Budget & Tax
Update
2009
1
The morning ahead
• 2009 Budget
• 2008 Tax update
2
PART 1
BUDGET 2009
3
Main tax proposals
•
Personal income tax relief of R13.6 billion
•
Fuel taxes to increase by 23c (petrol) and 24c (diesel) per
litre
•
RAF levy to increase by 17,5c per litre
•
Increased sin taxes
•
Green taxes
•
New luxury motor vehicle excise taxes to tax carbon emissions
•
Tax on energy-intensive light bulbs
•
Increase in the plastic bag levy from 3c to 4c per bag
•
Incentives for investments in energy efficient technologies
4
Tax collections
2003 - 2010
R billion
Collections
700
2003
600
2004
500
2005
400
300
200
100
0
2006
2007
2008
2009
2009 revised
2010
5
Tax collections
2003 - 2010
Other taxes
100%
Excise duties
80%
Customs duty (R
Bn)
SDL
60%
Retirement funds
Transfer duties
40%
Fuel levy
VAT
20%
Individuals (R Bn)
0%
2003
2005
2007
2009
2010
Companies (R Bn)
6
Personal income tax relief
7
Tax tables
8
Rebates
2003
2004
2005
2006
2007
2008
2009
2010
Primary rebate
- under 65
4860
Increase
- over 65
Increase
3000
5400
5800
6300
7200
7740
8280
9756
11%
7%
8.6%
14%
7.5%
7.0%
17.8%
3100
3200
4500
4500
4680
5040
5400
3.3%
3.2%
41%
0.0%
4.0%
7.7%
7.1%
9
Tax threshold
2010
2009
Under 65
R54 200
R46 000
Over 65
R84 200
R74 000
10
Interest and taxable dividend
exemption
2010
2009
Under 65
R21 000
R19 000
Over 65
Foreign dividends &
R30 000
R27 500
interest
R3 500
R3 200
11
Basic interest exemption
2003 - 2010
35000
30000
27500
25000
30000
20000
19000
15000
10000
10000
5000
6000
0
1000
2003
3200
2004
2005
- under 65
2006
2007
- over 65
2008
2009
21000
3500
2010
Foreign interest
12
Capital exemptions
2010
Donations tax
Estate duty
CGT annual exclusion
Primary residence
exclusion
2009
R100 000 R100 000
R3,5m
R3,5m
R17 500
R16 000
R1,5m
R1,5m
13
Company tax rates
Years of assessment ending between 1/4/09
and 31/3/10
2010
2009
Non-mining companies
28%
28%
Close corporations
28%
28%
Employment companies
33%
33%
Taxable income of a non-resident
33%
33%
company
Other companies
28%
28%
14
Small business corporations
Years of assessment ending between 1 April 2009 - 31 March 2010
Taxable income
Rate of tax
R
0 -
54 200
54 201 -
300 000
300 000 -
0%
10% of the amount over R54 200
R24 580 + 28% of the amount over R300 000
15
Turnover tax for micro
businesses
Years of assessment ending on 28 February 2010
Turnover
Rate of tax
R
0 -
100 000
0%
100 001 -
300 000
1% of the amount over R100 000
300 001 -
500 000
R2 000 + 3% of the amount over R300 000
500 001 -
750 000
R8 000 + 5% of the amount over R500 000
750 001 -
R20 500 + 7% of the amount over R750 000
16
STC
Rate of STC on dividends declared
14 March 1996 – 30 September 2007
On or after 01 October 2007
12.50%
10%
17
Other tax rates
2010
2009
Trusts (other than special
trusts)
40%
40%
Estate duty
20%
20%
Donations tax
20%
20%
PBOs & recreational clubs
28%
28%
18
Individuals
•
Medical scheme contributions

•
No tax-free fringe benefit on medical scheme
contributions

•
monthly monetary caps increased from R570 to
R625 for each of the first two beneficiaries and
from R345 to R380 for each additional beneficiary
Tax deduction to be claimed (based on monthly
cap)
Deduction to be replaced with a tax credit in 2
years’ time
19
CGT on sale of primary residence
• Proceeds up to R2 million to be disregarded
• Primary residence exclusion remains at R1,5m
20
Increase in “sin” taxes
• Malt beer - increased by 7c to 79c per 340ml can
• Unfortified wine - increased by 14c to R1.98 per litre
• Fortified wine - increased by 32c to R3.72 per litre
• Spirits - increased by R3.21 to R25.05 per 750ml
• Cigarettes - increased by 88c to R7.70 per packet of
20.
21
Other proposals
• SITE system may be discontinued by 2010/2011
• Travel allowances to be deductible only if
supported by a log book; “deemed” business
expenses to be scrapped from 2011
22
New subsistence allowance rates
• Travel in the Republic

meals and incidental costs: R260 per day

incidental costs only: R80 per day
• Travel outside the Republic

daily amount is available on the SARS website
23
Estate duty
• R3,5m abatement

Benefit for both spouses
• 1-year usufruct schemes to be closed down
• 5-year additional assessment rule to be
reconsidered
24
Relief for winding up dormant
property-holding companies
•
Various pressures exist to liquidate entities with
inactive real estate (e.g. vacant land and residential
property). To alleviate these pressures, it is
proposed that rollover relief be provided to facilitate
these liquidations for a transitional period
25
Small business corporations
• Permitted investments for shareholders to
include shelf companies
26
‘Green taxes’
• Incentives for cleaner production
• Plastic bag levy increases from 3c to 4c per bag
• Taxation of incandescent light bulbs - R3
• Emission reduction credits
• Motor vehicle ad valorem duties and emission taxes
• International air passenger departure tax
• Fuel levies
27
VALUE-ADDED TAX
• Voluntary registration threshold
• False statement on VAT forms
• VAT registration verifications
• VAT implications of reorganisations
28
PART 2
TAX UPDATE
29
Medical expenses (section 18)
•
Taxpayers with a handicap or a handicapped spouse/ child receive
deductions for all medically-related expenses (without 7.5% hurdle)


•
Uncertainty as to the type of expenses that will qualify for
deduction
Definition of ‘handicapped person’ replaced with ‘disabled person’


The terms ‘handicapped person’, etc are outdated
condition must last longer than 1 year and diagnosed by a
registered medical practitioner
Types of deductible expenses

List to be reviewed annually
30
RETIREMENT BENEFITS
• Pre-retirement withdrawals from retirement funds
• Allocations to spouses upon divorce
• Default preservation of withdrawal benefits
• Annuitisation of death benefits
• Preservation funds
• Unclaimed benefit funds
• Transfers from pension to provident funds
31
Withdrawal benefits
(s 1, s 6 & para 7 of Second Schedule)
• Tax-free amount increased from R1 800 to R22
500 less amounts utilised on/after 1 March 2009
• Applies to aggregate of withdrawal benefits
received over the tax-payer’s life-time
• Tax calculated in terms of the special tax table
• Effective 1 March 2009
32
Tax table for withdrawal lump sum
benefits for 2009/2010
33
Divorce settlements from
retirement funds
(paras 2, 2B, 4 & 6 of Second Schedule)
• Divorce order payments to ex-spouse from retirement
fund from were taxed in the hands of the member

right of recovery of tax from non-member spouse
• Amendment

The non-member will pay the tax on amounts awarded to
him/her from the member’s retirement fund

Effective 1 March 2009
34
Default withdrawal benefits
(para 4(1) of Second Schedule)
• Background

All withdrawal benefits taxed; no incentive for
reinvestment of default withdrawals
• Amendment:

Only taxed once the member withdraws the cash
35
Transfers from pension to
provident funds
(para 2 of Second Schedule)
• A transfer from a pension to a provident fund is
a taxable event as employee contributions to
pension funds are tax-deductible but there is no
deduction for provident fund contributions
36
EMPLOYERS AND EMPLOYEES
• Expatriate accommodation
• Deduction for repayable remuneration
• Deemed employees
• Additional learnership deduction for apprenticeships
• Payroll giving
• Personal use of business cell-phones and computers
• Broad-based employee share schemes
• SITE re-determination
37
Expatriate accommodation
(paragraph 9(7A) of the Seventh
Schedule)
•
No rental value (up to R25 000 pm) on accommodation
provided to an employee away from his/her usual place of
residence outside the Republic

For up to 2 years from date of arrival (extended from 1
year); or

If the employee spends less than 90 days in the Republic in
that year
•
No exemption if the employee spent more than 90 days in the
Republic in the previous year of assessment
•
General effective date
38
Repayable remuneration
(sections 11(nA), (nB), 23(k) & 23(m)(iiA))
• Background

Employee receives remuneration (e.g. maternity
pay) but later fails to meet conditions and amount
received is repaid to employer

no tax relief for employee
• Amendment

Repaid benefit allowed as a tax deduction for
employee

PAYE refunded by employer or

Deducted on tax return
39
Deemed employees
(ss 11(cA), 12E(4)(a) & 23(k) and paragraphs 1,
2(1A) & 11 of Fourth schedule)
• Personal service companies & personal service
trusts combined under one category: personal
service provider
• “Labour broker” retained for individuals only
40
Learnership allowance
(apprenticeships)
(section 12H)
•
2 deductions per year for each year of the apprenticeship
•
At least 1 deduction in the year the agreement is entered into
•
Where no formal examination is completed before the completion
of the apprenticeship, the additional deductions will only be
claimed upon completion
•
This amount will be equal to the number of years required to
complete the learnership as per the initial agreement X 2

Less the allowance claimed when the agreement was entered into
41
Example
•
Employee X entered into a 4-year apprenticeship agreement with
employer Y.
•
Employer Y agrees to pay X R25 000 p.a. (fixed for 4 years)
•
Result
•
Year 1: employer Y can claim s 12H allowance of R25000
•
No additional allowance may be claimed in years 2 and 3
•
Year 4: assuming that X has successfully completed the
apprenticeship, employer Y can claim an additional allowance of R25
000 x 2 x 4 = R200000 less R25 000 (the amount claimed in year 1) =
R175 000
•
In essence, the ending additional deduction equals the starting and
ending additional deductions for all years of the learnership less the
starting deduction for the first year (which has already been taken into
account
42
Payroll giving
(s 18A & paragraph 2(4) of Fourth Schedule)
• Background:

Section 18A deduction for donations to PBOs on assessment

No reduction of PAYE through the year

Scope to encourage PBO donations
• Amendment:

Employers can deduct donations when calculating monthly PAYE

Deduction limited to 5% of remuneration

Section 18A deduction limited to 10% of taxable income

Re-determination required on assessment
43
Personal use of employer-provided
phones and computers
(paras 6 & 10 of Seventh Schedule)
• Background:

Employees often receive cell-phones and laptops
from employers for business use, but invariably some
private use exists which is taxable
• Amendment:

To simplify administration, all telephone, and
computer equipment (modems, disks, printers,
software, etc) is exempt from fringe benefit tax if
provided mainly for business use
44
Broad-based employee share
schemes (sections 8B & 11(lA))
• Background:


Employer grants qualifying shares to employees

Tax-deduction for employer

No taxable fringe benefit in hands of employee
Qualifying requirements too stringent
• Amendment:

Tax-free ceiling raised to R50 000 over 5 years (previously
R9 000 over 3 years)

Employee participation lowered from 90% to 80%

Permissible restrictions relaxed

Deduction: R10 000 p.a. over 5 years
45
SITE redetermination
• Refunds following broken periods (para 11B(4) of the
Fourth Schedule)

Effective 1 January 2008
Example
•
Mr P worked for 4 months and earned a salary of R5000 p.m.
•
SITE of R210 was deducted (calculated on an annual salary of
R60 000). Mr P's salary for the year amounts to R20 000 and
he should therefore not pay any tax. Mr P will now be able to
claim the R840 of SITE that was withheld from his salary as a
refund when he files a tax return.
46
CORPORATE TAX
• STC Reforms
•

Dividend withholding tax

Transitional arrangements

Revised dividend definition

Refund of withholding tax
Passive Holding Companies
47
Dividend withholding tax
(ss 64E and 64F)
•
10% tax on the shareholder (beneficial shareholder)
•
Applies only to dividends declared by SA resident companies
•
Beneficial owner is exempt from the dividend tax if:

A South African resident company;

A sphere of the SA government (i.e. national, provincial and local)

An exempt parastatal;

A pension, provident or similar benefit fund;

An approved PBO; or

An environmental rehabilitation trust

A shareholder in a “micro business” (refer Sixth Schedule)
48
Examples
1.
Individual owns all the shares of Co.1, which owns all the shares of
Co. 2; and Co. 2 owns all the shares of Co. 3. Co. 3 pays a R20 000
dividend to Co. 2, Co. 2 pays a R20 000 dividend to Co. 1; and Co.
1 pays a R20 000 dividend to the individual shareholder
Result. The dividends tax only applies once the R20 000 dividend is
paid to the Individual. The previous dividends are exempt.
2.
Co. X is listed on the JSE and has 1 million ordinary shares, of
which 600000 shares are held by resident natural persons, 300000
shares are held by pension funds and 100000 shares are held by
resident companies. Co. X pays a dividend of R5 per share.
Result. Dividends paid to resident natural persons are subject to the
dividends tax. Dividends paid to pension funds and resident
companies are exempt.
49
STC transitional arrangements
(ss 64I and 64J)
STC credits
•
Exemption for dividends previously subject to STC
•
STC credit dividends will be exhausted first
•
Dividends eligible for STC credits will be allocated pro rata amongst all
shareholders within the same class, irrespective of whether they are
exempt from the dividend tax
•
STC credits will be dependent on reporting by initial company payer to
payee, failing which there will be no STC credit
•
STC credits will disappear 5 years after the effective date of the new
Dividend Tax
50
Other transitional arrangements
•
Dividends declared before and paid after
change-over date will be subject to STC (not
dividends tax)
51
“Dividend” definition (section 1)
•
New dividend definition in s 1: any amount transferred by a
company to a shareholder in respect of a share excluding

amounts resulting in a reduction of “contributed tax capital” (CTC); and

distribution of a company’s own shares
•
Contributed tax capital: notional amount derived from the value
of any contribution made to a company as consideration for the
issue of shares by the company
•
Starting point: share capital and share premium on cross-over
date

Excluding SC and SP that would have been a dividend if distributed
immediately before cross-over date
52
Dividend withholding tax
(ss 64G and 64H)
• SA companies that pay dividends will be required to
withhold 10% dividend tax from the payment


Listed share pass-through system to regulated intermediaries
Unlisted share pass-through system by “declared” nominee
arrangements
• Tax withheld must be paid to SARS by the end of the
month following the month of the dividend (same as
STC)
53
Refund of tax
(ss 64L & 64K(2))
•
Beneficial owners can obtain a refund if amounts are
over-withheld
1.
Company refund process: If a declaration by the
beneficial owner is submitted within 1 year after payment
of the dividend otherwise eligible for exemption or relief
2.
SARS refund process: If a refund is not made within 1
year
3.
Three-year time limit: No amount may be refunded after
three years from the date on when the Dividends Tax is
withheld
54
Example
Company X, listed, has 1 million uncertificated shares, of which Company Y holds 100
shares through a regulated intermediary
Company X pays a dividend of R5 per share; (R500 accrues to Company Y)
Assume all parties are residents: Company Y is exempt from Dividends Tax
Result:
•
Company X is exempt from withholding as the shares involved are uncertificated
shares
•
Regulated Intermediary is not obliged to withhold if Company Y submits its
declaration to Regulated Intermediary
•
If not, Regulated Intermediary must withhold and pay over to SARS R50 (10% of
R500).
•
If the declaration is late but within 1 year from payment, Regulated Intermediary
must pay the R50 back out of tax withholding funds otherwise to be held for SARS in
relation to the next dividend payment to be made by Regulated Intermediary (as long
as the Regulated Intermediary makes a dividend payment within the required 1 year
period).
•
If no refund occurs beyond the 1 year date, Company Y can make a claim for refund
directly from SARS
55
Passive Holding Companies
(s 9E)
• Introduced to eliminate arbitrage
• 40% tax on passive ordinary revenue from financial
instruments
• 10% tax on dividends
• Dividends paid are not subject to dividends tax if
previously taxed in a PHC
56
‘Passive holding company’
Any company, other than an excluded company, where • passive income > 80% of gross income of that company
and the gross income (other than passive income) of all
other companies that form part of the same group of
companies, as defined in s 41
• 5 or less resident individuals (with any connected
persons) at any time during the year in/directly hold
more than 50% of participation rights in the company
57
Definitions within “passive
holding company”
• ‘passive income’= gross income derived from financial
instruments
• ‘gross income’ = as defined in s 1, excluding

royalties and

dividends if the company holds at least 20% of the
total equity share capital and voting rights in the
company declaring the dividend
58
‘Excluded company’
•
A listed company
•
A member of the same group of companies as per s 41 as a listed
co.
•
A bank or a money-lender
•
An authorised user as per the Securities Services Act
•
Insurance company
•
Collective investment scheme
•
PBO
•
Approved recreational club
•
A foreign company as defined in section 9D
•
A venture capital company as defined in section 12J
59
Example
•
Company X is owned equally by 3 unconnected individuals.
•
Company X earns R500 of dividends from a 10% subsidiary, R200 of
interest and R300 from payment for goods sold and delivered.
•
Company X also earns R1 000 of capital gains from the sale of land.
•
Dividends and interest constitute passive income.
•
Due to Company X’s less than 20% holding in Company X, the dividend
received by Company is included in the calculation.
•
The capital gains are excluded
•
The sum of all passive income, (dividends and interest) is 70% of
Company X’s ordinary revenue.
•
Company X does not satisfy the gross income requirement
•
Therefore, not a passive holding company
60
Example
•
Co. X is wholly owned by an individual.
•
Co. X has income of R200 of which R190 is passive income.
•
Company owns all the shares of a subsidiary which has R1 000 of
income, of which R300 is passive income.
•
The total gross income of the group (i.e. Company X and
Subsidiary) amounts to R1 200.
•
The passive income of Company X amounts to only R190 of the
R900 group total (R1 200 less the R300 passive subsidiary income).
•
Therefore Company X is not a passive holding company.
61
SMALL BUSINESS
• S 12E: asset write-off election
• Micro business turnover tax
•
Venture capital company allowance
62
Small business corporations
(section 12E)
Taxpayer has the option of
• 50:30:20 write-off OR
• Section 11(e) wear tear

From commencement of years of assessment ending on
or after 1 January 2009
63
Turnover Tax for micro businesses
(Section 48 & Sixth Schedule)
•
Turnover-based tax system
•
To alleviate tax compliance costs for very small businesses
(not necessarily to reduce the tax liability)
•
Elective
•
Incorporated and unincorporated enterprises (sole proprietors)

Certain limitations
•
Annual turnover up to R1million p.a.
•
Implementation: Years of assessment commencing on or after
1 March 2009
64
“Turnover”
•
•
‘Qualifying turnover’ = total receipts from carrying on business
activities, excluding any

Amount of a capital nature; and

Government subsidies
‘Taxable turnover’ means total receipts from carrying on business

50% of proceeds on sale of a capital asset (see next slide)

Investment income of a company / cc

Add-back of previous year’s tax allowances in 1st year


Doubtful debts, s 24C, etc (first applied against assessed loss)
Excludes

government subsidies

Amounts accrued before registration as a micro business
65
Capital receipts
• CGT exemption if proceeds do not exceed
R1.5m over 3-year period
• Otherwise: 50% of proceeds included in
“taxable turnover”

Immovable property to the extent used for
business

Other assets used mainly for business
66
Turnover tax for micro
businesses
Years of assessment ending on 28 February 2010
Turnover
Rate of tax
R
0 -
100 000
100 001 -
300 000
1% of the amount over R100 000
300 001 -
500 000
R2 000 + 3% of the amount over R300 000
500 001 -
750 000
R8 000 + 5% of the amount over R500 000
750 001 -
0%
R20 500 + 7% of the amount over R750 000
67
Turnover tax illustration
Turnover
Tax
R
R
Average
100 000
Nil
0%
200 000
1 000
0.50%
300 000
2 000
0.67%
500 000
8 000
1.60%
750 000
20 500
2.73%
1 000 000
38 000
3.80%
68
Turnover tax for micro businesses
•
Increase in compulsory VAT registration threshold from R300 000
to R1million
•
Businesses electing the TT will not be allowed to register for VAT
•
STC/withholding tax exemption on dividends up to R200000
•
Businesses that elect the TT system must remain in the system
for at least 3 years
•
Businesses that opt out of the regime can’t migrate back in for 3
years
69
Persons that do not qualify as a
micro business
•
Anyone holds any shares or has any interest in the equity of another
company other than permitted investments
•
Investment income exceeds 10% of total receipts
•
‘Personal service provider’ or ‘labour broker’ without IRP30
•
‘Professional service providers’
•
Total amounts received from the disposal of
(i) immovable property, to the extent that it was used for business purposes; and
(ii) any other asset of a capital nature used mainly for business purposes
exceed R1,5m over a period of 3 years or such shorter period during
which that person was a registered micro business
70
• a company

With a year end other than the last day of February

at any time during its year of assessment, any of its shareholders is
a person other than a natural person (or the deceased or insolvent
estate of a natural person)

at any time during its year of assessment, any of its shareholders
holds any shares or has any interest in the equity of any other
company other permitted investments


PBO
approved recreational club
• a partner in a partnership if –

any of the partners is not a natural person

a partner in more than one partnership

partnership turnover exceeds R1m
71
VAT deregistration relief
•
The normal rule is that when any vendor deregisters from the VAT
system, it is required to pay VAT (exit VAT) on the value of the
assets held before deregistering.
•
All vendors that deregister from the VAT system in light of the
increase in the VAT registration threshold to R1 million will be
allowed to pay the exit VAT over a period of six months.
•
Where a vendor deregisters from the VAT system in order to
register for the turnover tax, further relief will be granted to that
vendor by way of a deduction up to R100 000 of the value of the
assets held by that vendor prior to such deregistration.

Equates to an approximate reduction of up to R12 281 in the
exit VAT that will be payable.
72
VCC allowance (section 12J)
• 100% deduction for investments in VCC ordinary shares

Capped at R750 000 p.a. for individuals (R2.25 m lifetime limit)

No limit for listed companies

Unlisted corporations are excluded
• Sunset clause: after 12 years
73
VCC requirements
•
•
•
Minimum gross assets to qualify as a VCC

R30m for investments in non-mining qualifying enterprises

R150m for investments into qualifying junior mining exploration enterprises
VCC qualifying investments:

At least 10% in enterprises with up to R5m gross assets, after the
investment

At least 80% in enterprises with up to R10m gross assets, after the
investment

In the case of junior mining exploration companies R100m gross
assets after the investment
SARS to approve applications for VCC status

New VCCs have 36 months to qualify for full VCC approval.

Over the medium term, special financial regulations for VCCs considered
74
100% deduction
VCC
(FAIS
Compliant)
Investor:
Indiv / Listed
Qualifying
SME
Individual – R750 000 pa deduction
limit
Listed – No limit; subject to 10%
shareholding limit in the VCC
10% - R5m gross assets
80% - R10m gross assets
10% - any asset class
75
VCCs: excluded activities
(section 12J)
•
Dealing in or renting land (excluding hotel keepers
•
Financial services e.g. banking, insurance, money lending, HP financing
•
Provision of professional services e.g. legal, tax advisory, broking,
management consulting, auditing, accounting and other related activities
•
Casinos, other gambling-related activities and other games of chance
•
Manufacturing, buying or selling liquor, tobacco products or arms
•
Franchisees
•
Businesses conducted mainly outside SA
•
Investment income exceeds 20% of gross income
76
INCENTIVES AND ALLOWANCES
• Residential buildings
• Urban Development Zones
• Loans for low-cost housing sales
• Government business licenses
• Strategic Industrial Policy Projects
77
Allowance for residential
buildings (s 13sex)
•
New residential housing 5% p.a.
•
Low cost housing 10% p.a.
•
•
Replaces former 10% initial/2% p.a. (from 21 October 2008)
“Low cost residential unit”
•
•
cost up to

R200 000 for free standing houses and

R250 000 for apartments
Monthly rental does not exceed 1% of cost (with 10% p.a. escalation)
•
Applies to all rental housing and employer-provided housing
•
At least 5 units must be owned
78
Urban Development Zone
allowance (s 13quat)
• The incentive is extended by 5 years
• Enhanced allowances:

New buildings: 20%(first year) & 8% p.a. (next 10 yrs)

Low cost housing in UDZ

New buildings: 25% in first year; 13% over next 5 yrs; 10%
in year 7

Improvements to existing buildings: 25% p.a.
79
Loans for low-cost housing sales
(s 13sept)
• Special write-off when selling low cost housing to
employees at no more than employer cost
• 10% year write-off for employer-loan portion of the sale
• Recoupment when principal is repaid
80
Example
•
In Year 1, Employer sells a low cost residential unit to Employee X for
R200000, all of which is paid via an interest-free loan account from
Employer. Employee X repays R30 000 in Year 2, R25 000 in Year 3
and no repayment in Year 4.
•
Year 1: R20 000 (10% of R200 000).
•
Year 2: Deduction = R17 000 (10% of (R200000 less the R30 000
repaid)). Recoupment = R 30 000
•
Year 3: Deduction = R14 500 (10% of (R200 000 less R55 000 repaid)).
Recoupment = R 21 500

•
The excess R3500 (i.e. R25 000 less R21 500) is rolled over to the next year
Year 4: Deduction = R14 500 (10% of (R200000 less R55 000 repaid)).
Recoupment = R3 500 (the remaining recoupment from last year).
81
Allowance for government
business licenses (s 37D)
• Initial outlay to acquire a Government license will be
deducted over the life of the license
• Full deduction of annual fees to maintain a license, even
if funds not paid directly to Government (i.e. used for
required social expenditure)
82
Strategic Industrial Policy Projects
(s 12I)
•
Incentive to support government’s Industrial Policy Action
plan (promoted by DTI)
•
Focus is the manufacturing sector
•
Targets greenfield investments and brownfield expansions
and upgrades
•
R20billion allowable deductions over 5 years
•
Applications must be in by 21 December 2014
•
Replaces the Strategic Industrial Project allowance
•
Focuses on capital investment and training
•
S8(4)(n) recoupment if disposed of before end of the writeoff period
83
Industrial policy projects: minimum
requirements (section 12I)
• Greenfield projects: Investment of R200 million in new
industrial assets
• Upgrades and expansions / brownfields: Investments of
least 25% of value of existing industrial assets subject to
a minimum of R30m
• Energy efficiency: 10% reduction in usage
• Spend more than 2% of wage bill on training
• Training: Detailed skills development programme
84
Industrial policy projects: scoring
criteria (section 12I)
Greenfield investments
Brownfield expansions
Energy efficiency
Energy efficiency
Use of cleaner production technology
Use of cleaner production technology
Innovation, linkages to small business
Innovation
Location in an industrial development zone Small business linkages
Employment creation (x per R1m)
Employment creation (x per R1m)
Training of employees
Training of employees

Minimum of 5 points for qualifying status

Minimum of 8 points for preferred status

A sub-minimum of 2 points must be attained in the labour component
(employment creation + training)
85
Industrial policy projects:
additional allowances (section 12I)
Projects with qualifying status (5 - 7 points)
•
35% investment tax allowance
•
Deduction of actual training expenses up to a maximum

R36 000 per employee and

an overall maximum of R20million per entity over 4 years.
Projects with preferred status (8 - 10 points)
•
55% investment tax allowance
•
Deduction of actual training expenses up to a maximum

R36 000 per employee and

an overall maximum of R30million per entity over 4 years.
86
Example
• A Greenfield project qualifies for preferred status
• Taxpayer purchases machinery for R300m: qualifies for
s12C
Result:
• In the year that the machinery is brought into use, a
s12C deduction of R120 million (R300 million x 40%) will
be allowed
• In addition, a s12I deduction of R165m (R300m x 55%)
will be allowed
• In each of the following 3 years, further s12C deductions
of R60m (R300m x 20%) per year will be allowed
87
Body corporates
(s 10(1)(e))
• Levies are tax-free but other income is taxable
• Non-levy income exempt up to R50 000

Effective for years of assessment commencing
on/after 1 March 2008
88
Recreational clubs (sections
10(1)(cO) & 30A)
• Increase in basic exemption from R50 000 to R100 000

For years of assessment commencing on/after 1
March 2009
• Fiduciary responsibility for the club must vest in at least
3 unconnected persons

General effective date
89
VALUE-ADDED TAX

Industrial Development Zones

Supply of right to receive money under a rental
agreement

Land reform transactions
90
Industrial Development Zones
(s 8(24))
• Goods temporarily removed from a Customs Controlled
Area are subject to VAT if not returned within 30 days
• Goods returned after 30 days do not receive any VAT
relief
• Amendment:

Goods returned after 30 days are eligible for VAT
input credits (as an offset against the late charge)

limited to the lesser of the initial charge or an
amount based on the returned value (i.e. this test
taxes the devaluation as consumption)
91
Supply of the right to receive money
under a rental agreement (s 2(4)(b))
3. Financier pays present value of the
rental stream
Lessor
Financier
2. Cession of right to rental
income
1. Rental
Agreement
Lessee
4. Lessee pays rental amount (R11 400
for month 1)
92
Amendment
• Section 2(4)(b) (that makes the supply to the financier
taxable) deleted
• The supply of the right to receive the rentals is therefore
a financial service and hence exempt
93 93
Land reform transactions
(sections 11(1)(s) & (t))
• VAT zero-rating of land purchases in terms of
Land Reform and Land Restitution programmes

previously zero-rated under a specific ruling

In line with pre-existing zero ratings for
Government subsidised housing
94
ESTATE DUTY
• Pension benefits
• Time limits for assessment (subject to
review)
95
Pension Benefits (section 3(2)(i))
• Background:



Deemed part of deceased’s estate
At death of income provider, surviving spouse and dependant
children rely on these savings to alleviate financial difficulties
Tax not in line with Government’s social objectives to reduce
the value of benefit in these circumstances
• Amendment:

Lump sum benefits from retirement fund exempt from Estate
Duty
96
Estate Duty – Time Limits for
Assessment
• The liquidation and distribution account will set a 5-
year (automatic) assessment period
• Assets found within the 5 years trigger a re-opening
of that tax estate
• Assets found afterwards are deemed to be their own
Estate without going back to the date of death

Estate Duty Act section 9

Budget 2009: subject to review
97
Other
• Stamp Duty
• Securities Transfer Tax
98
Repeal of Stamp Duties Act
•
Stamp duty currently only applies to leases of immovable
property
•
To be repealed from 1 April 2009

The Stamp Duties Act will continue to apply to any instrument
described in Schedule 1 of the Act executed before the date of the
repeal as if the Act had not been so repealed.
99
Securities Transfer Tax
• De minimus exemption for amounts less than R100
(transfers within a month)
100
Administration
• Provisional tax
• Estimated employees’ tax liability
• Employers’ obligations
• Administrative penalties
• Advance tax rulings
• Interest payable
• Date of payment of tax to SARS
101
Provisional tax (Paragraph 20 of
Fourth Schedule)
• Second provisional tax payment must be based on the
taxpayer’s estimate (no basic amount)

Estimate must be at least 80% of the actual tax liability for the
year

20% penalty on underpayment
• Originally effective from 1 January 2009

SARS extended implementation to 1 March 2009
102
Estimated employees’ tax liability
(paragraph 12 of Fourth Schedule)
• SARS may estimate employees’ tax if an
employer fails to furnish an annual PAYE return,
fails to deduct employees’ tax or fails to pay over
employees’ tax deducted from employees
103
Employers’ obligations
(Fourth Schedule)
• No IRP5 certificates may be issued until EMP501
reconciliations submitted (para 14(5))
• Penalty for non-submission of EMP501 = 10% of total
employees’ tax for the year (para 14(6))

Effective 29 August 2008 (GG 31381)
104
Administrative penalties
(section 75B)
• Penalties prescribed by regulation
• Effective from 1 January 2009
105
Advance tax rulings (s 76O)
• Previously:

Currently SARS has to publish all binding private
rulings and binding class rulings
• Amendment:

A ruling that is similar to a ruling that has already
been published need not be published
106
Interest on late payment of tax
(s 89quat)
• Interest payable at the prescribed rate on

Normal tax payable in excess of the credit amount; or

Credit amount in excess of normal tax payable
• Effective from a date to be advised in the Gazette
107
Date of payment of tax to SARS
• The Minister of Finance may move the date for
payments (and returns) falling on 31 March forward by
a maximum of two business days
108
Thank you!
109