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• April 2012 Issue
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  • Budget: relief and exemptions (30min)
  • Budget: high-income earners: the real impact (15min)
  • Budget: focus on equity (15min)

“The Minister of Finance presented the national budget for the upcoming 2013 financial year on Wednesday 22 February 2012. The budget brought about some inflationary adjusted relief of about R9,5bn in the form of adjustments to various tax tables contained in the tax pocket guide.”

Budget: relief and exemptions

The individual vs the budget: RELIEF AND EXEMPTION

The Minister of Finance presented the national budget for the upcoming 2013 financial year on Wednesday 22 February 2012. The budget brought about some inflationary adjusted relief of about R9,5bn in the form of adjustments to various tax tables contained in the tax pocket guide. For example, the budget increases the minimum taxable bracket for individuals from 0-150 000 to 0-160 000. This means that an individual earning a taxable income not exceeding R160 000 per year will be taxed at the minimum rate of 18%. The maximum taxable bracket for individuals increases from R580 001 and above to R617 001 and above.

Tax thresholds
The tax thresholds for individuals have also been increased to accommodate the increase in the rate of inflation. The tax threshold is the maximum amount of taxable income that will not attract a tax liability. For individuals below age 65 the tax threshold has been increased from R59 750 to R63 556. The new threshold above R60 000 means that the SITE system (standard-income-tax-on-employees) will fall away from 1 March 2012. An individual can now earn a taxable income of R5 296.33 per month (R63 556/12) without paying any tax. In turn, the primary rebate has increased from R10 755 to R11 440. The rebate is always the inverse of the tax threshold. For example, at minimum tax rate of 18%, the primary rebate is 18% x the threshold under age 65 of R63 556 = R11 440.

For individuals aged 65 years but below age 75, the tax threshold has increased from R93 150 to R99 056. This means that an individual in this age group can earn a taxable income of R99 056 before they pay any taxes. In turn, the secondary rebate has increased from R6 012 to R6 390 per year. Taxpayers in this age group will be entitled to both the primary rebate of R11 440 and the secondary rebate of R6 390 per year totaling R17 830. The R17 830 total rebate is arrived at in turn by multiplying the minimum tax rate of 18% by the tax threshold in the age group of R99 056.

For individuals aged 75 years and older, the tax threshold has increased from R104 261 to R110 889 per year. This means that an individual in this age group can now earn a taxable income of R110 889 before they are liable for income tax. In turn, the rebate for this age group has increased from R2 000 to R2 130. The taxpayers in this age group will be entitled to claim the primary, secondary and the tertiary rebates combined and totaling R19 960. The R19 960 is arrived at by multiplying the minimum tax rate of 18% by the tax threshold in the age group of R110 889.

It is worth noting that special trusts will be taxed in the same way as natural persons.

Provisional tax
A natural person becomes liable for registration as a provisional taxpayer in the case of individuals under the age of 65 once they earn a total taxable income above the tax threshold and out of which the taxable income from the letting of property, interest and taxable dividends exceeds R20 000 per year. With the dividend tax coming into effect on 1 April 2012, taxable dividends will also include local dividends. An individual at age 65 and older (including age 75 and older) will be liable to register as provisional taxpayer once they earn total taxable income from remuneration, rent, interest and dividends in excess of R120 000 per year.

Exemption portion of interest income
Sadly and lamentable, the exempt portion of interest income has remained unchanged at R22 800 for taxpayers under age 65 years and R33 000 for taxpayers at age 65 years and older. The Minister did not introduce a separate exemption for the new age group of 75 years and older in the previous budget in 2011 when the tertiary rebate was introduced for the first time.

Medical aid contribution – Deduction converting to tax credits
From 1 March 2012, members of medical aid schemes will no longer be granted a deduction of their contributions to the schemes, but rather a tax credit against their tax payable. An illustrative and comparable example should help to explain the differences between the deduction regime and the tax credit regime. View the table at the bottom of page 19:

The excess of the total contributions over the tax credit limits can be claimed as a deduction through a tax return. For example, Terence's total annual tax credits = R5 520 + R3 696 = R9 216. Terence's total annual contribution to medical scheme = R4 000 per month x 12 = R48 000. The excess of R48 000 over four times the total annual tax credits of R36 864 (R9 216 x 4) = R11 136. The out-of-pocket medical expenses together with any other medical expenses that may have been incurred outside the Republic can be claimed up to the excess over 7.5% of taxable income (excluding retirement fund lump sum or retirement fund withdrawal).

If Terence were disabled, the excess of the annual contribution over four times the annual credit limits would still apply as a deduction, while the sum of the non-recoverable expenses, expenses incurred outside the Republic and any expenses that will have been incurred as a consequence of physical disability will be deductible in full.

If Terence were at age 65 years and/or older, he will be granted a full deduction of his medical aid scheme contributions (without tax credit limits), his non-recoverable medical expenses, expenses incurred outside the country and any other expenses that may have been incurred as a consequence of physical disability, if applicable.

Subsistence allowance
The subsistence allowance is paid to employees to enable them to cover the daily meals and/or incidental expenses. The meals and incidental tax-free allowance in the event where an employee spends at least one night away from his usual place of residence in the Republic has increased from R286 per day to R303 per day from 1 March 2012. Any excess paid over and above the daily R303 tax-free limit will result in the paye being withheld on the employee. The incidental expenses normally include cost of writing pads, pens, any such out-of-pocket expenditure that the employee may need to incur to carry out his/her daily duties. The tax-free portion of incidental cost has increased from R88 to R93 per day from 1 March 2012. Any excess paid over this tax-free limit will result in paye being withheld on the employee. The paye in both the meals and incidental costs and in the incidental cost portions will be withheld only on the excess paid over the tax-free portion. Allowances for travel outside the Republic can be obtained from the SARS website.

Capital gains tax (CGT)
The annual exclusion on any taxable capital gains made by an individual taxpayer from disposals has increased from R20 000 to R30 000 per year from 1 March 2012. This annual exclusion in the event of death has increased from R200 000 to R300 000. The exclusion on the gain made from the disposal of primary residence will increase from R1 5m to R2m from 1 March 2012.

With a view to discouraging arbitrage where assets get reclassified from revenue into capital nature, the inclusion rate for CGT has been increased from 25% to 33.3% for any disposals made on or after 1 March 2012. This brings the effective CGT rate for individuals up from 10% to 13.3%. asa

Author: Moraka Joseph Komape CA(SA), MTP(SA), BCom, BAcc, MCom, is a tax practitioner.

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