FASSET – CPE 15
2006 Budget and Tax Update
Index
MODULE 1 ..................................................................................................................... 1
2006/2007 Budget Review .......................................................................................... 1
MODULE 2 ..................................................................................................................... 7
Normal Tax Rates ....................................................................................................... 7
Rebates and Tax Thresholds....................................................................................... 8
Deductions .................................................................................................................. 8
Employees’ Tax: Pay as You Earn (PAYE) and Standard Income Tax on Employees
(SITE).......................................................................................................................... 9
SITE ........................................................................................................................ 9
PAYE..................................................................................................................... 10
Provisional Tax .......................................................................................................... 10
Taxpayers defined for Provisional Tax purposes ................................................... 11
Persons exempt from making Provisional Tax payments ....................................... 11
Personal Service Companies and Trusts ................................................................... 11
Casual / Part-Time Employment ................................................................................ 12
Ring - fenced Assessed losses
1
MODULE 3 ................................................................................................................... 15
Fringe Benefits .......................................................................................................... 15
Travelling Allowance .............................................................................................. 15
Employer-Owned Vehicles .................................................................................... 16
Holiday Accommodation povided by Employer ...................................................... 16
Subsistence Allowance .......................................................................................... 16
Residential Accommodation supplied by Employer................................................ 17
Low Interest/Interest-Free Loans ........................................................................... 17
Other Benefits provided by Employer .................................................................... 18
Exemptions............................................................................................................ 19
Contributions to Pension, Retirement Annuity & Provident Funds ............................. 19
Pension Funds ...................................................................................................... 19
Retirement Annuity Funds ..................................................................................... 19
Provident Funds .................................................................................................... 19
MODULE 4 ................................................................................................................... 20
Capital Gains Tax ...................................................................................................... 20
Donations Tax ........................................................................................................... 21
Estate Duty................................................................................................................ 22
MODULE 5 ................................................................................................................... 24
Company Tax ............................................................................................................ 24
Close Corporations ................................................................................................ 24
Trusts .................................................................................................................... 24
MODULE 6 ................................................................................................................... 25
Secondary Tax on Companies .................................................................................. 25
Value Added Tax ....................................................................................................... 25
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 7 ................................................................................................................... 26
Wear and Tear Allowances ....................................................................................... 26
MODULE 8 ................................................................................................................... 28
Other Budget Issues ................................................................................................... 28
Exchange Control ...................................................................................................... 28
Emigration Limits ....................................................................................................... 28
Travel And Study Allowances .................................................................................... 28
Retention Of Records ................................................................................................ 29
Additional Information ................................................................................................ 30
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 1
“This is the year of plenty, when all South Africans will reap the fruits of economic
growth.’
Trevor Manuel
2006/2007 Budget Review
South Africa’s Finance Minister, Trevor Manuel unveiled his 10th budget for the
country on 15 February 2006. The budget, through various tax cuts reflected the
mood of the buoyant South African economy and the success of the South
African Revenue Services (SARS) in its collection efforts.
It is evident that South Africans are more compliant when it comes to tax matters
than they were some ten years ago, when the entire budget amounted to just
over R 160 billion, as opposed to over R 440 billion for 2006/7.
The surplus in revenue was translated to tax savings in various areas and
income sectors, for some more than others. These are detailed in the remainder
of this module.
Personal Income Tax
The major focus of the budget was to provide personal tax relief to all South
Africans. Total relief of R 13,5 billion is passed on individual taxpayers through
the following:

The primary rebate is raised to R 7 200 from R 6 300, increasing the income
tax threshold by 14.3% to R 40 000.

The increase in the primary rebate also increases the tax threshold for
taxpayers aged 65 and over to R 65 000 from the previous level of
R 60 000, an increase of 8.3%.

Tax brackets are adjusted to provide relief across the income spectrum.
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2006 Budget and Tax Update
Interest and Dividend Income Exemption
As from 1 March 2006, the domestic interest exemption threshold will increase
from R 15 000 to R16 500 (10%) for taxpayers younger than 65 years and from
R 22 000 to R24 500 (11.40%) for taxpayers age 65 and over.
It is also proposed to increase the proportion of the exemption applicable to
foreign interest income and dividends from R 2 000 to R 2 500 per year.
Proposed Rates of Transfer Duty, 2006/07
PROPERTY VALUE
RATES OF TAX
R0 - R500 000 0%
R500 001 - R1 000 000 5% on the value above R500 000
R1 000 001 and above R25 000 plus 8% on the value over R1 000 000
It is also proposed to reduce the flat 10% transfer duty rate for companies and
trusts to 8%, and will come into effect on 1 March 2006.
It is estimated that the changes in the rates of transfer duties will place some
R 4,5 billion back into the hands of taxpayers.
Monetary Thresholds: Donations Tax, Estate Duty, Capital Gains Tax
Donations Tax
It is proposed that the annual donations tax exemption be increased from
R 30 000 to R 50 000, effective from 1 March 2006.
Estate Duty
It is proposed that the estate duty exemption be increased from R 1,5 million to
R 2,5 million, effective 1 March 2006.
Capital Gains Tax
The following proposals are made for tax years commencing on or after 1 March
2006:
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FASSET – CPE 15
2006 Budget and Tax Update

The annual capital gain/loss exclusion will increase from R 10 000 to
R 12 500

The primary residence exclusion will increase from R1 million to R1.5 million

The exclusion on death will increase from R 50 000 to R 60 000.
Motor Vehicle Allowances
As announced in the 2005 Budget, the deemed private kilometres for individuals
who receive motor vehicle allowances will be increased to 18 000 per year, and
the monthly taxable fringe benefit of a company car will be increased from 1.8%
to 2.5% of the determined value of the vehicle, effective from 1 March 2006. The
percentage of the monthly motor vehicle allowances subject to tax will be
increased from 50% to 60% from 1 March 2006.
It is anticipated that this move will cost the taxpayer some R 1,4 billion.
Medical Scheme Contributions and Medical Expenses
The new medical aid regime introduces monthly monetary caps for tax-free
medical scheme contributions (with the caps to be adjusted annually) and
increases the threshold for individual tax-deductible medical expenses from 5 to
7.5% of income. Taxpayers 65 years and older will continue to enjoy a full
deduction for all medical expenses. These changes are effective 1 March 2006.
Promoting Retirement Savings
The tax on retirement funds will be reduced from 18% to 9% from 1 March 2006.
Relief for Business: RSC Levy Reform
By eliminating the RSC levies from 30 June 2006, the 2006 Budget provides
direct tax relief amounting to some R 7 billion to business.
Stimulating Small Business
The monetary tax thresholds for small business will be adjusted as follows:

For small business corporations, the following amendments will come into
effect for tax years ending on or after 1 April 2006:
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FASSET – CPE 15
2006 Budget and Tax Update
o Firms with an annual turnover of up to R 14 million (increased from a level
of R 6 million) will qualify for the special graduated corporate tax regime
o The taxable income threshold for the reduced corporate tax rate of 10%
will be increased from R 250 000 to R 300 000
o The small business income tax exemption threshold will be increased from
R 35 000 to R 40 000.

The one-time capital gains tax relief for small business will increase from
R 500 000 to R 750 000 with effect from tax years commencing on or after
1 March 2006.

Immediate 100% depreciation exists for individual small items purchased for
business purposes. This threshold will increase from R 2 000 to R 5 000 for
assets purchased on or after 1 March 2006.

The VAT threshold for both small farmers and small business four monthly
filers will increase from R1 million to R 1,2 million for tax periods commencing
on or after 1 July 2006.
The small business proposals are expected to benefit small business to the tune
of R 400 million.
Tax Amnesty for Small Business
The proposed amnesty will allow SARS to waive taxes due by small businesses
for years of assessment ending on or before 31 March 2004, where the turnover
for the 2005 year of assessment does not exceed R 5 million. This waiver will
require submission of an income tax return for 2005 as well as a non-disclosure
penalty of 10% based on taxable income for 2005. It will not be available to
taxpayers who have already disclosed the amounts concerned, or who have
been formally notified that they are under investigation before applying for
amnesty. It is also proposed to waive penalties, additional taxes and interest on
the underlying taxes due.
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FASSET – CPE 15
2006 Budget and Tax Update
Incentives for Intellectual Capital and Training
Extension and Increase of the Learnership Allowance
It is proposed that this allowance be extended to October 2011. The maximum
initial allowances will increase from R 17 500 to R 20 000 per year for existing
employees and from R 25 000 to R 30 000 for new employees. Similarly, the
maximum allowance upon the completion of the learnership will increase from
R 25 000 to R 30 000 for agreements entered into from 1 March 2006.
Given the additional expenses associated with employing disabled persons as
learners, a more favourable allowance will be introduced effective 1 July 2006.
An employer will be allowed to deduct an initial allowance of 150% of the annual
salary of an existing learner with a disability, up to a maximum of R 40 000; and
175% for an unemployed learner with a disability, up to a maximum of R 50 000.
The tax allowance for disabled persons completing a learnership will be 175 % of
the employee's annual salary, up to a maximum of R 50 000.
Enhancement of Scholarships and Bursaries
Bursaries and scholarships for current and future employees will be tax-exempt
as long as the employer's funds go directly to tuition and tuition-related
expenses, and the employee agrees to repay the employer if the employee fails
to fulfill their scholarship or bursary obligations. This proposal will take effect from
1 March 2007.
Enhancement of Research and Development
To encourage businesses to increase investment in R&D, the deduction for
current R&D expenditure will be increased from 100% to 150%. In addition, the
depreciation allowance for capital expenditure will be increased from the current
40:20:20:20 to 50:30:20.
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FASSET – CPE 15
2006 Budget and Tax Update
Zero-Rating of Municipal Property Rates
It is proposed to zero-rate municipal property rates for VAT purposes for tax
periods commencing on or after 1 July 2006.
Consumption Taxes
Alcoholic Beverages
Excise duties on sparkling wine, unfortified wine, fortified wine, malt beer,
alcoholic fruit beverages and spirits increase by 20%, 12.5%, 9.4%, 9%, 9% and
9.5% respectively with immediate effect.
Tobacco Products
The excise duties on cigarettes, cigarette tobacco, pipe tobacco and cigars will
increase by 10.2%, 4.7%, 8.3% and 4.8% respectively with immediate effect.
Road Accident Fund Levy
The RAF fuel levy is to increase by 5 cents per litre effective 5 April 2006 to allow
the fund to settle its expected road accident claims for 2006/07.
Exchange Control: South African Resident Private Individuals
Private individuals who are over 18 and tax payers in good standing have been
permitted to invest abroad since 1 July 1997.The current limit is now increased
from R 750 000 to R 2 000 000 per person.
SARS Interest Rates
Rates of interest
Effective from 1 September 2005
Fringe benefits - interest-free or low-interest loan
Effective from 1 November 2004
Late or underpayments of tax
Refund of overpayments of provisional tax
Refund of tax on successful appeal or where the appeal was
conceded by SARS
Refund of VAT after prescribed period
Late payments of VAT
Customs and Excise
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Rate
8% p.a.
10,5% p.a.
6,5% p.a.
10,5% p.a.
10,5% p.a.
10,5% p.a.
10,5% p.a.
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 2
Normal Tax Rates
NORMAL RATES OF TAX PAYABLE BY NATURAL PERSONS
FOR THE YEAR ENDED 28 FEBRUARY 2007
TAXABLE INCOME
R 0 – R 100 000
R 100 001 – R 160 000
R 160 001 – R 220 000
R 220 001 – R 300 000
R 300 001 – R 400 000
R 400 001 and above
RATES OF TAX
+ 18% of each R1
R 18 000 + 25% of the amount over R 100 000
R 33 000 + 30% of the amount over R 160 000
R 51 000 + 35% of the amount over R 220 000
R 79 000 + 38% of the amount over R 300 000
R 117 000 + 40% of the amount over R 400 000
NORMAL RATES OF TAX PAYABLE BY NATURAL PERSONS
FOR THE YEAR ENDED 28 FEBRUARY 2006
TAXABLE INCOME
R 0 – R 80 000
R 80 001 – R 130 000
R 130 001 – R 180 000
R 180 001 – R 230 000
R 230 001 – R 300 000
R 300 001 and above
RATES OF TAX
+ 18% of each R1
R 14 400 + 25% of the amount over R 80 000
R 26 900 + 30% of the amount over R 130 000
R 41 900 + 35% of the amount over R 180 000
R 59 400 + 38% of the amount over R 230 000
R 86 000 + 40% of the amount over R 300 000
NORMAL RATES OF TAX PAYABLE BY NATURAL PERSONS
FOR THE YEAR ENDED 28 FEBRUARY 2005
TAXABLE INCOME
R 0 – R 74 000
R 74 001 – R 115 000
R 115 001 – R 155 000
R 155 001 – R 195 000
R 195 001 – R 270 000
R 270 001 and above
RATES OF TAX
+ 18% of each R1
R 13 320 + 25% of the amount over R 74 000
R 23 570 + 30% of the amount over R 115 000
R 35 570 + 35% of the amount over R 155 000
R 49 570 + 38% of the amount over R 195 000
R 78 070 + 40% of the amount over R 270 000
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FASSET – CPE 15
2006 Budget and Tax Update
Rebates and Tax Thresholds
REBATES
NATURAL PERSONS
Amounts deductible from taxes payable:
2006

Primary Rebate .................................................... R 6 300

Additional Rebate
(Applicable to taxpayers 65 years and older) ............ R 4 500
2007
R 7 200
R 4 500
TAX THRESHOLDS
Maximum taxable income on which no tax is payable:
2006
2007

Natural Persons under 65 .................................... R 35 000
R 40 000

Natural Persons 65 years and older .................... R 60 000
R 65 000
Deductions
Employee deductions are limited to the following:

Business travel deduction against car allowance

Certain medical expenses

Contributions to pension and retirement funds

Donations to certain public benefit organisations
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FASSET – CPE 15
2006 Budget and Tax Update
The following currently represent certain standard deductions, which may be
utilised by taxpayers:
MEDICAL EXPENSES: For taxpayers under 65 years of age, this deduction
is limited to expenditure (including contributions), which exceeds 7.5% (up
from 5%) of taxable income.
For taxpayers over 65 years of age, there are no limitations and all expenses
are deductible. Where the taxpayer qualifies as a “handicapped person”, the
taxpayer may deduct all qualifying medical expenditure in excess of R500 for
the year.

CURRENT PENSION FUND CONTRIBUTIONS: This deduction is limited to
the greater of R 1 750 or 7.5% of remuneration from retirement funding
employment.

CURRENT
RETIREMENT
ANNUITY
FUND
CONTRIBUTIONS:
This
deduction is limited to the greater of 15% of taxable income from nonretirement funding employment, R 1 750 or R 3 500 less Pension Fund
contributions.
Pay As You Earn (PAYE) & Standard Income Tax on Employees
(SITE)
SITE
SITE is a procedure through which the normal tax in respect of the first segment
of an Employee’s remuneration (R60 000 in all cases) is finally determined by the
Employer and deducted under the PAYE system. SITE constitutes either a final
or minimum liability, and is thus not refundable, except in certain instances. The
most important exclusions from SITE systems are:

Director’s remuneration
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FASSET – CPE 15
2006 Budget and Tax Update

Self-employed practitioners
All taxpayers who receive remuneration as defined will thus have an element of
SITE in their tax deductions but only amounts, which are PAYE in excess of the
SITE liability, will be refundable.
From an administrative point of view, the SITE liability is only calculated at the
end of a tax period, but on a monthly basis, tax deductions are made in terms of
the PAYE tables.
PAYE
Any employee’s remuneration, which is not ‘net remuneration’ as defined or
exceeds SITE limits (R 60 000) is subject to monthly deductions according to the
PAYE tables.

60% of any Travel Allowance

Payment made to directors of private companies or members of close
corporations in respect of services rendered are subject to PAYE.

PAYE should be withheld from remuneration paid to labour brokers unless an
exemption certificate is obtained.

ANNUITIES from Annuity Funds are subject to PAYE and SITE.
Provisional Tax
Provisional taxpayers are required to make two payments during a tax year, i.e.
every six months. In addition, provisional taxpayers with taxable income in
excess of R 50 000 per annum (Companies and Close Corporations: R 20 000
per annum) should pay a third “top-up” payment to avoid interest leviable in
terms of the Income Tax Act.
Under normal circumstances, this 3rd provisional payment is due 6 months after
a taxpayer’s year-end. In the case of a taxpayer with a February year-end, the
“top-up” payment can be made by the end of September of every year.
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FASSET – CPE 15
2006 Budget and Tax Update
Taxpayers defined for Provisional Tax purposes

Income earners not deriving remuneration as defined

Directors of private Companies

Members of Close Corporations

Companies
Persons Exempt from making Provisional Tax Payments

Income earners with net remuneration not exceeding R 10 000 with effect
from 1 March 2002

Non-residents

Certain farming, fishing and diamond-digging operators

Natural persons over 65 years of age not carrying on a business with taxable
income not exceeding R 80 000

Non-resident ship or aircraft charterers
Personal Service Companies and Trusts
With effect from 1 August 2000, any personal services company or trust, as
defined below, will be taxed on income at a rate of 35% and with effect from 1
April 2005 at 34%. Furthermore, the only allowable deduction will be limited to
the amount of remuneration paid to the shareholders, members or other
employees of the company or trust.
A personal service company or trust is characterised by the following:
a. the person rendering the service to a client is a connected person in
relation to the company or trust, and
b. such person would be regarded as an employee of the client were it not
for the entity, or
c. such person would be subject to the control and supervision of the client,
or
d. the amounts payable consist of earnings payable at regular daily, weekly,
monthly or other intervals, or
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FASSET – CPE 15
2006 Budget and Tax Update
e. more than 80 % of the entity’s income is received from any one client or
associated entity of the client.
An exception applies to the above, if the entity employs more than three full time
employees throughout the year of assessment who are not connected to the
company or trust.
Casual / Part-Time Employment
PAYE must be deducted at a rate of 25% in respect of all employees who:

Work for an employer for less than 5 hours per day (i.e. 22 hours per week)
– OR –

Who work for an employer without reference to a period
Examples:

Workers employed on a daily basis, who are paid daily and whose
remuneration exceeds R 75 per day

Casual commissions paid e.g. spotters fees

Casual payments to casual workers for occasional services

Fees paid to part-time lecturers

Honoraria paid to office bearers of organisations/clubs
Exemptions:

If an employee works regularly for less than 22 hours per week and provides
the employer with a written undertaking that they do not render services to
any other employer, then they will be regarded as being in standard
employment and tax must be deducted in accordance with the appropriate
weekly or monthly tables.

An employee who is in standard employment (i.e. works for one employer for
at least 22 hours per week).

Pensions paid to pensioners
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FASSET – CPE 15
2006 Budget and Tax Update

Commission agents not in possession of a tax directive (i.e. tax must be
deducted according to the appropriate tax tables unless the SARS has issued
the agent with a specific and current tax deduction directive)
If an employer employs part time/casual employees they are required to issue
the employee with an IRP5 certificate when their services are terminated. Where
however, regular use is made of an employee and the employer and employee
agree, a tax certificate (IRP5) need only be issued at the end of the particular
year of assessment.
No employee’s tax is required to be deducted from the remuneration of a full time
student/scholar who is employed on a casual basis unless the remuneration will
exceed the tax threshold for the relevant year of assessment. This provision does
not however apply to a student/scholar who works for more than 5 hours per day
as they are deemed to be in standard employment and will be subject to the
deduction of SITE/PAYE in accordance with the appropriate tables.
RING-FENCED ASSESSED LOSSES
In years of assessment commencing on or after 1 March 2004 losses from
secondary trades will be ring-fenced, which will preclude the offsetting of
assessed losses against taxable income. Section 20A will only apply to an
individual whose taxable income, before setting off any assessed loss or balance
of assessed loss, is equal to or exceeds the level at which the maximum rate of
tax is applicable.
The restriction further applies where the person has, during any five year period,
incurred an assessed loss in at least three years of assessment; or carries on
any of the following trades:
•
Any sporting activities;
•
Any dealing in collectibles;
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FASSET – CPE 15
2006 Budget and Tax Update
•
The rental of accommodation, vehicles, aircraft or boats (unless at least
80% of the asset is used by persons who are not relatives of such person
for a least half of the year of assessment);
•
Animal showing;
•
Farming or animal breeding (otherwise than on a full-time basis);
•
Performing or creative arts; or
•
Gambling or betting.
The person will be able to circumvent these provisions where he can prove that
there is a reasonable prospect of deriving taxable income within a reasonable
period and where he complies with other tests.
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FASSET – CPE 15
2006 Budget and Tax Update
MODULE 3
Fringe Benefits
Travelling Allowance
For The Tax Year Ending 2007
Rates per kilometre, which may be used in determining the allowable deduction
for business-travel, where no records of actual costs are kept.
WHERE THE VALUE
OF THE VEHICLE IS
(Including VAT)
0 - R 40 000
R 40 001 - R 60 000
R 60 001 - R 80 000
R 80 001 - R 100 000
R 100 001 - R 120 000
R 140 001 - R 160 000
R 120 001 - R 140 000
R 160 001 - R 180 000
R 180 001 - R 200 000
R 200 001 - R 220 000
R 220 001 - R 240 000
R 240 001 - R 260 000
R 260 001 - R 280 000
R 280 001 - R 300 000
R 300 001 - R 320 000
R 320 001 - R 340 000
R 340 001 - R 360 000
exceeding R 360 000
FIXED
COST
R/pa
15 364
20 910
25 979
31 513
36 978
47 512
41 771
52 629
58 334
64 591
69 072
74 777
79 918
85 440
88 793
95 218
100 011
100 011
FUEL
COST
c/km
47.3
49.4
49.4
54.8
54.8
57.2
54.8
57.2
65.9
65.9
65.9
65.9
69.3
69.3
69.3
69.3
77.1
77.1
MAINTENANCE
COST
c/km
22.5
26.2
26.2
30.5
30.5
39.8
30.5
39.8
43.8
43.8
43.8
43.8
52.5
52.5
52.5
52.5
68.0
68.0
Note: 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.
In the absence of a log book, it is deemed that the first 18 000 kilometres of the
actual distance traveled during a tax year is traveled for private purposes and the
balance, but not exceeding 14 000 kilometres, is traveled for business purposes.
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FASSET – CPE 15
2006 Budget and Tax Update
60% of the traveling allowance must be included in the employee’s remuneration
for the purposes of calculating PAYE.
Alternatively:
 Where the distance traveled 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 246 cents per kilometer regardless of the
value of the vehicle.

This alternative is not available if other compensation in the form of an
allowance or reimbursement is received from the employer in respect of the
vehicle.
Employer-Owned Vehicles

The taxable value is 2.5% of the determined value (usually the cash cost
excluding VAT) per month. Where a second (and further) vehicle is made
available to an employee or his family, and the vehicle is not used primarily
for business purposes, the benefit is 2.5% per month on the vehicle with the
highest value and 4% per month on the other vehicle(s).

Where the employee bears the cost of all fuel used for the purposes of the
private use of the vehicle (including traveling between the employee’s place
of residence and his/her place of employment) the monthly percentage to be
applied is reduced by 0.22 percentage points.

If the employee bears the full cost of maintaining the vehicle (including the
cost of repairs, servicing, lubrication and tyres) the monthly percentage to be
applied is reduced by 0.18 percentage points.
Holiday Accommodation Provided By Employer

Employee taxed on –

Lower of R 100 per day or prevailing market rate

All costs incurred if accommodation is hired by Employer
Subsistence Allowance

The employee is taxed on the unexpended portion of any allowance given to
an Employee for expenses for personal subsistence and incidental costs, e.g.
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2006 Budget and Tax Update
o Accommodation and meals is subject to tax if required to spend at least
one night away from home.
o In order to simplify the administrative procedures, the amount in excess of
the limits described below is taxable.
Overseas Travel

At the discretion of the Commissioner, who currently allows actual
accommodation costs plus $190 per day for meals and incidental costs.

This only applies for continuous periods outside the Republic not exceeding
six weeks.

Where this period is exceeded, allowance paid must be declared in full on
Employee’s Tax Certificate and Employee must claim his/her actual
expenditure as a deduction.
Local Travel
The deemed expenditure provision will be limited to the subsistence and
incidental cost allowance of R196 per day for local travel.
Residential Accommodation
Supplied by Employer - DETERMINED BY FORMULA: (A - B) x C/100 x D/12:
A = Remuneration (excluding any use of motor vehicle, or entertainment or travel
allowances)
B = R 20 000
C = 17 (at least 4 rooms)
C = 18 (at least 4 rooms, power/fuel supplied by Employer)
C = 19 (at least 4 rooms, furnished, power/fuel supplied by Employer)
D = Number of months of occupation
Any rental payment to Employer by Employee reduces formula determination
Low Interest/Interest-Free Loans

Amount taxed is difference between interest payable on the loan by
Employee and official interest rate

Subsidies taxed in full
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FASSET – CPE 15
2006 Budget and Tax Update

Short term loans, not granted regularly, not granted to all Employees, not in
excess of R 3 000, are not taxable benefits

Study loan to further Employees’ own studies is not a taxable benefit.
Other Benefits

The Act provides for the taxation of the following fringe benefits: 
Medical aid contributions

Benefits from share incentive schemes

Acquisition of any assets at less that market value including marketable
securities

Right of use of any assets

Meals and refreshments

Benefits granted to retired Employees

Free or cheap services

Housing subsidies and subsidy schemes

Payment or release from payment of Employees’ debts
Broad based employee equity
In years of assessment ending on or after 1 January 2005 section 8B sets out the
rules of broad-based employee share plans, aimed at incentivising employer
companies to grant shares in themselves to a broad-base of employees.
Employer companies may issue:

qualifying shares up to a limit of R9 000 per employee in the current tax
year and the immediate preceding two tax years.

A tax deduction limited to a maximum of R3 000 per annum per employee
will be allowed in the employer’s hands.
Provided the employee holds onto the shares for at least five years there will be
no tax consequences for the employee, other than CGT.
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FASSET – CPE 15
2006 Budget and Tax Update
Exemptions

The Act provides for the following exemptions from fringe benefit taxes:

Special uniforms

Transfer and relocation costs

Share incentive schemes (under certain circumstances)

Study loans and bursaries
Contributions to: Pension, Retirement Annuity & Provident
Funds
Pension Funds

Any person may claim a deduction of his current contributions to a Pension
Fund. The deduction is limited to the greater of: –
o R1 750 or 7.5% of remuneration from retirement funding employment

A maximum deduction of R 1 800 per annum is allowable for arrear
contributions to a Pension Fund. Arrear contributions may be deducted from
non-trade income.
Retirement Annuity Funds

A taxpayer may claim his current contributions to a Retirement Annuity Fund
as a deduction which is limited to the greater of:

15% of income from non-retirement funding employment sources

R 3 500 less any amount allowed for current Pension Fund contributions
or R 1750

The maximum deductions of contributions with regard to the reinstatement of
membership of a Retirement Annuity Fund is R 1 800 per annum
Provident Funds

Contributions to Provident and Benefit Funds are not allowed as deductions
from the taxpayer’s income.
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FASSET – CPE 15
2006 Budget and Tax Update
MODULE 4
Capital Gains Tax
Overview of CGT

CGT is payable on the disposal of assets that take place on or after
valuation date, i.e. 1 October 2001;

in the case of South African residents, the tax will apply to disposals of all
assets (including overseas assets);

in the case of non-residents, the following assets will be subject to CGT:
o immovable property, or any right or interest in a property (this includes a
direct or indirect interest of at least 20% held alone or together with any
connected person in the equity share capital of a company, where at least
80% of the value of the net assets of the company is, at the time of the
disposal, attributable to immovable property in SA); and
o any asset of a permanent establishment through which a trade is carried
on in SA;

a capital gain or loss is determined by calculating the difference between the
proceeds i.e. the amount accruing to the seller, and the base cost of the
disposed asset;

base cost relates to the costs directly incurred in acquiring or improving the
asset.
Calculation Of CGT

a capital gain or loss is calculated separately in respect of each asset
disposed;

once determined, gains or losses are combined for that year of assessment;

an annual exclusion of R 12 500 (previously R10 000) then applies, in respect
of natural persons only, to the sum of all gains and losses (R 60 000 in the
year of death of the person); (previously R 50 000)
Page - 20 -
FASSET – CPE 15
2006 Budget and Tax Update

the resulting capital gain or loss (if not specifically excluded, disregarded or
deferred) is aggregated with all other gains or losses in the current tax year,
and if it is;
o an assessed capital loss, it is carried forward to the following year, or
o a net capital gain, it is multiplied by the inclusion rate (see example).

this taxable capital gain is included in taxable income and taxed at the normal
income tax rates applicable.
Effective Tax Rates
Type of taxpayer
Individuals
Retirement funds
Trusts
- unit trusts
- special trusts\
- other
Life assurers
- individual policyholder fund
- company policyholder fund
- corporate fund
- untaxed policyholder fund
Companies
Small business corporations
Employment companies
Permanent establishments (branches)
Inclusion
Rate
25%
N/A
Statutory
Rate
0-40%
0%
Effective
Rate
0-10%
N/A
N/A
25%
50%
30%
18-40%
40%
N/A
4,5%-10%
20%
25%
50%
50%
0%
50%
50%
50%
50%
30%
30%
30%
0%
29%
0-29%
34%
34%
7,5%
15%
15%
0%
14.5%
0-14.5%
17%
17%
Rollover relief
Taxpayers can defer taxable recoupments and capital gains on the sale of
business assets if they fully reinvest the sale proceeds in other qualifying assets
within a period of three years. Tax on the recoupment and capital gain upon the
disposal of the old asset is spread over the same period as wear and tear may
be claimed for the replacement asset.
Page - 21 -
FASSET – CPE 15
2006 Budget and Tax Update
Donations Tax
Donations Tax is payable by any individual living in the Republic of South Africa,
or any South African company or one managed or controlled in the Republic, on
the value of any gratuitous disposal of property including the disposal of property
for inadequate consideration and the renunciation of rights to property.
Exemptions from Donations Tax
1.
Donations between husband and wife.
2.
Donations to charitable, ecclesiastical and educational institutions, and
certain public bodies in the Republic of South Africa as approved by the
Minister of Finance.
3.
Casual donations up to R10 000 per year by donors other than natural
persons.
4.
Donations by natural persons on or after 1 March 2006 not exceeding R50
000 (previously R 30 000) per year.
Donations Tax Rates:
Donations tax is payable within 3 months after the donation at a flat rate of 20%
on all donations on or after 1 October 2001.
Estate Duty
The general rule regarding estate duty is that if the taxpayer is ordinarily resident
in the Republic at the time of death, all of his assets, wherever they are situated,
will be included in the gross value of his estate for the determination of duty
payable thereon.
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FASSET – CPE 15
2006 Budget and Tax Update
The dutiable amount is arrived at as follows: –

Value of all property at date of death
(including limited interests such as usufruct)
R.........................

Deemed property
R.........................

Gross value of property
R.........................

Deductions
R.........................

Net Value of Estate
R.........................

Abatement
R (2 500 000)

Dutiable Estate (A)
R.........................

Estate Duty 20% of A
R.........................
Deemed property includes insurance policies on the life of the deceased as well
as property that the deceased was competent to dispose of immediately prior to
his death.
The most important deductions, in computing estate duty are:–

Debts due at date of death

Bequests to various charities

Value of property at date of death bequeathed to a surviving spouse
There is relief from Estate Duty in the case of the same property being included
in the estates of spouses dying within 10 years of each other. The deduction is
calculated on a sliding scale varying from 100% where the taxpayers die within 2
years of each other and 20% where the deaths are within 8 years of each other.
Page - 23 -
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 5
Company Tax
The rate of South African Normal Company Taxation applicable to Companies
(other than small business corporations and personal service companies) with
financial years ending after 1 April 2005 is 29%.
Companies are not entitled to any rebates except for foreign royalty and foreign
taxes paid.
Companies are also liable for Secondary Tax on Companies (STC) at 12.5% in
respect of all dividends declared after 13 March 1996.
Close Corporations:
Close Corporations are treated exactly the same as Companies for taxation
purposes.
Trusts:
With effect from 1 March 2002 all trusts other than those mentioned below will be
taxed at a flat rate of 40%. Special trusts and testamentary trusts will be taxed at
individual rates.
With effect from 1 March 2000, income vesting in the Trust as a taxpayer (but not
the income vesting in any of the beneficiaries of the Trust) will be taxed at a rate
of 32% on taxable income up to R 100 000 and at a rate of 42% on the amount of
taxable income in excess of R 100 000, with the exception of a trust created
solely for a person who suffers from “mental illness” as defined in section 1 of the
Mental Health Act, 1973; or a serious physical disability, where such illness or
disability incapacitates the beneficiary from earning sufficient income to maintain
himself/herself.
Page - 24 -
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 6
Secondary Tax on Companies (STC)
A dual system for the taxation of Companies and Close Corporations exists in
South Africa, one part being levied on taxable income and the other part on
distributed profits. The tax is levied as follows: –

Normal income tax as per the various company classifications

A secondary tax of 12.5% on all profits distributed by companies in the form
of dividends.
Value Added Tax (VAT)
South African legislation provides for a 2-tier system of VAT:

Taxable supplies are levied at a standard rate of 14%, or

at a rate of 0%.
The following are certain of the taxable supplies subject to zero rates –


Rice

Vegetables

Fruit

Vegetable Oil

Milk

Brown Wheat Flour

Eggs

Edible Legumes

Illuminating Paraffin
Residential rentals are exempt from VAT.
Page - 25 -
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 7
Wear and Tear Allowances
It is accepted that capital assets are often required to be applied to business and
trade of companies and natural persons alike. The cost of these assets, when
utilized in the production of income, may be deducted by the taxpayer over the
estimated life of the assets. SARS provides guidance to taxpayers in respect of
the period allowed to write off the cost of these assets.
Write-off Periods acceptable to SARS
ITEM
Adding machines
Air-conditioners: window type
Aircraft: light pass/
commercial/helicopter
Arc welding equipment
Balers
Battery chargers
Bicycles
Bulldozers
Burglar Alarms (removable)
Calculators
Cash registers
Cellular telephone
Cheque writing machines
Cinema equipment
Cold drink dispenser
Compressors
Computer (main frame)
Computer (personal computer)
Computer software (main frames):
Purchased
Self-developed
Computer
software
(personal
computer)
Concrete transit mixers
Containers
Crop sprayers
Curtains
Debarking equipment
Delivery vehicles
Period
of writeoff (no.
of years)
ITEM
Period
of writeoff (no.
of
years)
5
4
3
6
6
4
Engraving equipment
Excavators
Fax machines
6
6
5
4
3
10
3
5
3
6
5
12
6
4
4
6
6
5
6
5
6
4
5
3
2
3
1
2
Fertiliser spreaders
Fire extinguishers (loose units)
Fishing Vessels
Fitted carpets
Fork-lift trucks
Front-end loaders
Furniture and fittings
Gantry cranes
Garden
irrigation
equipment
(movable)
Gas cutting equipment
Gas heaters and cookers
Gear shapers
Graders
Grinding machines
Guillotines
Gymnasium equipment
Hairdressers equipment
Harvesters
Heat dryers
3
5
6
5
4
4
Heating equipment
Hot water systems
Incubators
Ironing and pressing equipment
Kitchen equipment
Knitting machines
6
5
6
6
6
6
Page - 26 -
6
6
6
4
6
6
10
5
6
6
FASSET – CPE 15
2006 Budget and Tax Update
Demountable partitions
Dental and doctors equipment
Dictaphones
Drilling equipment (water)
Drills
Electric saws
Electrostatic copiers
Medical theatre equipment
Milling machines
Mobile caravans
Mobile cranes
Mobile refrigeration units
Motorcycles
Motorised chain saws
Motorised concrete mixers
Motor mowers
Musical instruments
Neon signs and advertising boards
Ovens and heating devices
Oven for heating food
Oxygen concentration
Paintings (valuable)
Pallets
6
5
3
5
6
6
6
6
6
5
4
4
4
4
3
5
5
10
6
6
3
25
4
Passenger cars
Patterns, tooling and dies
Perforating equipment
Photocopying equipment
Photographic equipment
Planers
Pleasure craft etc.
Portable concrete mixers
Ploughs
5
3
6
5
6
6
12
4
6
Portable generators
Portable safes
Power tools (hand operated)
5
25
5
Public address systems
Race horses
Radio communication equipment
Refrigerated milk tank
Refrigerated equipment
Refrigerators
Runway lights
5
4
5
4
6
6
5
Laboratory research equipment
Lathes
Laundromat equipment
Law reports
Lift installations (goods)
Lift installation (passengers)
Sanders
Security systems
Seed separators
Sewing machines
Shop fittings
Solar energy units
Special patterns and tooling
Spin dryers
Spot welding equipment
Staff training equipment
Stainless steel containers
Surveyors: Instruments
Surveyors: Field equipment
Tape-recorders
Telephone equipment
Television and advertising films
TV sets, video machines and
decoders
Textbooks
Tractors
Trailers
Traxcavators
Trucks (heavy duty)
Trucks (other)
Truck mounted cranes
Typewriters
Vending machines (inc. video
game)
Video cassettes
Washing machines
Water distillation and purification
plant
Water tankers
Water tanks
Weighbridges (movable parts)
Workshop equipment
X-ray equipment
5
6
5
5
12
12
6
6
6
6
6
5
2
6
6
5
5
10
5
5
5
4
6
3
4
5
4
3
4
4
6
6
2
5
12
4
6
10
5
5
Where the value of an assets is less than R 5 000, the assets may be written off
in one year. i.e. the year of acquisition.
Page - 27 -
FASSET – CPE 15
2006 Budget and Tax Update
MODULE 8
Other Budget Matters
Exchange Control
South African Resident Private Individuals
Private individuals who are over 18 and tax payers in good standing have been
permitted to invest abroad since 1 July 1997. The current limit is now increased
to R 2 000 000 per person.
Passport endorsements
South African residents traveling abroad on holiday or business currently have
the travel allowance endorsed in their passports. This requirement is, with
immediate effect, dispensed with. Companies and individuals will, where
appropriate, need to continue to satisfy the authorities that their tax affairs are in
good standing. Various other limits will also be adjusted.
Emigration Limits
Household & personal effects, Motor Vehicles,
Stamps, coins & Kruger Rands
R 1 000 000
Travel and Study Allowances
Travel:
Study:
per adult pa. (over 12 years)
R 160 000
per child pa. (under 12 years)
R 50 000
per student pa.
R 160 000
per student pa. (accompanied by spouse)
R 320 000
Student Travel Allowance:
per student
R 50 000
per student (accompanied by spouse)
R 100 000
Page - 28 -
FASSET – CPE 15
2006 Budget and Tax Update
Retention of Records
Accounting Records
Books of Prime Entry:
 Cash Books, Creditor’s Ledgers, Debtor’s Ledgers, Fixed Asset Registers,
General Ledgers Journals, Petty Cash Books, Purchase Journals, Sales
Journals, Subsidiary Journals and Ledgers – as well as supporting schedules
to such Books of Account, etc –


Original

Microfiche
15
5
Vouchers, Working Papers, Bank Statements, Costing Records, Creditor’s
Invoices and Statements, Debtor’s Invoices and Statements, Goods Received
Notes, Journal Vouchers, Payrolls, Purchase Orders and Invoices, Railage
Documents, Salary and Wages Registers, Sales Tax Records, Tax Returns
and Assessments, etc
5
Employee Records:
 Expense Accounts, Payrolls, Employee Tax Returns,etc

5
Accident Records, Apprentice Records, Industrial Training Records,
Staff Records, etc
3
Statutory & Share Registration Records:
 Annual Returns, Certificates of change of name, Incorporation to commence
business, Founding Statements Memorandum and Articles of Association,
Minute Books, Notices of Meetings, etc

Indefinitely
Branch Registers, Registers of: Directors Attendance, Debenture Holders,
Directors and Officers, Directors’ Interests, Members and pledges and Bonds,
etc.

Cancelled share transfer forms
12
Page - 29 -
FASSET – CPE 15
2006 Budget and Tax Update
Additional Information
Comparative Tax Rates
RATES OF TAX
(A) NATURAL PERSONS:
Maximum marginal rate
 Reached at a taxable income
Minimum rate
 Up to taxable income of
(B) COMPANIES:
 Private and Public
o Normal tax rate
o STC rate
 Close Corporation
o Normal tax rate
o STC rate
(C) TRUSTS:
Maximum marginal rate
 Reached at a taxable income
Minimum rate
 Up to taxable income of
(D) SUNDRY:
 Donations Tax
 Estate Duty
2007
2006
2005
2004
40%
400 000
18%
100 000
40%
300 000
18%
80 000
40%
270 000
18%
74 000
40%
255 000
18%
70 000
29%
12.5%
29%
12.5%
30%
12.5%
30%
12.5%
29%
12.5%
29%
12.5%
30%
12.5%
30%
12.5%
40%
Flat Rate
40%
Flat rate
40%
Flat Rate
40%
Flat rate
40%
Flat Rate
40%
Flat rate
40%
Flat Rate
40%
Flat rate
20%
20%
20%
20%
20%
20%
20%
20%
Page - 30 -