In the 2015 Budget proposals it was indicated that Government intended to introduce an environmental tyre levy, in addition to the environmental levies already in place. The purpose of this levy was to encourage reuse, recycling and recovery of waste in light of the fact that South Africa generates an estimated 108 million tonnes of waste each year.
Category: Budget 2016/17
Budget 2016 – Review of the employment tax incentive
Government formally introduced the employment tax incentive into law on 1 January 2014, through the promulgation of the Employment Tax Incentive Act, No 26 of 2013. The purpose of the employment tax incentive was to reduce the cost to employers of hiring young and inexperienced youth. In other words, the employment tax incentive is essentially a cost-sharing mechanism between the private sector and Government, which operates by reducing the amount of tax that is owed by an employer through the Pay-As-You-Earn (PAYE) system.
Budget 2016 – The attention is turning to trusts
Currently trusts are used as an important vehicle to avoid the payment of estate duty and to create an insolvency remote vehicle through means of which investments can be done. However, it is always problematic how to fund a trust as one cannot subscribe for shares in a trust such that one would, for instance, do in the case of a company. More often than not assets are sold (at market value) to a trust in circumstances where the purchase price is left outstanding as an interest free loan. In addition, no donations tax would be triggered as the assets are not included in the estate of the donor at death.
Budget 2016 – An increase in transfer duty – will it dampen the property market?
Last year’s increase in the threshold for transfer duty to R750 000 was positive, but unfortunately no further relief is provided this year for properties on the lower end of the market. Property owners at the top end of the market will, however, be worse off. The Minister announced that the transfer duty rate on properties above R10 million will increase from 11% to 13%. Consequently a new bracket in the transfer duty table will be formed. Transfer duty in this new bracket will, with effect from 1 March 2016, be R937 500 + 13% of the value exceeding R10 million.
Budget 2016 – The intentional creation of hybrid debt instruments that result in interest being deemed to be dividends
Section 8F and s8FA of the Income Tax Act have been promulgated with a view to convert interest into dividends. These sections deal with a scenario where the debt instrument displays a number of equity characteristics, for instance if amounts are only payable if the assets of the issuer exceed its liabilities and/or where interest is not calculated with reference to the time value of money.
Budget 2016 – BEPS front and centre
The Minister endorsed the work of the Davis Committee and reiterated South Africa’s commitment to the work of the Organisation for Economic Cooperation and Development (OECD) and G20 on base erosion and profit shifting (BEPS). He announced that South Africa would continue to measure its tax system against internationally accepted tax trends, principles and practices, and keep pace with international initiatives to improve tax compliance and deal with problems of base erosion.
Budget 2016 – VAT aspects of non-executive directors’ fees
The Minister proposed to review certain aspects pertaining to non-executive directors’ fees, as there appears to be a disconnect, or at least a difference of interpretation between the PAYE and VAT treatment of such fees. As a general principle, where an amount is paid to an individual (for example a non-executive director), regarded as independent under common law but not for purposes of the Fourth Schedule to the Act, the individual must levy VAT on those services supplied to their client, but only if that person is (or is required to be) registered as a vendor under the VAT Act. The aforementioned scenario rarely arises in practice though. However, PAYE at the applicable rate, must be withheld from the VAT exclusive amount charged by the individual to their client.
Budget 2016 – Foreign pension fund contributions and exits to be reviewed
What appears to be part of a broader retirement reform in South Africa, the Minister proposed a further review of the aspects relating to foreign pension contributions, annuities and exits from those funds. This follows hot on the heels of at least some uncertainty being taken away on the issue of Binding Private Ruling 25 on 14 November 2014, which exempted foreign pensions on the basis of the source being outside South Africa. Where an apportionment of foreign source is required, it could result in at least a portion being potentially subject to normal tax in South Africa. The ruling was, however, silent on lump sums which continues to be uncertain.
Budget 2016/17 – Provident fund transfer limitations
Following on from the two year suspension of retirement reforms only relating to the compulsory annuitisation of provident funds to 1 March 2018, the Minister tabled certain interim measures affecting the transfer of amounts out of a provident fund through an urgent Revenue Laws Amendment Bill (Bill). Apart from sterilising the compulsory annuitisation upon retirement for two years, it is proposed that any transfer to another retirement fund during the interim period, would result in any future contributions made by the employee, not being exempt from the compulsory annuitisation requirements. This proposal will surely place funds and members of those funds in limbo for two years.
Budget 2016/17 – Concerted drive to target offshore funds announced in 2016/17 Budget
The 2016/17 Budget announced a concerted drive to target offshore funds and thereby broaden a tax base that is struggling to keep up. “This is not surprising as some companies and wealthy individuals have been making requests about regularising their affairs ahead of the new OECD global standard for the automatic exchange of financial information between tax authorities coming into effect from 2017,” says tax director at Cliffe Dekker Hofmeyr, Ruaan Van Eeden. The proposal is to provide voluntary disclosure relief in respect of tax and exchange control for a period of six months, from 1 October 2016, to allow non-compliant individuals and companies to disclose assets held and income earned offshore. Trusts have been specifically excluded from the voluntary disclosure process.