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Taxation implications from the Finance Minister’s speech on the 22nd February

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TAX Highlights – 2012 /13: Budget speech 22 February 2012

The following are the main taxation implications from the Finance Minister’s speech on the 22nd February.

  1. 1. Tax thresholds:

Have increased as follows:

  • < 65 years of age: R 63,556
  • > 65 and < 75 years of age: R 99,056
  • > 75 years of age: R 110,889

In other words, any taxable income of less than the above thresholds will result in the individual not being liable for any taxation.

  1. Dividend withholding tax (DWT):

Effective 1 April 2012, at a rate of 15% of dividends declared. (Expectation was 10%).

  • Replaces STC (Secondary Tax on Companies)
  • Pension funds and other financial intemediatories are exempt from DWT
  • Payable at end of the month after the month in which dividend was declared
  • STC credit carry forward limited to 3 years from effective date

 

  1. 3. Capital Gains Tax (CGT):

Increase in CGT by the increase in Inclusion rates, as follows:

  • Individuals and special trusts: 33.3% (previously 25%)
  • Legal entities and other trusts: 66.6% (previously 50%)

 

Other changes:

  • Effective 1 March 2012
  • Basic exemption increased to R 30,000 – individuals only
  • Primary residence exemption increased to R 2m of gain.
  1. 4. Medical credits:

Medical credits will replace medical deductions, effective from 1 March 2012.

  • Credits are deducted from tax payable, while the previous scheme, medical deductions were deducted from taxable income.
  • Out of pocked expenses are deductable, subject to the 7,5% threshold – no change.

 

  1. 5. Contributions to pensions funds etc

Contributions made to Pension, Provident and Retirement funds will be tax deductable subject to the following:

  • Maximum deduction is set at 22.5% and 27.5%, for natural persons aged ,45 years and >= 45 years respectively, on the higher of employment or taxable income.
  • Annual deductions will be limited to R250,000 and R 300,000 as per the above age groups.
  • Effective 1 March 2014

 

  1. 6. Small Business Corporations: SBC’s
  • Tax free threshold increased from R 59,750 to R 63,556.
  • Taxable income up to R 350,000 (previously R 300,000) taxed at 7% (previously 10%).
  • Effective for year ended on or after 1 April 2012

 

  1. 7. Acquisitions
  • Consideration being given to limiting interest deduction, to a ceiling based on EBITDA, to limit tax deductibility of excessive debt financing.

 

  1. 8. National Health Insurance
  • Scheme will be implemented in 2012/13 phased in over 10 years.
  • To be funded by possibly:
    • Vat increase
    • Payroll tax on employers
    • Surcharge on taxable income of individuals
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