliance Status (TCS) (the replacement of Tax Clearance Certificates (TCC)) works.

This article will first explain the rational for the new system, then the difference with the previous system and finally on a practical note provide you with steps to obtain your tax compliance status on e-filing.

The new Tax Compliance Status system will be managed online via e-filing.

SARS has decided on the new Tax Compliance system for the following reasons:

Less printing: over ten million tax certificates were printed per annum. According to (see * below for source) one pine tree produces 80 500 sheets of paper. Thus SARS were printing 124 trees worth of tax certificates per year!
Less branch visits: over two million SARS branch visits were done per year for tax certificates.
More tax compliance: change from point in time to continuous compliance. I will elaborate on this point below.

Point in time compliance vs continuous compliance:

As you are probably aware in the past a taxpayer would apply for a tax certificate which will then be either granted or denied based on the taxpayer’s status at the specific time of the application. This is what is referred to as point in time compliance. The taxpayer’s tax certificate approval was fully based on the fact whether all the taxpayer’s tax affairs were in other at that given point in time.

As you are also probably aware many taxpayer’s only scrambled to get their tax affairs in order when they required a renewed tax certificate. This resulted in taxes only being put into order once a year and that is if a tax certificate was required. SARS did not like this.

Thus SARS have now introduced a continuous compliance system. Same as before if the taxpayer applies for a tax certificate, the taxpayer will only be granted one if the taxpayer’s affairs are in order at the time of application. However, the major difference now is that a pin will be issued to the taxpayer that should be provided to third parties (the parties requesting the tax certificate). The third parties can now at any time go online and check the taxpayer’s tax compliance status with the provided pin. If the third party checks the status today and all the the taxpayer’s affairs are in order it will show that the taxpayer is compliant. If the third party checks the taxpayer’s status tomorrow and the taxpayer’s affairs are not in order it will show non-compliant. Thus the pin provides a continuous status of the taxpayer’s compliance status and no longer a point in time view. A tax clearance certificate use to provide the third party with assurance for 12 months that the relevant taxpayer’s affairs were in order for that period. The pin now provides day to day continuous assurance.

If the taxpayer is compliant at a specific point in time the taxpayer can still obtain a tax certificate and print it out. This certificate informs the third party that the taxpayer was compliant at the point in time the certificate was granted, however the tax certificate states:

This certificate is valid until the expiry date reflected above, subject to the taxpayer's continued tax compliance. To verify the validity of this certificate, contact SARS through any of the following channels:

- via eFiling
- by calling the SARS Contact Centre
- at your nearest SARS branch

It is thus clear that going forward to conduct business with third parties that require the taxpayer to be tax compliant, the taxpayer will have to make sure they are compliant at all times.

Next I will provide you with the steps to obtain your tax compliance status on e-filing (see ** below for source):

Step 1: Logon to eFiling

Logon to eFiling by using your login name and password. If you are not yet an eFiler, register on www.sarsefiling.co.za.

You need to be registered for eFiling and have one tax product [such as Income Tax, Value- Added Tax (VAT) or Pay-As-You-Earn (PAYE)] already activated on your taxpayer profile in order to activate the Tax Compliance Status (TCS) service.

Step 2: Activate the Tax Compliance Status service

Tax practitioners and eFiling administrators for organisations must ensure that the correct rights are allocated to users who need access to the tax compliance status screen. For more information on allocating these rights, please refer to the “Guide to the Tax Compliance Status Functionality on eFiling” available on the SARS website www.sars.gov.za.

You only need to activate your Tax Compliance Status once and it will remain active. Once you have activated it and you have merged or declared all your registered tax reference numbers, you will be given access to your My Compliance Profile (MCP).

Step 3: View your My Compliance Profile

You can view your tax compliance profile by selecting the My Compliance Profile menu option. A colour-coded profile will appear to indicate whether you are tax compliant or not.

Red – Your tax affairs are not in order and you are not tax compliant
Green – Your tax affairs are in order and you are tax compliant.

Step 4: Request your Tax Compliance Status via eFiling

Select the Tax Compliance Status Request option and the type of TCS for which you would like to apply. You will have the following options:

- Good standing

- Tender 

- FIA (individuals only) Emigration (individuals only)

Complete the Tax Compliance Status Request and submit it to SARS.

Once your request is approved by SARS, you will be issued with an overall tax compliance status and a PIN. The PIN provides you with a way to authorise any third party to view your tax compliance status online via eFiling. You can request that the PIN be sent to you via SMS and you can view it on your “Tax Compliance Status Request” dashboard on your eFiling profile.

IMPORTANT: A unique PIN will be issued for each request that you make.

In addition to the PIN, you will also be able to print a Tax Clearance Certificate (TCC), in the existing format, via your own computer by selecting “Print TCC”. The “Print TCC” function will only be available if your overall tax compliance status reflects as compliant.
Once you have provided the PIN to a third party, the PIN will enable the relevant organisation or government department to view your current tax compliance status online. It will present them with your overall compliance status as at the date and time they check it and not your status as it was at the date that the PIN was issued to you. To protect the confidentiality of taxpayer information, no other information will be accessible.

Author: Chris Herbst

Contact us: https://www.chconsulting.co.za/contact

Medical tax deductions explained in simple language

on Wednesday, 03 June 2015. Posted in Tax

Medical tax deductions explained in simple language

Image license: https://creativecommons.org/licenses/by/2.0/

Image title: The Cyclist's Apartment

Update: Article updated for the 2018 and 2019 tax year.

The focus in the explanation below is on a person without tax knowledge that would simply like to understand what they are allowed to deduct for their tax.

All the amounts used below are for the 2018 tax year, i.e. 01/03/2017 – 28/02/2018.

The first allowable deduction is for any contributions you make to a registered medical aid. The deduction system consists of a tax credit that you receive to deduct from the amount of tax you have payable for the relevant tax year.  If, for example, you had to pay R5 000 tax for the year you will now receive a tax credit, say R1 000, which you can deduct from the R5 000. Therefore the tax payable is now only R4 000.

Not important to remember (but you will sound smart with your colleagues and friends), this deduction is called the Section 6A medical scheme fees tax credit.

 

2018 Tax year (01/03/2017 - 28/02/2018)

 

Let us examine how the Section 6A medical scheme fees tax credit for the 2018 tax year (2019 below) is determined.

Assuming the taxpayer is below the age of 65 and there is no member on the taxpayer’s medical aid with a permanent disability (in the case of the taxpayer being older than 65 and or disability involved the amounts and rates will differ):

For each month of the tax year that the taxpayer (main member) have belonged to a medical aid you get a tax credit of R303.00. If a taxpayer has any dependents on the medical aid, such as the taxpayer’s partner or children the taxpayer will receive more tax credits. For the first dependent the taxpayer will receive an extra R303.00, for any additional dependents the taxpayer receives an additional R204.00 for each dependent.

Section 6A deduction:

Let us have a look at John’s family.

Thus if it is a family of John, John’s Wife and three children where John is the main member of the medical aid, the total monthly tax credit will be:

John (main member) R303.00
John’s Wife (first dependant) R303.00
Child One (additional dependent) R204.00
Child Two (additional dependent) R204.00
Child Three (additional dependent) R204.00
Total tax credit per month R1 218.00
Total tax credit for the year R14 616.00

However, this is not the only possible tax credit.

There is also a tax credit for additional medical expenses. Now, if you want to sound smart you can tell your friends about the Section 6B additional medical expenses tax credit:

This one is a bit trickier. You will apply the following formula:

Your total contributions to a medical aid for the relevant tax year

Less:

4 x [the tax credit that you received under section 6A (the one we looked at above)]

Plus:

All the qualifying medical expenses that were not paid by the medical aid in the relevant tax year (out of pocket expenses).

Less:

7.5% of your taxable income (with some other minor technicalities which I will not mention here).

Equals:

The excess amount

Multiplied by 25%, equals:

The section 6B medical aid tax credit

Usually, a good indicator as to whether you will qualify for the additional credit is the rule of thumb to take your annual salary x 7.5% and determine whether you made additional medical expenditure above that amount.

Let us continue with the example of the family of John. We will work with the following assumptions:

  • John paid R5 000 to a medical aid on a monthly basis, R60 000 for the full tax year.
  • John paid R35 000 of medical expenses out of his pocket during the relevant tax year.
  • John earned a salary of R300 000 during the relevant tax year, which was his only taxable income.

Section 6B deduction:

R60 000 (total medical aid contributions)

Less:

4 x R14 616.00 (section 6A tax credit)

= R1 536

Plus:

R35 000 (medical expenses John covered from his pocket)

= R36 536

Less:

R22 500 (R300 000 x 7.5%) (7.5% of John’s taxable income)

= R14 036 (excess amount)

Multiplied by 25%, equals:

R3 509 (section 6B medical aid tax credit)

Thus John’s total medical aid tax credit for the year will be:

R14 616 (Section 6A) + R3 509 (Section 6B)

= R18 125.00

It is important to note that you can only deduct this tax credit against tax payable. In other words, if you have no tax payable (before this deduction) you will not get the R18 125 as a refund. Also if you have R10 000 tax payable (before this deduction), you will not get R8 125.00 as a refund.

2019 Tax year (01/03/2018 - 28/02/2019)

 

Let us examine how the Section 6A medical scheme fees tax credit for the 2019 tax year (2018 above) is determined.

Assuming the taxpayer is below the age of 65 and there is no member on the taxpayer’s medical aid with a permanent disability (in the case of the taxpayer being older than 65 and or disability involved the amounts and rates will differ):

For each month of the tax year that the taxpayer (main member) have belonged to a medical aid you get a tax credit of R310.00. If a taxpayer has any dependents on the medical aid, such as the taxpayer’s partner or children the taxpayer will receive more tax credits. For the first dependent the taxpayer will receive an extra R310.00, for any additional dependents the taxpayer receives an additional R209.00 for each dependent.

Section 6A deduction:

Let us have a look at John’s family.

Thus if it is a family of John, John’s Wife and three children where John is the main member of the medical aid, the total monthly tax credit will be:

John (main member) R310.00
John’s Wife (first dependant) R310.00
Child One (additional dependent) R209.00
Child Two (additional dependent) R209.00
Child Three (additional dependent) R209.00
Total tax credit per month R1 247.00
Total tax credit for the year R14 964

However, this is not the only possible tax credit.

There is also a tax credit for additional medical expenses. Now, if you want to sound smart you can tell your friends about the Section 6B additional medical expenses tax credit:

This one is a bit trickier. You will apply the following formula:

Your total contributions to a medical aid for the relevant tax year

Less:

4 x [the tax credit that you received under section 6A (the one we looked at above)]

Plus:

All the qualifying medical expenses that were not paid by the medical aid in the relevant tax year (out of pocket expenses).

Less:

7.5% of your taxable income (with some other minor technicalities which I will not mention here).

Equals:

The excess amount

Multiplied by 25%, equals:

The section 6B medical aid tax credit

Usually, a good indicator as to whether you will qualify for the additional credit is the rule of thumb to take your annual salary x 7.5% and determine whether you made additional medical expenditure above that amount.

Let us continue with the example of the family of John. We will work with the following assumptions:

  • John paid R5 000 to a medical aid on a monthly basis, R60 000 for the full tax year.
  • John paid R35 000 of medical expenses out of his pocket during the relevant tax year.
  • John earned a salary of R300 000 during the relevant tax year, which was his only taxable income.

Section 6B deduction:

R60 000 (total medical aid contributions)

Less:

4 x R14 964.00 (section 6A tax credit)

= R144

Plus:

R35 000 (medical expenses John covered from his pocket)

= R35 144

Less:

R22 500 (R300 000 x 7.5%) (7.5% of John’s taxable income)

= R12 644 (excess amount)

Multiplied by 25%, equals:

R3 161 (section 6B medical aid tax credit)

Thus John’s total medical aid tax credit for the year will be:

R14 964 (Section 6A) + R3 161 (Section 6B)

= R18 125.00

It is important to note that you can only deduct this tax credit against tax payable. In other words, if you have no tax payable (before this deduction) you will not get the R18 125 as a refund. Also if you have R10 000 tax payable (before this deduction), you will not get R8 125.00 as a refund.

 

Lastly, you can get all the relevant medical aid contributions, the number of members, etc. on your tax certificate that your medical aid provides to you on an annual basis. You have to keep this certificate for if SARS asks you to provide it as evidence for your deduction.

Author: Chris Herbst

Get our iOS app to help you with monthly and annual payroll tax calculations (including medical aid section 6A): https://itunes.apple.com/za/app/taxtree/id1263890353?mt=8

Would you like us to complete your tax return: https://www.chconsulting.co.za/online-services/individual-tax-return

Contact: https://www.chconsulting.co.za/contact

A quick view on the tax consequences of the Budget 2015

on Thursday, 05 March 2015. Posted in General, Tax

A quick view on the tax consequences of the Budget 2015

Photo title: And another business day is almost over... 

License: https://creativecommons.org/licenses/by-nc-nd/2.0/

This speech of Minister Nene was highly anticipated and perhaps feared by some. 

There are varying opinions on the tax changes that have been implemented. It seems as if the main opinion of tax experts is that it was reasonable. I must agree, I do not see major problems in how they have distributed the tax collection burden.

Firstly the increase in sin taxes is one that in my opinion is always a good measure. An interesting one is that they have increased the rate at which individuals are taxed. This is a first since 1995. An important aspect to note here is that if you earn below a certain point you are still better off than the previous year (excluding inflation). For an individual below the age of 65:

  • earning R150 000 per year will pay R44.25 less tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R250 000 per year will pay R30.37 less tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R380 000 per year will pay R19.79 more tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R600 000 per year will pay R92.91 more tax per month in the 2016 tax year compared to the 2015 tax year
  • earning R1 700 000 per year will pay R962.58 more tax per month in the 2016 tax year compared to the 2015 tax year

Thus it is clear that the higher income earning individuals are targeted for the increased tax revenue. For centuries there have been lengthy debates on how fair this approach is. The high net worth individuals makes out roughly 11% of this taxpayer base and they are responsible for roughly 60% of the income from this class. The tax rate of trusts has also increased from 40% to 41%. This will also have the biggest effect on high net worth individuals.

However the lower income earners must not feel that they have escaped the burden as the fuel levy has been used to collect taxes from them. The fuel levy has increased by 30.5 cents per litre. The road accident fund levy was also increased by 50 cents per litre. Almost all people irrespective of your income will be affected by this increase, whether you travel with public transport or your own vehicle. A knock on effect on the food prices will increase the burden.

It was anticipated that the broad based collection of taxes will increase, but it was not clear how. It could have been an increase in the VAT rate, which has remained unchanged at 14%. The recent decrease in oil prices has made an increase in the fuel levy an easy choice for Minister Nene. The possible problem is that the oil prices will rise again (in my opinion that can be soon) and then the man on the street will feel the burden even more.

Another option was to increase corporate taxes; however it remained unchanged on 28%.

There will be greater relief for Micro businesses where the tax free portion has increased from R150 000 to R335 000. However the requirements to be a micro business eliminate the majority of small businesses. The revenue cap of R1000 000 is understandable; however the main eliminator comes with the exclusion of personal service providers, which is defined by the fourth schedule as:

‘Personal service’ means: Any service in the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking, commercial arts, consulting, draftsmanship, education, engineering, entertainment, health, information technology, journalism, law, management, performing arts, real estate, research, secretarial services, sport, surveying, translation, valuation or veterinary science if that service is performed personally by any person who holds an interest in that company or close corporation. However, the services will not count as personal services if the company or close corporation also employs at least three other full-time employees throughout the year of assessment in its business of rendering services and none of those employees is a shareholder or member or its connected person.

In my opinion this discourages persons that have obtained a professional qualification.

Other points to note are:

  • The tax exemption on interest earned has remained the same at R23 800 for persons below the age of 65 and R34 500 for persons above the age of 65
  • The monthly medical aid tax credit has increased from R257 to R270 for the main member and the first dependant and from R172 to R181 for each additional dependent
  • The primary rebate has increased from R12 726 to R13 257 (4.17%, below inflation) and the secondary rebate has increase from R7 110 to R7 407 (4.17%, below inflation). This was taken into account with the tax calculation for the various salaries for individuals above

I conclude by saying that although it does not look to rosy, in my opinion, given the circumstances Minister Nene did an acceptable job.

Author: Chris Herbst

https://www.chconsulting.co.za/contact