To support the property market, the threshold for transfer duties has been adjusted. Property costing R1 million or less will no longer be subject to transfer duty.
Important Announcements:
- A new SARS centre focused on wealthy individuals who have complex tax arrangements will be introduced
- ADDRESSING THE
CIRCUMVENTION OF
ANTIAVOIDANCE RULES FOR
TRUSTS
In 2016, anti-avoidance measures were introduced to curb the transfer of growth assets to trusts using low interest or interest-free loans, which was done to avoid estate duty on the asset’s subsequent growth in value. In 2017, these rules were strengthened to prevent the transfer of growth assets through low interest or interest-free loans made to companies owned by trusts. Certain taxpayers are allegedly undermining the adjusted rules by subscribing for preference shares in companies owned by trusts that are connected to the individuals. To curb this new form of abuse, it is proposed that the rules preventing tax avoidance using trusts be amended Apart from the usual tax considerations, such as the above-inflation increase in the personal income tax brackets and rebates, and the annual increase of tax-free savings by R 3 000, this note has its focus on how this year’s speech may impact the estate planning of our clients.
Capital Gains Tax - NO CHANGE
Currently the inclusion rate for the year ended 28 February 2020 is as follows:
- Type:
Individuals and Special Trusts:
- 2020*: 18%
- Inclusion: 40%
- Type:
Companies:
- 2020*: 22.4%
- Inclusion: 36%
- Type: Other
Trusts:
- 2020*: 36%
- Inclusion: 80%
*Maximum effective rate
- Annual exclusion of R 40,000
- R 300,000 exclusion in the event of death
- R2m exclusion in respect of a gain on the disposal of a family residence
Estate Duty - NO CHANGE
- Section 4q-bequests between spouses exempt
- Section 4A abatement R 3.5m-basic deduction
- Net dutiable estate-20% up to R 30m
- Net dutiable estate-25 % on excess over R 30m
- Bequests to Pubic Benefit Organisations exempt
Donations Tax - NO CHANGE
- The first R 100,000 of property donated in each year by a natural person is exempt
- Casual gifts and donations limited to R 10,000 per annum by non-natural person exempt.
- 20% on the cumulative value of property donated not exceeding R 30m and at the rate of 25% on the cumulative value exceeding R 30m
- Dispositions between spouses, SA Group companies and to certain public benefit organisations are exempt
Dividends Tax - NO CHANGE
- 20% on dividends paid by resident companies
Retirement Funding - NO CHANGE
- The annual deduction is limited to the lower of R 350,000 or 27.5% of taxable income, before the inclusion of a taxable gain.
Trust Tax Rate (Other Than Special Trusts) - NO CHANGE
- Flat rate of 45%
Disclaimer
This note is not intended to be exhaustive and any tax review should not be undertaken without considering all relevant tax variables.
26 February 2020
Potential Exchange Control Changes Effecting Emigration Regulations – Individual
- who receive remuneration abroad
Following reforms to the income tax treatment of South African tax residents who receive remuneration abroad (section 10(1)(o) of the Income Tax Act), government proposes to remove the exchange control treatment for individuals, while strengthening the tax treatment.
The intention is to allow individuals who work abroad additional flexibility, provided funds are legitimately sourced and the individual is in good standing with the SARS. Individuals who transfer more than R10 million offshore will be subjected to a more rigorous verification process. Such transfers will also trigger a risk management test that will include certification of tax status and the source of funds, and assurance that the individual complies with anti-money laundering and countering terror financing requirements prescribed in the Financial Intelligence Centre Act (2001). This will be phased in by 1 March 2021.
Under the new system, natural person emigrants and natural person residents will be treated identically.
Additional restrictions on emigrants – such as the restrictions on emigrants being allowed to invest, and the requirement to only operate blocked accounts– are being repealed.
The concept of emigration as recognised by the Reserve Bank will be phased out, to be replaced by a verification process based on the requirements above.
Tax residency for individuals will continue to be determined by the ordinarily resident and physically present tests as set out in the Income Tax Act (1962).
Under existing international standards, South Africa participates in the automatic sharing of information between tax authorities on individuals’ financial accounts and investments. These cooperative practices will remain in place to ensure that South African tax residents who have offshore income and investments pay the appropriate level of tax.
(Source: National Treasury, Budget Review, annexure E)