Tyd om Werknemersbelastingrekonsiliasies in te dien
April 11, 2014
Begrotingsrede 2014
April 11, 2014

Budget speech 2014

B1The Minister of Finance, Pravin Gordhan, delivered his budget speech in Parliament on 26 February 2014. The event almost brought our firm to a standstill as we at ASL anxiously waited for the announcement of drastic changes, which has become the norm over the last few years.

However, the budget speech came and went, and eventually the proposed budget changes of previous years that did not become reality were more conspicuous than those that actually occurred.

What did not happen?

Last year a few drastic proposed changes were mentioned in the budget speech. It was proposed that government look more specifically at trusts, particularly as regards the conduit principle[1] and the possibility of dispensing with it. There was mention of the possibility of further increasing[2] the inclusion rates of capital gains as well as of an increase in the VAT rate, and even of implementing a differentiated rate[3]. Lastly there was the possibility of placing a limit on the interest exemption available annually to individuals regarding interest income from connected parties.

Fortunately, none of these adjustments were included in this year’s budget.

What did indeed change

In a budget speech that was regarded by some as a so-called election budget, and did not contain many changes, there were nevertheless some items that should be noted. Some of the most important of these include:

Individuals

  • The tax scales were adjusted, mostly linked to inflation, resulting in individuals paying marginally less income tax.
  • Due to inflation, medical credits were increased to R257 per month for the main member of a medical fund and also for the first dependant, and R172 for every other dependant. Tax scales for lump sum benefits on retirement were also adjusted significantly. For many experts  this was the biggest change announced in this year’s budget speech. An individual who received a lump sum benefit of R1 million on retirement, paid R161 550 in tax on this amount in the 2014 tax year. With the new scales for 2015 only R117 000 tax will be payable; thus a saving of R44 550.
  • A tax savings plan is envisaged according to which taxpayers may make investments in certain prior approved bodies and/or products. Through this the taxpayer can receive a deduction of R30 000 per annum for tax purposes and a total of R500 000 during the lifetime of the taxpayer.
  • Contributions to a retirement fund (pension, provident fund or retirement annuity fund) will be drastically changed with effect from 1 March 2015. According to current proposals a taxpayer will be able to contribute 27,5% of the greater of his taxable income or remuneration to such fund and receive tax relief. Contributions will, however, be limited to R350 000 per annum.

Companies

  • The scales for turnover tax of micro enterprises (businesses whose turnover does not exceed R1 million) was reduced in order to offer additional relief.
  • The tax scales for small business corporations were adjusted slightly but savings will be R250 per annum at best.
  • The youth wage subsidy according to which credits will be allowed on monthly employee tax if employees are under a particular age and comply with certain other requirements, has been implemented.
  • Drastic and welcome changes are proposed with regard to entities engaged  in philanthropic activities. Up to now these entities have been required to spend at least 75% of annual receipts within twelve months after receipt thereof, for the purpose for which the entity is registered. This meant that an entity could not accumulate surplus funds to provide for, possibly, one big project. It is now proposed that the 75% requirement be relaxed in future but with, amongst others, the proviso that the surplus funds must still be utilised for the entity’s registered purpose.

Other

  • Increase of excise on alcohol and tobacco products was proposed.
  • The general fuel levy is increased by 12 cents per litre while the road accident levy will be increased by a further 8 cents per litre. These increases take effect on 2 April 2014.

In conclusion

This year’s budget speech led to a sigh of relief from taxpayers, particularly because most experts had expected tax increases rather than any big tax relief. We come to the conclusion, jokingly, that tax practitioners received the most relief. Some settling of the dust after all the changes of the past few years, is very welcome.

Bear in mind that there are a few proposed changes that may be implemented by government later in the year. Should these changes realise we will provide details in our Newsletter.

It appears that most of the proposed changes relate to provision for retirement and contributions to retirement funds. We suggest, therefore, that you discuss your retirement planning with your financial adviser in good time and make adjustments, if necessary.

You are welcome to get in touch with us should you wish to discuss the information provided in this article in more detail. You can also download ASL’s electronic tax guide from our website. It contains interesting information on the more general tax provisions and rates applicable to the average taxpayer.  Click here to download our 2014/2015 tax guide.

 


[1] This principle determines that with the distribution of income from a trust to a beneficiary, the form of the income is retained. For example, when a trust receives interest income and this income pays out to a beneficiary who is an individual, the individual may use the interest exemption for the received interest income.

[2] The inclusion rates were increased in 2013 from 25% to 33.3% for individuals and from 50% to 66.6% for companies, close corporations and trusts.

[3] Where basic goods or services will be subject to a lower VAT rate and luxury products or services will be subject to a higher rate.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.