Tax Guide 2016/2017

Tax Rebates

The primary and additional age rebate is available to all South African individual taxpayers. The rebate is not reduced where a person has taxable income for less than the standard South African tax year. The rebate is given against the tax calculated and not against the actual income. The only instance where the rate is reduced is on death of the taxpayer.

Tax Calculation

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:

Interest Exemption

The above exemptions are applicable to interest earned from a South African source earned by a natural person.

Interest earned by non-residents is exempt where non-residents are physically absent from South Africa for at least 182 days (183 days in a leap year) during the 12 months before the interest accrues and the debt from which the interest arises, and the debt is not effectively connected to the non-resident’s fixed place of business in South Africa.

Dividends Tax

Medical and Disability Expenses

In determining tax payable, individuals are allowed to deduct –

• Monthly contributions to medical schemes (a tax rebate referred to as a medical scheme fees tax credit) up to –
  • R286 for the individual who paid the contributions;
  • R286 for the first dependant on the medical scheme;
  • R192 for each additional dependant; and
• in the case of –
  • an individuall who is 65 and older, or if an individual, his or her spouse, or his or her child is a person with a disability, 33.3% of the sum of qualifying medical expenses paid and borne by the individual, and an amount by which medical scheme contributions paid by the individual exceed three times the medical scheme fees tax credits for the tax year; or
  • any other individual, 25% of an amount equal to the sum of qualifying medical expenses paid and borne by the individual, and an amount by which medical scheme contributions paid by the individual exceed four times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits

Pension, Provident and Retirement Annuity Fund Contributions

Contributions to a pension, provident or retirement annuity fund during a tax year are deductible by the member of the fund. The deduction is limited to the greater of:

• 27.5% of the employee’s remuneration for PAYE purposes (excluding retirement fund lump sums and severance benefits); or
• 27.5% of the employee’s taxable income (excluding retirement fund lump sums and severance benefits).

The deduction is limited to a maximum amount of R 350 000.

If contributions exceed the limitation during a particular tax year, the contributions are carried over to the next tax year.

Donations Exemption

The deduction in respect of donations to certain public benefit organisations is limited to 10% of an individual’s taxable income. Such an organisation must be specifically approved by the South African Revenue Service and they must issue with their receipt confirming your contribution. The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.

Donations Tax

Donations tax is levied at a flat rate of 20% of the value of property donated.

In the case of a natural person:

• The first R 100 000 of the value of property donated is exempt from donations tax.

In the case of a juristic person:

• Donations of casual gifts not exceeding R 10 000 per annum in total are exempt from donations tax.

In the case of depositions between spouses, depositions between South African group companies and donations to certain public benefit organisations:

• No donations tax is levied.

Deemed Travel

Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:

Company Cars

See Employee Tax Structuring for more detailed rules.

Employee-owned vehicles are a fringe benefit, where a business vehicle is provided to an employee for the private usage. The taxable value is calculated at 3.5% of the determined cash value (inclusive of VAT) per month of each vehicle. Where the vehicle is subject to a maintenance plan when the employer acquired it, the taxable value will amount to 3.25% of the determined value. If the vehicle was acquired by the employer under an operating lease, the taxable value will be the cost incurred by the employer under the operating lease plus the cost of fuel.

80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is covered by a maintenance plan).

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.

Alternatively:

Where the distance travelled for business purposes does not exceed 8 000 kilometres per annum, no tax is payable on an allowance paid by an employer to an employee up to the rate of 330 cents per kilometre, regardless of the value of the vehicle. This alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

Housing

Non-resident employees should see Expatriates regarding their housing benefit.

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 Allowance

The following amounts will be deemed to have been actually expended by a recipient to whom an allowance or advance has been granted or paid –

• Where the accommodation to which the allowance or advance relates, is in the Republic of South Africa and the allowance or advance is granted to pay for –
  • meals and incidental costs, and amount of R372 per day;
  • for incidental costs only, R115 per day
• Where the accommodation to which the allowance or advance relates, is outside the Republic of South Africa and the allowance or advance is granted to pay for meals and incidental costs, an amount per day determined in accordance with the following table for the country in which the accommodation is located—

Travel Calculator

See Travel allowance

Employees’ Tax

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.

Unemployment Insurance Fund – UIF

Unemployment insurance contributions are payable monthly by employers on the basis of a contribution of 1% by employers and 1% by employees, based on employees’ remuneration below a certain amount.

Skills Development Levy – SDL

Skills Development Levy (SDL) is payable by employers at a rate of 1% of the total remuneration paid to the employee. Employers paying annual remuneration of less than R 500,000 are exempt from paying SDL.

Residency Test

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 lose 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, present in South Africa for more than 91 days of each of these years; 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.

Double Tax Treaties

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 Credit

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.

Earnings Exemption

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.

Estate Duty

It is advisable to plan and consider the financial implications of estate duty well in advance.

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% on the property of South African tax residents and the South African property of non-residents.

A basic deduction of R 3.5 million applies in respect of estate duty. Exemptions are also allowed, including deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.

Donations Tax

Donations tax is levied at a flat rate of 20% on the value of property donated. The first R 100,000 of property donated in each year by a natural person is exempt from donations tax.

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.

Capital Gains Rate

Capital gains tax may be triggered by certain events, including a sale, donation, exchange or loss of property, emigration or death.

The maximum effective rates for tax are:

Specific events are excluded from capital gains tax, including the following:

• R 2 million gain or loss on the disposal of a primary residence
• Most personal use assets
• Retirement benefits
• Payments in respect of original long-term insurance policies
• Annual exclusion of R 40 000 capital gain or capital loss is granted to individuals and special trusts
• Small business exclusion of R 1.8 million on capital gains for individuals of at least 55 years of age, when a small business with a market value of up to R 10 million is disposed of
• An exclusion of R 300 000 on capital gains tax is granted to an individual in the year of death.

Transfer Duty

Transfer duty is paid where immovable property is acquired and the transaction is not subject to VAT. It applies where rights of ownership are transferred to a natural person or a juristic person such as a company, close corporation or a trust.

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.

No transfer duty will be levied in respect of transactions listed in section 9 of the Transfer Duty Act No. 40 of 1949.