How Tax Changes in the 2021 Budget Speech will Effect you

Minister of Finance, Tito Mboweni, delivered this national budget speech in Parliament yesterday Wednesday, 24 February 2021. Although his speech was overall positive, in light of the challenges we all face at the moment, the following Tax changes will be implemented over the next couple of months.

  1. INDIVIDUALS

The maximum marginal rate for natural persons remains at 45% and is reached when taxable income exceeds R1,656,600 (previously R1,577,300).

The minimum rate of tax remains at 18% on taxable income not exceeding R216,200 (previously R205,900).

The primary rebate for all natural persons has been increased to R15,714 (previously R14 958). The additional rebate for persons aged 65 years and older is increased to R8,613 (previously R8,199).  Persons aged 75 and older are granted a further R2,871 (previously R2 736).

The tax-free portion of interest income remains at R23 800 for taxpayers under 65 years, and R34 500 for persons aged 65 years and older.  In addition, the dispensation of the tax-free saving for other investments, including collective investment schemes, became operative 1 March 2015 and remains at R36,000 per tax year.

Local dividends tax remains at a flat 20% rate which was effective 22 February 2017.

Foreign dividends also remain effectively taxed at a flat rate of 20%, but this may be reduced in terms of Double Tax Treaties.

The Section 10(1)(o)(ii) exemption for foreign employment income of tax residents effective 1 March 2020 remains at R1,25 million.

  1. COMPANIES AND CLOSE CORPORATIONS

The rate of normal tax remains at 28%, with the final withholding dividend tax remains at a flat rate of 20%.

Tax-Exempt bodies (e.g., Retirement Funds) will suffer no withholding tax upon production of a tax exemption certificate.

Corporate income tax rate is set to drop from 28% to 27% for companies with years of assessment commencing on or after 1 April 2022.

  1. TRUSTS

The flat rate remains at 45%, although distributions in the same tax year are taxed instead in the beneficiary’s hands.

  1. INDIVIDUAL TAX THRESHOLDS

Tax liability is as follows:

Under 65 years:             R  87,300      (previously R  83,100)

65 to 74 years:               R135,150        (previously R128,650)

75 years and older:       R151,100        (previously R143,850)

INCOME TAX:  INDIVIDUALS AND SPECIAL TRUSTS (The table remains as before)

Taxable income (R)                 Rates of tax

1 –    216,200              18% of taxable income

216,201 –    337,800              R  38,916 + 26% of taxable income above R  216,200

337,801 –    467,500              R  70,532 + 31% of taxable income above R  337,800

467,500 –    613,600              R110,739 + 36% of taxable income above R  467,500

613,601 –    782,200              R163,335 + 39% of taxable income above R  613,000

782,200 – 1,656,600              R229,089 + 41% of taxable income above R  782,200

1,656,601 and above                R587,593 + 45% of taxable income above R1,656,600

TRUSTS OTHER THAN SPECIAL TRUSTS – RATE OF TAX – 45%

TAX REBATES:

Primary                                               R15,714          (previously R14,958)

Secondary (Age 65 and over)          R  8,613          (previously R  8,199)

Plus (Age 75 and over)                      R  2,871          (previously R  2,736)

  1. ESTATE DUTY AND DONATIONS TAX

The rate of estate duty and donations tax remains at 20% for dutiable estate amounts of R30 million or less and increases to 25% for dutiable estate amounts over R30 million.

The estate duty abatement (exempt threshold) remains at R3,5 million per person and a surviving spouse may also benefit automatically from any unused deduction in the first dying spouse’s estate.

There is a similar treatment of Donations Tax namely 20% for donations of R30 million or less and increases to 25% for donations over R30 million.

The first R100 000 of amounts donated in each tax year by a natural person remains exempt from donations tax. Donations between spouses are fully exempt.

  1. CAPITAL GAINS TAX (CGT)

The annual capital gain exclusion for individuals remains at R40 000. The primary residence exclusion from capital gains tax remains at R2 million. The capital gain exclusion at death remains at R300 000.

The effective rate of CGT is the range of 7.2% to 18% for individuals, 22,4% for companies, and 36% for Trusts, although correctly structured Trusts can result in the individual rate being applicable.

  1. TRANSFER DUTY

The rates remain. A 3% rate applies between R1 000 000 and R1,375 million, 6% between R1,375 million and R1,925 million, 8% between R1,925 million and R2,475 million, 11% between R2,475 million and R11 million, and 13% thereafter.

  1. RETIREMENT FUNDS

As of 1 March 2016, all retirement funds (pension, provident, and retirement annuity funds) are treated similarly for tax contribution deduction purposes.

The tax deduction formula of 27,5% per annum (with a cap of R350 000) of the greater of taxable income and remuneration applies to members of all retirement funds, including provident funds.

  1. MEDICAL EXPENSES

Taxpayers may in determining tax payable deduct monthly contributions to medical schemes (a tax rebate to be known as a medical scheme fees tax credit) up to R332 for each of the taxpayer and the first dependant on the medical scheme and R224 for each additional dependant.

An individual who is 65 and older, or if that person, his or her spouse, or child is a person with a disability, 33.3% of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year.

Any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).

  1. VAT

The rate remains at 15%.  The compulsory VAT registration threshold remains at R1 million turnover per twelve-month period.

  1. FOREIGN EXCHANGE

The offshore investment allowance remains at R10 million per adult person per calendar year.  Also, the R1 million individual single discretionary allowance remains.

As you can see there are a few tax changes that will have a direct influence on you and your business. We can help you to navigate the ever-increasing complexity of tax compliance through our tax services.

Contact us today to book a tax consultation.