Tax Guide 2013/2014

Taxable income: R 200,000

Take from the tax table above the column into which the amount falls. This will be:

Taxable income: R 800,000

Take from the tax table above the column into which the amount falls. This will be:

Special rules apply to foreign interest (interest earned on bank account outside South Africa) as well as to individuals who are not tax resident in South Africa. Foreign interest is only exempt for the first R3,700 and this R3,700 must first be used to exempt foreign dividends.

• A medical scheme contribution tax credit will be available to taxpayers who belong to a medical scheme and are below the age of 65 (including persons with a disability), set at fixed amounts per month:
• R 242 per month for contributions made by the taxpayer and R 242 for the first dependant; plus
• R 162 per month in respect of each additional dependant.

Please note the following:

• The medical tax credit is not refundable, and cannot exceed the amount of tax to be deducted.
• The non–taxable fringe benefit in respect of medical scheme contributions paid by the employer on behalf of a taxpayer who is 65 years and older and who has not retired from that employer has been repealed. This means that the contribution amount paid by an employer on behalf of a taxpayer who is 65 years and older and has not retired from the employer, will now be a taxable fringe benefit. This is aligned to the treatment of all other taxpayers.
• However, a person 65 years and older is still entitled to the full medical scheme contribution paid as a deduction. The net effect on such a person’s tax due is therefore nil.

Contributions to an approved South African pension fund:

Pension funds are often all considered not the best and should your employer have one the wisdom thereof should be reconsidered. This statement would not apply to where you have membership to a defined benefit fund.

Contributions to an approved South African retirement annuity fund:

Care should be taken before you buy a retirement annuity fund on the basis of having the tax deduction. Some financial advisors claim that you will have the tax deduction and then later you find out that only a small portion qualifies.

The deduction is limited to 10% of an individual’s taxable income to a public benefit organisation. Such an organisation must be specifically approved by the South African Revenue Service and they must issue with their receipt confirming your contribution. See Donations Tax below.

The deemed rate table for the 2013/2014 tax year is:

See Employee Tax Structuring for the more detailed rules.

The fringe benefit that will be added to an employee for the private usage of a business vehicle is 3.5% of the determined value of the vehicle. Where the vehicle is the subject of a maintenance plan at the time that the employer acquire the vehicle the taxable value is 3.25% of the determined value.

• Actual costs may be used instead of the tables;
• 80% of the allowance is subject to Pay As You Earn;
• If the employer is satisfied that at least 80% of the use of the vehicle for the year of assessment will be for business purposes, then only 20% of the allowance is subject to Pay As You Earn;
• The value is reduced on assessment in the ratio of business travel to total travel;
• Where the employee pays for the total cost of the license or insurance or maintenance of the vehicle, then the value of the vehicle may be reduced on assessment by multiplying the cost by ratio of private travel to total travel;
• Where the employee bears the full cost of fuel for private use, then the value may be reduced on assessment by multiplying private kilometers travelled by the fuel cost in the travel allowance table and the fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year; and
• If the distance that an employee travels for business purposes, does not exceed 8 000 kilometers annually, no tax will be payable on an allowance paid by an employer to an employee, up to the rate of 324 cents per kilometer (2013-amount is 316 per kilometer), regardless of the value of the vehicle, but this alternative is not available to the employee, in the event that the employee receives other remuneration in the form of an allowance or reimbursement from the employer in respect of the vehicle
• Alternatively:where the distance travelled for business purposes does not exceed 8000 kilometres per annum, no tax is payable on an allowance paid by an employer to an employee up to the rate of 324 cents per kilometer, regardless of the value of the vehicle. This alternative is not available for other compensation in the form of an allowance or reimbursement is received from the employer in respect of the vehicle.

Where an employer provides an employee with a house, the fringe benefit value is normally the higher of the cost to the employer or a formula calculated on the employee’s salary. Let us know should you require the value calculated.

Subsistence may be claimed where an employee with his normal home in South Africa spends a night away from home on business for the employer. Where a subsistence allowance is paid there is no PAYE deduction on the amount. Certain deemed amounts are expended on such business trips. It must be remembered that these deemed amounts are only claimable where an employer actually pays an employee a subsistence allowance. The deemed claims are limited to the amount of subsistence allowance paid. These deemed amounts were updated and with effect from March 2013:

• Travel outside South Africa: This is determined on a country-to-country basis. This is determined on a country-to-country basis. SARS has the comprehensive list of countries and the daily rates on its website (www.sars.gov.za)
• Travel in South Africa: R 319 per day for meals and incidentals
• Travel in South Africa: R 98 per day for incidentals only

See Travel allowance

Every employer in South Africa must withhold PAYE (Pay-as-you-earn) from remuneration paid to an employee. The rate of withholding is determined by the South African Revenue Service and is published in their EMP10 Guidelines. Tax withheld must be paid on or before the 7th day after the month in which remuneration was paid.

It is the employer’s obligation to ensure the correct withholding of PAYE. Where an employer has not withheld the correct amount, it becomes a debt to the South African Revenue Service. When audited, employers often find their tax exposures to be very large and SARS is on a drive to audit all employers.

At the end of a tax year the employer must report the PAYE to SARS on an IRP501 form. This form shows what PAYE was withheld per employee. The income and benefits paid to an employee and the PAYE withheld is also shown on an IRP5 certificate that is handed to the employee. This document is filed by the employee with his or her personal income tax return.

Employees’ tax is a complex area and specific questions will be easier to answer than attempting to do the topic justice with a more detailed explanation. See Your tax questions.

The rules applicable to who pays UIF and the methods of collecting this levy are very similar to PAYE. Employer and employees must contribute to UIF at a rate of 1% respectively. The limits are capped at R12,478 actual contribution for the employer and employee respectively. The UIF limit is R178,464 per annum, R14,872 per month or R3,432 per week.

Skills Development Levy (SDL) operates also on similar rules that PAYE and many of the definitions are borrowed from the Income Tax Act. Only employers pay SDL and the rate is 1% of the same employee income on which PAYE is calculated. The payment system is through the same channels as PAYE. Employers paying annual remuneration of less than R500,000 are exempt from paying SDL.

The residency test is very important for any foreigner coming to South Africa or for any South African going abroad. The reasons being primarily that:

• When you are resident of South Africa you pay tax on your worldwide income and as a non-resident you only pay tax on your South African “source” income and certain beneficial exemptions apply; and
• When you loose your South African tax residency, for instance you go work abroad and your circumstances dictate that you become non-resident, there is a deemed disposal of certain of your assets for capital gains tax purposes and this may cause some cash flow problems.

An individual will be tax resident in South Africa by applying the following tests:

Firstly, you will never be tax resident in South Africa should you be tax resident, in terms of a double tax agreement entered between South Africa and a tax treaty partner, in the partner country. An example will be where you go and work in the United Kingdom and you become a full tax resident there while you do not have available accommodation in South Africa. The double tax treaty between South Africa and the United Kingdom will then determine that you are exclusively resident in the United Kingdom and the result is that you become non-resident for South African tax purposes.

Provided the above does not apply, you will be South African tax resident as long as you are “ordinarily resident” in South Africa. The meaning of “ordinarily resident” is that you consider South Africa your real home and plan to return to South Africa. This is the reason why many South Africans overseas remain “ordinarily resident” in South Africa and also the reason why foreign workers coming to South Africa on expatriate assignments ever become “ordinarily resident”.

When you are not treaty resident in another country and you are not “ordinarily resident” in South Africa, it is still possible for you to be tax resident because of a days test. The test determines whether you are tax resident in South Africa for a particular year of assessment and has two legs:

• You are resident if you are, measured over six tax years, more than 91 days in of each of these years in South Africa; and
• In the first five of these six years, you are more than 915 days in South Africa

Should the test be met you will be tax resident in South Africa for the sixth tax year.

The South African Revenue Service now asks specific questions to the above effect in your personal income tax return and has become a lot more aware and active in enforcing the residency tests.

South Africa has quite an extensive network of double tax treaties with other countries. The treaties are there to prevent tax evasion and to ensure that South African taxpayers do not suffer double taxation. List of the double tax treaties are available on the South African Revenue Service website. Almost all of our treaties are schooled on the OECD Model Tax Treaty and international interpretations will therefore often be given thereto.

Foreign tax credits are generally given where a South African tax resident is taxed on income that has already been taxed in another country under a source principle and where any double tax agreement between South Africa and that other country allows that country to tax the income.

We will therefore not give tax credits where we have the right to first collect tax on income. This is pretty standard in all tax systems internationally.

The amount of credit must be claimed in an individual’s income tax return and the amount of credit given is limited to tax on the income being taxed twice. This ensures that tax credits can never be claimed against income that South Africa has the exclusive taxing right on. Exemptions however do exist. Please contact us for details.

South African resident taxpayers who work abroad still need to declare their foreign income in their individual income tax returns. This income can however be exempted from South African tax by claiming a tax exemption where certain conditions of absence have been met. These conditions are:

• It must be employment income; and
• The income must be earned while you were working outside South Africa; and
• The time that you must have been outside South Africa on work must be more than 183 days in any 365 day period and of this 183 days 60 days of absence must have been continuous; and
• The income must become taxable in your hands during the 365 days referred to in the previous point.

This is an important exemption and South Africans working abroad must plan the effect hereof carefully to ensure that they qualify for the exemption.

When you are reading this section when you have to calculate estate duty it is probably too late. Estate duty should be planned well before death. The rate is 20% of the amount determined by the Act as subject to estate duty. There are various exemptions such as everything that goes to a surviving spouse. Whatever remains is subject to a standard exemption of R3.5 million per estate.

Estate duty is levied at a flat rate of 20%.

The following exemptions apply- All property accruing to a surviving spouse (known as the estate duty roll-over) and any claim arising out of the Matrimonial Properties Act.

In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10,000 per annum in total.

Dispositions between spouses and donations to certain public benefit organisations are exempt from donations tax.

The first R 30,000 of an individual taxpayer’s capital gains for a tax year is exempt from capital gains tax. In year of death, this amount is increased to R300,000.

The following are some of the specific exclusions:

• R2 million gain/loss on the disposal of a primary residence,
• A small business exclusion of capital gains for individuals (at least 55 years of age) of R1.8 million when a small business with a market value not exceeding R10 million is disposed of;
• Micro businesses: The first R 1 800 000 is disregarded in micro business assets to the extent that the proceeds from the disposal do not exceed R1 500 000 over a 3 year period;
• Certain exemptions apply to personal use assets, assurance and retirement benefits, assets of a small business disposed of for retirement, compensation for personal injury, lottery receipts, foreign currency converted for personal use, diplomats and diplomatic missions, gains arising on assets donated to certain public-benefit organizations; and
• Rollover relief is provided for assets in certain circumstances, e.g. certain transfers between spouses or involuntary disposals.
• Individuals and special trusts: CGT inclusion rate has been increased to 33.3% with a maximum effective rate of 13.3%;
• Companies: Increased to 66.6%, with an effective rate of 18.6%;
• Trusts: Inclusion rate of 66.6%, with an effective rate of 26.7%. Trusts that have natural persona as beneficiaries will be taxed at the CGT rate applicable to individuals, thus 13.3%; and
• Small Business Corporations: Increased to 66.6%, with an effective rate of 18.6%;
• Residents are subject to the tax on the disposal of their assets held worldwide, while non-residents are taxed on certain assets in South Africa;
• Gains accruing after 1 October 2001 will be subject to the tax, which will be levied on a realization basis. Realization occurs on disposal of an asset. Death, emigration and donation of an asset are deemed to be disposals; and
• Capital gains will be taxed with other income, with a portion of the net capital gain being included in taxable income, depending on the nature of the taxpayer.

The effective rate for companies is 18,6% and 26,7% for trusts.

Transfer to Normal Person:

Transfer duty is paid where immovable property is acquired and the transaction is not subject to VAT. It also now applies to where the rights of ownership are transferred to immovable property where a company, close corporation or trusts are involved.

If a registered vendor purchases property from a non-vendor, the VAT notional input tax credit is limited to the VAT fraction (14/114) of the lower of the selling price or the open market value. A notional input tax credit is only claimable to the extent to which the purchase price has been paid and the property is registered in the Deeds Office;

With effective date of 10 January 2012, the restriction that the notional input is limited to the transfer duty paid is no longer applicable; and

Persons attempting to evade transfer duty may be charged with an additional duty of up to double the amount of duty that was originally payable. The person will also be guilty of an offence and liable upon conviction to either a fine, or imprisonment, for a period not exceeding sixty months.