*     Registered Professional Accountants in practice since 1982

                *     Registered Tax Practitioners

                *     Licenced Financial Service Provider 

SARS 

TAXATION

Budget briefs – the good, the bad and the ugly

Good – Tax rate adjustments for individuals and small business corporations

Bad – Increase in effective Capital Gains tax rates

Ugly – Increase in rate of tax on dividends

Savings vehicles

In his budget speech, the minister announced the government’s intention to introduce “tax-preferred savings and investment vehicles”.  A discussion document will be released for comment during May 2012 and the new regime will be implemented by April 2014. A consequence of the new scheme is that the present interest exemptions are likely to be withdrawn. This will have an adverse effect on persons who invest in their own companies or corporations by injecting interest-bearing loan capital into their businesses. Therefore, the proposal will needs to be modified to ensure that investment in owner-operated companies will still attract interest that is subjected to an exemption in the hands of the investor.

Dividend Tax

The dividend will come into operation on 1 April 2012. Instead of being introduced at 10%, as originally proposed and in line with the current STC, companies will be required to withhold 15% from dividends that are declared. Those clients whose companies have undistributed reserves and with sufficient cash resources to pay the STC on a dividend declaration are urged to make the declaration and pay the STC before 1 April 2012.

The increase goes totally against the government’s avowed intention to encourage savings. As, shareholders will now receive 5% less than before, there will be less funds available for re-investment. Many investors and retirement funds use the unit fund industry to grow their capital. Whilst these funds declare and pay dividends, the dividends are usually re-invested and, thus, supplement the retirement capital of fund members. Ultimately, the increased dividend tax could result in certain retirees becoming more dependent upon state pensions.

Useful links- CTRL + link to access

Capital Gains Tax - Guide: Withholding amounts from payments to non-resident sellers of immovable property in South Africa

Income Tax - Frequently Asked Questions - Medical Scheme Fees Tax Credit

Income Tax - Leaflet - Explanation of the Medical Tax Credit

Travel Allowances

Effective 1 March 2012, the following table will be used to determine the cost of business travel:

 The rate at which business travel not exceeding 8000 kilometres per year may be reimbursed has been increased to R 3.16 per kilometre.

Subsistence Allowances

The daily rate of subsistence allowance has been revised for all countries.  For nights spent away from home within the Republic, an employer may pay the following without including such amounts in the employee’s taxable income:

Incidental costs only                           R   93 per day

Meals and incidental costs                  R 303 per day

Accounting 4 Financial Services

Financial Planning ....... Investments ........ Assurance