Following an increase in individual tax rates in the 2015 Budget and in light of the current economic circumstances which include lower estimated tax revenues, it was highly anticipated that the Minister would announce an increase in personal income tax rates in the 2016 Budget. Expectations varied between an increase in the maximum marginal rate of tax of 1% to 4%, bringing the maximum marginal rate of tax within the 42% to 45% range.
It is thus with great surprise that the 2016 Budget introduces adjustments to the bottom three personal income tax brackets which effectively relieves the impact of inflation on lower- and middle-income earners. No amendments to the marginal tax rates were proposed.
In addition, the primary rebate has been increased to R13,500 per year for all individuals. The secondary rebate, which applies to individuals aged 65 years and older, has remained unchanged at R7,407 and the tertiary rebate (which applies in respect of individuals aged 75 years and older) has remained at R2,466 per year. The threshold below which individuals are not subject to personal income tax has been increased to R75,000 of taxable income per year for individuals below the age of 65, R116,150 for individuals aged 65 years and older, and R129,850 for individuals aged 75 years and older.
According to the 2016 Budget Speech, the aforementioned adjustments will result in personal income tax relief of R5,5 billion.
These adjustments must be considered in light of the proposal of the Government to increase the inclusion rates for capital gains tax (CGT) for individuals from 33,3% to 40%, and for companies from 66,6% to 80%. This will effectively result in an increase in the maximum effective CGT rate for individuals from 13,7% to 16,4%, and for companies from 18,6% to 22,4%. The effective rate applicable to trusts will increase from 27,3% to 32,8%. The annual exclusion in respect of CGT will increase from R30,000 to R40,000. These CGT rates will become effective for years of assessment commencing on or after 1 March 2016.