Budget & Tax Budget & Tax UpdateUpdate

20082008

22

The The morningmorning ahead ahead

2008 Budget2008 Budget

2007 Tax update2007 Tax update

Taxation Laws Amendment Act 8 of 2007Taxation Laws Amendment Act 8 of 2007

Taxation Laws Second Amendment Act 9 of 2007Taxation Laws Second Amendment Act 9 of 2007

Revenue Laws Amendment Act 35 of 2007Revenue Laws Amendment Act 35 of 2007

Revenue Laws Second Amendment Act 36 of 2007Revenue Laws Second Amendment Act 36 of 2007

33

PART 1 – BUDGET 2008PART 1 – BUDGET 2008

44

Main tax proposals R10.5 bn in net tax relief R7.7 bn personal income tax relief Company tax rate down to 28% STC replaced by a final withholding tax on dividends in 2009 Simplified system for small businesses with annual turnover up

to R1m Compulsory VAT registration threshold increases to R1m Incentives to encourage venture capital equity investments in

SMMEs R5 billion over the next 3 years in targeted incentives to

encourage investment in labour-intensive or strategic sectors Learnership allowances to be expanded Electricity levy of 2 cents per kilowatt hour to be introduced

55

Tax tablesTax tables

66

RebatesRebates

20092009 20082008

Under 65Under 65 R8 280R8 280 R7 740R7 740

Increase over previous Increase over previous yearyear 7%7% 7.5%7.5%

Over 65Over 65 R5 040R5 040 R4 680R4 680

Increase over previous Increase over previous yearyear 7.7%7.7% 4.0%4.0%

77

Tax thresholdTax threshold

20092009 20082008

Under 65Under 65 R46 000R46 000 R43 000R43 000

Over 65Over 65 R74 000R74 000 R69 000R69 000

88

Tax savings - persons under 65

Taxable income

R

2008/9

RR

2007/8

RR

Saving

RR %

46000 0 540 540

100000 9720 10260 540 5%

200000 33430 35385 1955 6%

300000 64930 67885 2955 4%

500000 138730 143385 4655 3%

1000000 338730 343385 4655 1%

99

Interest and taxable dividend Interest and taxable dividend exemptionexemption

20092009 20082008

Under 65Under 65 R19 000R19 000 R18 000R18 000

Over 65Over 65 R27 500R27 500 R26 000R26 000

Foreign dividends & Foreign dividends & interestinterest R3 200R3 200 R3 000R3 000

1010

Capital exemptionsCapital exemptions

20092009 20082008

Donations taxDonations tax R100 000R100 000 R100 000R100 000

Estate dutyEstate duty R3,5mR3,5m R3,5mR3,5m

CGT annual exclusionCGT annual exclusion R16 000R16 000 R15 000R15 000

Primary residence Primary residence exclusionexclusion R1,5mR1,5m R1,5mR1,5m

1111

Company tax ratesCompany tax ratesYears of assessment ending between 1/4/08 and 31/3/09Years of assessment ending between 1/4/08 and 31/3/09

20092009 20082008

Non-mining companiesNon-mining companies 28%28% 29%29%

Close corporationsClose corporations 28%28% 29%29%

Employment companiesEmployment companies 33%33% 34%34%

Taxable income of a non-resident Taxable income of a non-resident companycompany

33%33% 34%34%

Closely held passive investment Closely held passive investment companiescompanies

40%40% 29%29%

1212

Small business corporationsSmall business corporations

Years of assessment ending between 1 April 2008 - 31 March 2009Years of assessment ending between 1 April 2008 - 31 March 2009

Taxable incomeTaxable income Rate of taxRate of tax

RR

00 -- 46 00046 000     0%0%

46 001 46 001 -- 300 000300 000   10% of the amount over R46 00010% of the amount over R46 000

300 000300 000 --    R25 400 + 28% of the amount over R300 000R25 400 + 28% of the amount over R300 000

1313

Presumptive turnover tax for very Presumptive turnover tax for very small businessessmall businesses

Years of assessment ending between 1 April 2008 and 31 March 2009Years of assessment ending between 1 April 2008 and 31 March 2009

TurnoverTurnover Rate of taxRate of tax

RR

00 -- 100 000100 000   0%0%

100 001 100 001 -- 300 000300 000   2% of the amount over R100 0002% of the amount over R100 000

300 001300 001 -- 500 000500 000 R4 000 + 4% of the amount over R300 000R4 000 + 4% of the amount over R300 000

500 001500 001 -- 750 000750 000 R12 000 + 5.5% of the amount over R500 000R12 000 + 5.5% of the amount over R500 000

750 001750 001 -- 1 000 0001 000 000 R25 750 + 7.5% of the amount over R750 000R25 750 + 7.5% of the amount over R750 000

1414

Presumptive tax illustrationPresumptive tax illustration

Turnover

R

Tax

R Average

100000 Nil 0%

200000 2000 1.0%

300000 4000 1.3%

500000 12000 2.4%

750000 25750 3.4%

1000000 44500 4.5%

1515

STCSTC

Rate of STC on dividends declared -Rate of STC on dividends declared -   

14 March 1996 – 30 September 200714 March 1996 – 30 September 2007 12.50%12.50%

On or after 01 October 2007On or after 01 October 2007 10%10%

1616

Other tax ratesOther tax rates

20092009 20082008

Trusts (other than special trusts)Trusts (other than special trusts) 40%40% 40%40%

Estate dutyEstate duty 20%20% 20%20%

Donations taxDonations tax 20%20% 20%20%

PBOs & recreational clubsPBOs & recreational clubs 28%28% 29%29%

1717

Dividends & STCDividends & STC STC rate remains at 10%

Dividend withholding tax in 2009

no dividend tax for tax-exempt entities

all STC credits will expire

10% withholding tax for resident shareholders

rate for non-resident shareholders may be limited by specific tax treaties

Tax withheld by the declaring company to be paid to SARS by the end of the month following the month in which the dividend is declared

1818

Dividends (cont.)Dividends (cont.)

cascading relief will apply to avoid double tax 10% rate on dividends paid to closely held (passive) companies

dividend payments to nominees and representative parties

Option 1: declaring company may reduce or eliminate 10% Option 1: declaring company may reduce or eliminate 10% withholding tax if sufficient proof that the economic owner has withholding tax if sufficient proof that the economic owner has preferred status (joint liability for error)preferred status (joint liability for error)

Option 2: nominee withholds the tax (if SARS is satisfied that Option 2: nominee withholds the tax (if SARS is satisfied that the nominee has sufficient substance)the nominee has sufficient substance)

1919

Capital distributionsCapital distributions

Part-disposal rule may be reviewed Part-disposal rule may be reviewed

A short discussion document may be issuedA short discussion document may be issued

2020

Learnership allowance

To be extended to cater for longer-term technical apprenticeships such as electricians, welders, plumbers, mechanics, etc

2121

Tax incentives to support Tax incentives to support industrial policyindustrial policy

Carefully designed incentives to encourage Carefully designed incentives to encourage investment in labour intensive or strategic investment in labour intensive or strategic sectors sectors

Programme to be finalised in consultation with Programme to be finalised in consultation with the Department of Trade and Industry and other the Department of Trade and Industry and other interested partiesinterested parties

2222

Urban development zonesUrban development zones

Section 13Section 13quatquat incentive to be extended for five incentive to be extended for five yearsyears

Municipalities may apply to extend designated Municipalities may apply to extend designated zoneszones

Number of participating municipalities may be Number of participating municipalities may be expandedexpanded

2323

Housing for low-income workers

Current tax allowances (ss 11(t) & 13ter) to be enhanced

R6 000 deductible limit per dwelling for employer-provided housing to be increased

Additional incentives to be explored

Fringe benefits tax relief for employer-provided low-cost housing

2424

VAT relief for small businesses

Compulsory VAT registration threshold increased to R1 million p.a.

Threshold for farmers submitting VAT returns every 6 months and businesses that submit every 4 months increased from R1.2 m to R1.5 m

Presumptive tax for very small businesses

2525

Venture capital incentive: Venture capital incentive: non-miningnon-mining

Investors in high-growth and high-tech small and start-up enterprises with

annual turnover up to R14 m or

gross assets up to R7 m

General venture capital investments: 30% up-front deduction, with annual deductions capped at

R500 000 for individuals

R750 000 for companies

R7.5 m for venture capital funds

2626

Venture capital incentive: Venture capital incentive: junior mining and exploration companies

Gross assets up to R30 – 50 million for junior mining and exploration companies

50% upfront deduction, with annual deductions capped at

R1 m for individuals; R10 million for companies and venture capital funds

2727

Depreciation of small business Depreciation of small business non-manufacturing equipmentnon-manufacturing equipment

50:30:20 write-off OR50:30:20 write-off OR

Section 11(Section 11(ee) wear tear) wear tear

2828

IndividualsIndividuals

Medical scheme contributions monthly monetary caps increased from R530 to R570 for

each of the first two beneficiaries and from R320 to R345 for each additional beneficiary

Medical expenses “handicapped person” and physical disability expenses to

be reviewed

2929

Employees’ taxEmployees’ tax

SITE Refunds following broken periods

Repayable remuneration Deductions to be introduced for repayments of

bonuses,etc

3030

Bursary exemption

2008/9 2007/8

Remuneration limit R100 000 R60 000

Bursary limit R10 000 R3 000

3131

New travel allowance table

Value of the vehicle Fixed cost Fuel cost Maint. (c/km)R R p.a. (c/km)

0 – 40 000 14 672 58.6 21.7

40 001 – 80 000 29 106 58.6 21.7

80 001 – 120 000 39 928 62.5 24.2

120 001 – 160 000 50 749 68.6 28

160 001 – 200 000 63 424 68.8 41.1

200 001 – 240 000 76 041 81.5 46.4

240 001 – 280 000 86 211 81.5 46.4

280 001 – 320 000 96 260 85.7 49.4

320 001 – 360 000 106 367 94.6 56.2

360 001 – 400 000 116 012 110.3 75.2

exceeding 400 000 116 012 110.3 75.2

3232

New subsistence allowance rates

Travel in the RepublicTravel in the Republic meals and incidental costs: R240 per day meals and incidental costs: R240 per day

incidental costs only: R73.50 per dayincidental costs only: R73.50 per day

Travel outside the Republic: US$215 per dayTravel outside the Republic: US$215 per day

From 1 March 2008From 1 March 2008

3333

Fringe benefitsFringe benefits

Residential accommodation for expatriatesResidential accommodation for expatriates 1 year exempt period to be extended to 2 years subject to a

ceiling of the lower of 25% of remuneration or R25 000 per month

Relief for incidental private use of cellular phones and laptops

3434

Reform of retirement fundsReform of retirement funds

Review continuesReview continues

Divorce settlements to be taxed in the non-Divorce settlements to be taxed in the non-member spouse’s handsmember spouse’s hands

3535

Public benefit organisationsPublic benefit organisations

Requirement to conduct 85% or more of Requirement to conduct 85% or more of activities in South Africa to be droppedactivities in South Africa to be dropped

Donations to multilateral humanitarian Donations to multilateral humanitarian organisations offering developmental assistance organisations offering developmental assistance in South Africa to qualify for section 18A in South Africa to qualify for section 18A deductiondeduction

PBOs providing student loans to be exempt PBOs providing student loans to be exempt

Tax exemption for PBOs providing housingTax exemption for PBOs providing housing maximum monthly household income to be increased from maximum monthly household income to be increased from

R3500 to R7000 per monthR3500 to R7000 per month

3636

Biodiversity conservation and Biodiversity conservation and managementmanagement

Measures to encourage conservationMeasures to encourage conservation

Tax incentives for private landowners preserving habitats Tax incentives for private landowners preserving habitats and biodiversity on their land and biodiversity on their land

Deduction of expenses limited to income derived from the landDeduction of expenses limited to income derived from the land

Tax deduction for nature reserve or national park donated Tax deduction for nature reserve or national park donated to a PBO or parastatal conservation agency to a PBO or parastatal conservation agency

Possible estate duty, transfer duty and donations tax Possible estate duty, transfer duty and donations tax exemptions for properties bequeathed, sold or donated to exemptions for properties bequeathed, sold or donated to a PBO for declaration as a protected areaa PBO for declaration as a protected area

3737

Electricity levyElectricity levy

2 c/kWh tax on electricity2 c/kWh tax on electricity

Complemented by incentives to encourage Complemented by incentives to encourage businesses to behave in a more environmentally businesses to behave in a more environmentally responsible mannerresponsible manner

Existing tax incentives on uptake and Existing tax incentives on uptake and development of renewable energy may be development of renewable energy may be further enhancedfurther enhanced

3838

Fuel taxes and Road Accident Fuel taxes and Road Accident Fund levyFund levy

Fuel levy to increase on 2 April 2008 by 6 c/l to Fuel levy to increase on 2 April 2008 by 6 c/l to 127 c/l (petrol) and 127 c/l (petrol) and

111 c/l (diesel). This constitutes an increase of 5% for petrol 111 c/l (diesel). This constitutes an increase of 5% for petrol and 5.7% for diesel respectively. and 5.7% for diesel respectively.

RAF levy on petrol and diesel to increase by 5 c/l RAF levy on petrol and diesel to increase by 5 c/l 46.5 c/l from 2 April 200846.5 c/l from 2 April 2008

3939

Alcoholic beverages and tobacco Alcoholic beverages and tobacco productsproducts

4040

Financing options for provincial Financing options for provincial and local governmentand local government

Alternatives to RSC and JSB leviesAlternatives to RSC and JSB levies share of revenue from the fuel levy based on fuel sales per share of revenue from the fuel levy based on fuel sales per

municipalitymunicipality

provinces may receive a share of the fuel levy based on provinces may receive a share of the fuel levy based on fuel sales per provincefuel sales per province

4141

Group relief and the de-Group relief and the de-grouping chargegrouping charge

2007 amendments to group relief rules set to 2007 amendments to group relief rules set to become effective from 1 January 2009 become effective from 1 January 2009 Definition of “group of companies” and transitional issues Definition of “group of companies” and transitional issues

to be reviewed to be reviewed

Further anti-avoidance provisionsFurther anti-avoidance provisions

De-grouping charge to be revisited in respect of double De-grouping charge to be revisited in respect of double gains and trapped lossesgains and trapped losses

VAT legislation to be amendedVAT legislation to be amended

4242

Share incentive schemesShare incentive schemes

Broad-based share incentive schemesBroad-based share incentive schemes Limits to be reviewedLimits to be reviewed

Share incentive schemesShare incentive schemes Section 8C to be further refinedSection 8C to be further refined

4343

Intellectual propertyIntellectual property

2007 amendments to eliminate deduction of 2007 amendments to eliminate deduction of royalty payments to foreign residents if the royalty payments to foreign residents if the royalty stemmed from intellectual property royalty stemmed from intellectual property initially devised in South Africainitially devised in South Africa further discussion required before implementationfurther discussion required before implementation

4444

Body corporatesBody corporates

Levies are tax-free but other income is taxableLevies are tax-free but other income is taxable

Non-levy investment income to be exempt up to Non-levy investment income to be exempt up to R50 000 R50 000

4545

Provisional taxProvisional tax

System to be reviewed System to be reviewed

Basic amountBasic amount to excludeto exclude retirement fund lump retirement fund lump sums and pre-retirement withdrawalssums and pre-retirement withdrawals

4646

Tax administrationTax administration

Penalty & interest system to be streamlinedPenalty & interest system to be streamlined

Requirement to submit supporting documents to be Requirement to submit supporting documents to be removed (supporting documentation need only be removed (supporting documentation need only be kept as part of the taxpayer’s records)kept as part of the taxpayer’s records)

IRP5 and EMP501 system to be improvedIRP5 and EMP501 system to be improved

4747

Trusts and estatesTrusts and estates

Trust distributions to beneficiariesTrust distributions to beneficiaries

Double tax charge on vesting of trust Double tax charge on vesting of trust assets to be removedassets to be removed

Estate redistributionsEstate redistributions

Tax-free redistribution rules to be adjusted Tax-free redistribution rules to be adjusted for supplying outside funds or assets to for supplying outside funds or assets to equalise differencesequalise differences

4848

Estate DutyEstate Duty

General anti-avoidance rule General anti-avoidance rule

Estate duty assessmentsEstate duty assessments

Life insurance/pension benefits and estate dutyLife insurance/pension benefits and estate duty exemption for life insurance up to a specified threshold (as long exemption for life insurance up to a specified threshold (as long

as that policy is not created shortly before death)as that policy is not created shortly before death)

4949

PART 2 – TAX UPDATEPART 2 – TAX UPDATE

5050

Developments over the last yearDevelopments over the last year

Interpretation notesInterpretation notes

Regulations and government noticesRegulations and government notices

Retirement notesRetirement notes

Tax judgments Tax judgments

Brochures and guides issued by SARS Brochures and guides issued by SARS

Interest rate changesInterest rate changes

UIF thresholdUIF threshold

See www.sars.gov.zaSee www.sars.gov.za

5151

Dividends & STCDividends & STC

Pre-1/10/01 capital profits and pre-1993 profits in a Pre-1/10/01 capital profits and pre-1993 profits in a liquidation distribution no longer be excluded from liquidation distribution no longer be excluded from “dividend” “dividend” from 1/1/09from 1/1/09

““Profits” means realised and unrealised profits whether Profits” means realised and unrealised profits whether or not unrealised profits have been recognised in the or not unrealised profits have been recognised in the accounts of the company accounts of the company (from 1/10/07)(from 1/10/07)

Paras (Paras (cc) and () and (dd) of the definition of “dividend” have been ) of the definition of “dividend” have been deleteddeleted (from 1/10/07)(from 1/10/07)

Share capital or share premium apportioned to a Share capital or share premium apportioned to a particular class of shares may not exceed the particular class of shares may not exceed the contribution given in respect of the issue of that class of contribution given in respect of the issue of that class of shares (from 1/10/2007)shares (from 1/10/2007)

5252

Allocation of share premiumAllocation of share premium

ExampleExample

A company has two classes of ordinary shares A and B sharesA company has two classes of ordinary shares A and B shares

A-shareholders previously contributed share capital and share A-shareholders previously contributed share capital and share premium of R30 000premium of R30 000

Before the creation of the B shares, the company’s value was Before the creation of the B shares, the company’s value was R1millionR1million

B shares are then issued for R1million, bringing the total value of the B shares are then issued for R1million, bringing the total value of the company to R2 millioncompany to R2 million

The company then distributes R1 million to the A-shareholders.The company then distributes R1 million to the A-shareholders.

ResultResult

The share capital and premium allocated to the A shares cannot The share capital and premium allocated to the A shares cannot exceed R30 000 (initial contribution for those shares)exceed R30 000 (initial contribution for those shares)

5353

Inter-group STC exemption Inter-group STC exemption (s 64B(5)((s 64B(5)(ff))))

New definition of “group of companies” in s 41New definition of “group of companies” in s 41 If the shareholder is a companyIf the shareholder is a company

it must form part of the same group of companies as the company it must form part of the same group of companies as the company declaring the dividend and declaring the dividend and

the dividend must be taken into account in the determination of the the dividend must be taken into account in the determination of the profits of that shareholderprofits of that shareholder

Dividend from pre-acquisition profitsDividend from pre-acquisition profits Exemption applies if the dividend is recognised as incomeExemption applies if the dividend is recognised as income

Excluded from the definition of “dividend” to the extent that it reduces the Excluded from the definition of “dividend” to the extent that it reduces the cost of investment in accordance with IAS 18 (AC 111)cost of investment in accordance with IAS 18 (AC 111)

Effective 1 October 2007 Effective 1 October 2007

5454

Company reorganisations Company reorganisations (Part III)(Part III)

Definition of “group of companies” (s 41) narrowedDefinition of “group of companies” (s 41) narrowed

Limited to taxable companies Limited to taxable companies

70% ownership criteria tightened70% ownership criteria tightened

Excludes shares held as trading stockExcludes shares held as trading stock

Ignore shares subject to derivatives with Ignore shares subject to derivatives with rights/obligations of salerights/obligations of sale

Effective date: Effective date:

the definition of ‘‘dividend’’ - 1 October 2007 the definition of ‘‘dividend’’ - 1 October 2007

Part III of the Act - 1 January 2009 Part III of the Act - 1 January 2009

STC provisions - 1 October 2007 STC provisions - 1 October 2007

Para 12 of the Eighth Schedule - 1 October 2007Para 12 of the Eighth Schedule - 1 October 2007

5555

Company reorganisations Company reorganisations (Part III)(Part III)

Sections 42 and 43 combined : Asset-for-share transactionsSections 42 and 43 combined : Asset-for-share transactions

Section 44(9A): amalgamated company’s profits are effectively Section 44(9A): amalgamated company’s profits are effectively rolled over to the resultant company so that STC remains rolled over to the resultant company so that STC remains payable when the resultant company makes subsequent payable when the resultant company makes subsequent distribution distribution

effectiveeffective fromfrom 21 February 200721 February 2007

Section 44(13): steps to liquidate, etc must be taken within Section 44(13): steps to liquidate, etc must be taken within 1818 months (or a longer period as the Commissioner may allow)months (or a longer period as the Commissioner may allow)

Intra-group transactions (s 45): degrouping charge if severed Intra-group transactions (s 45): degrouping charge if severed within 6 yearswithin 6 years

effective from 1 January 2009effective from 1 January 2009

5656

Deemed capital on share salesDeemed capital on share sales

Previously: s 9BPreviously: s 9B Listed sharesListed shares

5-year rule5-year rule

ElectionElection

disposed of by the taxpayer before 1/10/07disposed of by the taxpayer before 1/10/07

5757

New s 9CNew s 9C

Sales of shares held for up to 3 years are Sales of shares held for up to 3 years are deemed to be capitaldeemed to be capital

Mandatory (no election )Mandatory (no election )

Applies to gains Applies to gains andand losses losses

Applies to sales of “qualifying shares” on/after Applies to sales of “qualifying shares” on/after 1/10/07 1/10/07

Recoupment of previous deductions but no Recoupment of previous deductions but no s 22(8) recoupment s 22(8) recoupment

Special rules for fixed property companiesSpecial rules for fixed property companies

5858

ExampleExample

Taxpayer Taxpayer acquires shares for R150 in 2008acquires shares for R150 in 2008 holds the shares as trading stockholds the shares as trading stock sells the shares for R290 in 2013sells the shares for R290 in 2013

Tax treatment:Tax treatment: Purchase/opening stock deduction and closing stock add-Purchase/opening stock deduction and closing stock add-

back in 2008 - 2012back in 2008 - 2012 2013:2013:

opening stock deduction (s 22) of R150opening stock deduction (s 22) of R150 deduction recouped R150 deduction recouped R150 capital gain of R140 (R290 - R150)capital gain of R140 (R290 - R150)

5959

““Qualifying share”Qualifying share”

Equity share as defined in s 44 - includesEquity share as defined in s 44 - includes shares listed on the JSE (domestic and foreign)shares listed on the JSE (domestic and foreign)

private company sharesprivate company shares

interests in close corporationsinterests in close corporations

collective investment schemes in securitiescollective investment schemes in securities

Excludes Excludes s 8E hybrid instruments s 8E hybrid instruments

shares in share block companies shares in share block companies

shares in unlisted foreign companiesshares in unlisted foreign companies

6060

Fixed property companiesFixed property companies

The person selling the share is a connected person to the The person selling the share is a connected person to the companycompany ““Connected person” - s 1 definition BUTConnected person” - s 1 definition BUT

includes a shareholder (another company) with at least includes a shareholder (another company) with at least 20% holding 20% holding even ifeven if another shareholder holds a another shareholder holds a majority interestmajority interest

And And

a)a) more than 50% of the MV of the company consists of more than 50% of the MV of the company consists of immovable property acquired within 3 years before immovable property acquired within 3 years before disposal of the sharesdisposal of the shares

oror

b)b) within the last 3 years the company acquired assets thatwithin the last 3 years the company acquired assets that are encumbered by a lease or license and payments for use are encumbered by a lease or license and payments for use of the asset are made to someone other than the companyof the asset are made to someone other than the company

Normal facts and circumstances test will then applyNormal facts and circumstances test will then apply

6161

ExampleExample

Mr X wishes to use one of his shelf companies to trade Mr X wishes to use one of his shelf companies to trade propertyproperty

He has held one shelf company for 5 yearsHe has held one shelf company for 5 years He provides a guarantee to enable the shelf company to He provides a guarantee to enable the shelf company to

obtain a bank loan to buy a propertyobtain a bank loan to buy a property Sells the shares in the shelf company 6 months laterSells the shares in the shelf company 6 months later

S 9C will not apply as he is a connected person to the S 9C will not apply as he is a connected person to the shelf company & the MV of the company comprises fixed shelf company & the MV of the company comprises fixed propertyproperty

6262

Other s 9C provisionsOther s 9C provisions

Para 12 deemed disposals are disposals for s 9C Para 12 deemed disposals are disposals for s 9C purposespurposes

FIFO basis appliesFIFO basis applies

Roll-over rules generally apply except for s 42 (asset-for-Roll-over rules generally apply except for s 42 (asset-for-share transactions) and s 46 (unbundlings)share transactions) and s 46 (unbundlings)

Special provisions for securities lending arrangementsSpecial provisions for securities lending arrangements

Section 8B and 8C continue to applySection 8B and 8C continue to apply

6363

Retirement fund lump sum benefitsRetirement fund lump sum benefits

Para 1 of the Second SchedulePara 1 of the Second Schedule

Formula A deletedFormula A deleted

Lump sums on retirement or death accruing Lump sums on retirement or death accruing on/after 1/10/07on/after 1/10/07 tax-free portion calculated using Formula B: (Z=C+E-D) tax-free portion calculated using Formula B: (Z=C+E-D)

C = R300 000C = R300 000

D = previous exemptionsD = previous exemptions

E = disallowed contributions & pre-1/3/98 benefits from public-E = disallowed contributions & pre-1/3/98 benefits from public-sector pension fundssector pension funds

6464

ExampleExample

T retires from Big (Pty) Ltd on 1 December 2007 T retires from Big (Pty) Ltd on 1 December 2007

Member of the pension fund for 30 yearsMember of the pension fund for 30 years

Retirement lump sum = R900 000Retirement lump sum = R900 000

All contributions allowed as deductions and no All contributions allowed as deductions and no previously retirement lump sum previously retirement lump sum

The tax-free portion: The tax-free portion:

Z = C + E – D = 300 000 + 0 + 0 = R300 000 Z = C + E – D = 300 000 + 0 + 0 = R300 000

Taxable portion = R600 000Taxable portion = R600 000

6565

Tax rates for retirement and death lump Tax rates for retirement and death lump sums accruing on/after 1/10/07sums accruing on/after 1/10/07

Tax rate on any taxable retirement fund lump sum Tax rate on any taxable retirement fund lump sum benefit in respect of any year of assessment benefit in respect of any year of assessment ending on 29 February 2008:ending on 29 February 2008:

6666

Lump sum benefits: Lump sum benefits: other amendments (from 1/10/07)other amendments (from 1/10/07)

““Retirement funding employment” (RFE) excludes retirement fund Retirement funding employment” (RFE) excludes retirement fund lump sum benefits lump sum benefits

Rebates (s 6) may not be set off against tax on retirement fund Rebates (s 6) may not be set off against tax on retirement fund lump sum benefitslump sum benefits

RAF contributions (s 11(n)(A)): 15% of TI before s18, 18A RAF contributions (s 11(n)(A)): 15% of TI before s18, 18A excluding RFE income excluding RFE income and retirement lump sum benefits and retirement lump sum benefits

Medical deduction (s 18): 7,5% on TI excluding Medical deduction (s 18): 7,5% on TI excluding retirement lump retirement lump sum benefitssum benefits

Section 18A limit: 10% of TI excluding any retirement fund lump Section 18A limit: 10% of TI excluding any retirement fund lump sum benefitsum benefit

Assessed loss may not be set off against a retirement fund lump Assessed loss may not be set off against a retirement fund lump sum benefit (s 20 proviso (c))sum benefit (s 20 proviso (c))

No deduction of any expenses incurred in production of a No deduction of any expenses incurred in production of a retirement fund lump sum benefit (s 23(i))retirement fund lump sum benefit (s 23(i))

6767

Surplus apportionmentsSurplus apportionments

Lump sum distributions to former members after their Lump sum distributions to former members after their retirement, death, withdrawal or resignation from a retirement, death, withdrawal or resignation from a pension, provident or RA fund or the winding up of the pension, provident or RA fund or the winding up of the fundfund

To rectify past unfair practices (as previously referred to in para To rectify past unfair practices (as previously referred to in para 6(2))6(2))

NOT included in para (NOT included in para (ee) of the definition of ‘Gross ) of the definition of ‘Gross income’income’

Para 2C of the Second Schedule (w.e.f. Para 2C of the Second Schedule (w.e.f. 1/1/061/1/06) )

(Para 6(2)(deleted)(Para 6(2)(deleted)

6868

Membership of a public sector fund Membership of a public sector fund transferred to a private sector fund transferred to a private sector fund

Pre-1/3/98 benefits transferred to private sector fund are Pre-1/3/98 benefits transferred to private sector fund are preserved as tax-free preserved as tax-free

E in formula B amended to include these amountsE in formula B amended to include these amounts

same treatment on resignation/withdrawalsame treatment on resignation/withdrawal

6969

Withdrawal/ resignation lump sum Withdrawal/ resignation lump sum benefitsbenefits

Same treatment as previouslySame treatment as previously

Extension of pre-1/3/98 tax free benefits from Extension of pre-1/3/98 tax free benefits from public sector fundspublic sector funds

Taxable amount taxed according to s 5(10) Taxable amount taxed according to s 5(10) rating formularating formula

7070

Changes to definition of ‘pension fund’ Changes to definition of ‘pension fund’ and ‘retirement annuity’ fund (s 1)and ‘retirement annuity’ fund (s 1)

Rules of the fund:Rules of the fund:

Not more than 1/3 of total benefit may be commuted to a Not more than 1/3 of total benefit may be commuted to a lump sum (2/3 must be taken as an annuity)lump sum (2/3 must be taken as an annuity)

except whereexcept where 2/3 of the total value does not exceed R50000 2/3 of the total value does not exceed R50000 (i.e. total benefit not more than R75000) (previously (i.e. total benefit not more than R75000) (previously referred to annual annuities up to R1800)referred to annual annuities up to R1800)

Effective from commencement of years of assessment ending Effective from commencement of years of assessment ending on/after 1/1/08on/after 1/1/08

7171

PAYE on Lump sum benefitsPAYE on Lump sum benefits

Para 9 of the Fourth SchedulePara 9 of the Fourth Schedule PAYEPAYE must be withheld from lump-sum payments included must be withheld from lump-sum payments included

in para (in para (dd) or () or (ee) of the gross income definition or to which ) of the gross income definition or to which s7A(4A) applies s7A(4A) applies

BUT: No employees tax to be withheld from any para (e) lump BUT: No employees tax to be withheld from any para (e) lump sum if the individual’s taxable income excluding the lump sum sum if the individual’s taxable income excluding the lump sum for the previous year was below the tax threshold (for lump for the previous year was below the tax threshold (for lump sums accrued on/after 1/10/07)sums accrued on/after 1/10/07)

7272

Divorce settlementsDivorce settlements

Taxable in the hands of the fund member as a Taxable in the hands of the fund member as a withdrawal benefit on the date the amount withdrawal benefit on the date the amount becomes payablebecomes payable

Fund must pay PAYE in terms of a tax directiveFund must pay PAYE in terms of a tax directive

The Pension Funds Act has been amended to The Pension Funds Act has been amended to allow the fund to release the tax from the fund allow the fund to release the tax from the fund member’s benefit member’s benefit

In the case of a divorce order, the fund member In the case of a divorce order, the fund member will have a right of recovery of the tax he/she will have a right of recovery of the tax he/she has paidhas paid

7373

Occupational death benefitsOccupational death benefits

Up to R300 000 compensation on death arising Up to R300 000 compensation on death arising out of and in the course of employment out of and in the course of employment

if in addition to compensation if in addition to compensation paid in terms of paid in terms of the Workmen's Compensation Act, 1941 (Act 30 the Workmen's Compensation Act, 1941 (Act 30 of 1941) or the Compensation for Occupational of 1941) or the Compensation for Occupational Injuries and Diseases Act, 1993 (Act 130 of 1993)Injuries and Diseases Act, 1993 (Act 130 of 1993)

7474

183-day exemption (cont.)183-day exemption (cont.)

Employee must be absent for 183 full days Employee must be absent for 183 full days during any 12 month period commencing or during any 12 month period commencing or ending during ending during anyany year of assessment year of assessment

Remuneration received or accrued during a year Remuneration received or accrued during a year of assessment in respect of services rendered in of assessment in respect of services rendered in more than one year of assessment is deemed to more than one year of assessment is deemed to have accrued evenly over the period that those have accrued evenly over the period that those services were renderedservices were rendered

Effective from the commencement of years of assessment Effective from the commencement of years of assessment ending on or after 1 January 2008ending on or after 1 January 2008

7575

183-day exemption 183-day exemption (s 10(1)((s 10(1)(oo)(ii)))(ii))

Remuneration received by/ accruing to an Remuneration received by/ accruing to an employeeemployee By way of -By way of -

salary, leave pay, wage, overtime pay, bonus, gratuity, salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolumentcommission, fee, emolument

para (para (ii) fringe benefits) fringe benefits

sections 8B and 8Csections 8B and 8C

Doesn’t include Doesn’t include pension, superannuation allowance, retiring allowance or stipend pension, superannuation allowance, retiring allowance or stipend

para (para (ccA), (A), (dd), (), (ee), (), (eeA) or (A) or (ff) amounts if not for services rendered) amounts if not for services rendered

7676

Deduction for annuities (Deduction for annuities (s 11(s 11(mm)) ))

Deduction of annuity payments to a dependent Deduction of annuity payments to a dependent of a former employee or partner of the taxpayer of a former employee or partner of the taxpayer was limited to R2 500 per year was limited to R2 500 per year The limitation has been removed with effect from the The limitation has been removed with effect from the

commencement of years of assessment ending on or after commencement of years of assessment ending on or after 1 January 2008. 1 January 2008.

7777

Connected person limitationConnected person limitation

Deemed cost provisions replaced by s 23J Deemed cost provisions replaced by s 23J S 11(S 11(ee)(viii))(viii)

S 11(S 11(ggC) proviso para (bb)C) proviso para (bb)

S 12B(4A)S 12B(4A)

S 12C(4)S 12C(4)

No s 11(o) allowance for sales between No s 11(o) allowance for sales between connected personsconnected persons

7878

Asset purchased from a connected Asset purchased from a connected person (s 23J)person (s 23J)

Depreciable tax cost of an asset purchased from Depreciable tax cost of an asset purchased from a connected person is the sum ofa connected person is the sum of The cost (taking into account any subsequent tax The cost (taking into account any subsequent tax

adjustments) of the depreciable asset to the connected adjustments) of the depreciable asset to the connected person seller; person seller;

Less: tax allowancesLess: tax allowances

Add: ordinary revenue triggered upon the connected person Add: ordinary revenue triggered upon the connected person sale as well as any inclusion stemming from the capital gain sale as well as any inclusion stemming from the capital gain triggered on the saletriggered on the sale

7979

ExampleExample

Co. X owns 60% of Co Y and Co ZCo. X owns 60% of Co Y and Co Z

Y sells depreciable equipment to Z Y sells depreciable equipment to Z

Y initially purchased the equipment for R100; TV Y initially purchased the equipment for R100; TV = R70= R70

Y sells the equipment to Z for R110 Y sells the equipment to Z for R110 R30 recoupment R30 recoupment

R10 capital gain = R5 taxable capital gain (50%) R10 capital gain = R5 taxable capital gain (50%)

Z’s depreciable cost = R105Z’s depreciable cost = R105

8080

Deduction for commercial buildings Deduction for commercial buildings (s 13(s 13quin)quin)

5% p.a. of the cost to the taxpayer5% p.a. of the cost to the taxpayer

New and unused buildings & improvementsNew and unused buildings & improvements

Wholly or mainly used by the taxpayer during the year of Wholly or mainly used by the taxpayer during the year of assessment for purposes of producing income in the assessment for purposes of producing income in the course of trade, other than the provision of residential course of trade, other than the provision of residential accommodationaccommodation

Other deductions take precedenceOther deductions take precedence

Applies to buildings contracted for on or after 1/4/07 and Applies to buildings contracted for on or after 1/4/07 and construction, erection or installation commenced on or construction, erection or installation commenced on or after that dateafter that date

8181

Deductions for environmental Deductions for environmental expenditure (s 37B)expenditure (s 37B)

Capital allowance on new and unused Capital allowance on new and unused environmental production assets (waste treatment and recycling environmental production assets (waste treatment and recycling

facilities & improvements) (40:20:20:20 rate); and facilities & improvements) (40:20:20:20 rate); and

postproduction assets (waste dumps and dams & improvements) postproduction assets (waste dumps and dams & improvements) (5% p.a.)(5% p.a.)

If ancillary to manufacturing or similar process of a If ancillary to manufacturing or similar process of a permanent nature (moveable assets covered by s 11(permanent nature (moveable assets covered by s 11(ee))))

Assets must be used to meet legal environmental Assets must be used to meet legal environmental obligationsobligations

8282

Medical expenses paid by Medical expenses paid by employeremployer

Employees required to undergo medical check-ups in terms Employees required to undergo medical check-ups in terms of employer’s policy or legislation of employer’s policy or legislation

if the employer pays, a fringe benefit arises and is taxed if the employer pays, a fringe benefit arises and is taxed (code 3813) (code 3813)

Deemed expense for the employee (code 4024) – can Deemed expense for the employee (code 4024) – can deduct excess over 7,5% of taxable incomededuct excess over 7,5% of taxable income

Exemption if services rendered or medicines supplied Exemption if services rendered or medicines supplied are required by laware required by law

8383

Qualifying medical expenses Qualifying medical expenses (s 18(1)((s 18(1)(bb), (c) & (), (c) & (dd))))

““Taxpayer, spouse and children” extended to Taxpayer, spouse and children” extended to include dependants include dependants

ifif admitted as a dependant of the taxpayer’s admitted as a dependant of the taxpayer’s medical aid fundmedical aid fund

8484

Donations (s 18A) Donations (s 18A)

Limit increased to 10% of taxable incomeLimit increased to 10% of taxable income

Heading amendedHeading amended

8585

Residential accommodationResidential accommodation

Taxable unless employee is away from Taxable unless employee is away from usual place of usual place of residenceresidence for the purposes of performing his/her for the purposes of performing his/her employment duties employment duties ITC ITC 18071807 – 32 month period accepted – 32 month period accepted

Para 9(7) exemption: 1 year limit if usual place of Para 9(7) exemption: 1 year limit if usual place of residence is outside the Republicresidence is outside the Republic

Effective 1/3/08Effective 1/3/08

8686

Residential accommodationResidential accommodation

Para 9(3) formula:Para 9(3) formula: B increased from R40000 to R43000 from 1/3/07B increased from R40000 to R43000 from 1/3/07

i.e. no tax if employee’s remuneration is less than the tax i.e. no tax if employee’s remuneration is less than the tax thresholdthreshold

8787

Prohibition of deductions on certain Prohibition of deductions on certain intellectual property (s 23I)intellectual property (s 23I)

““Affected intellectual property” Affected intellectual property” involves a connected person (with lower threshold)involves a connected person (with lower threshold)

No deduction for royalties, etc if they are not No deduction for royalties, etc if they are not taxed in the recipient’s handstaxed in the recipient’s hands 1/3 deduction if the royalties are subject to s 35 withholding 1/3 deduction if the royalties are subject to s 35 withholding

tax (12 %)tax (12 %)

8888

““Intellectual property”Intellectual property”

patent patent

designdesign

trade mark trade mark

copyright copyright

invention, patent, design, trade mark or copyright defined invention, patent, design, trade mark or copyright defined or described in any similar law of any foreign country or described in any similar law of any foreign country

property or right of a similar nature property or right of a similar nature

knowledge connected to the use of propertyknowledge connected to the use of property

8989

ExampleExample

IP developed by resident; assigned to non-residentIP developed by resident; assigned to non-resident Non-resident allows the resident’s company to use the Non-resident allows the resident’s company to use the

patent an annual licence fee of R1mpatent an annual licence fee of R1m

12% withholding tax on royalty payments 12% withholding tax on royalty payments Royalty receipts exempt in the hands of the licensor Royalty receipts exempt in the hands of the licensor

(s 10 (1)((s 10 (1)(ll)))) Deductions for the SA licensee are reduced from Deductions for the SA licensee are reduced from

R1million to R333 333 i.t.o. s 23I (2)(R1million to R333 333 i.t.o. s 23I (2)(aa))

9090

Anti-avoidance (s 23I(2)(Anti-avoidance (s 23I(2)(bb))))

Taxpayers prevented from interposing a third party that Taxpayers prevented from interposing a third party that converts royalty streams into financial instruments converts royalty streams into financial instruments (e.g. promissory notes and credit default swaps) and on-(e.g. promissory notes and credit default swaps) and on-routing these payments to entities with lower effective routing these payments to entities with lower effective tax ratestax rates

Example Example Licence: Promissory notes for royalties are discounted by the Licence: Promissory notes for royalties are discounted by the

licensor to a tax exempt entity or fund licensor to a tax exempt entity or fund

Deduction denied i.t.o. ss 23I(2)(Deduction denied i.t.o. ss 23I(2)(aa) and/or () and/or (bb) )

9191

Foreign tax relief – s 6Foreign tax relief – s 6quatquat

Now permitted to deduct foreign taxes on SA-source Now permitted to deduct foreign taxes on SA-source activitiesactivities services within SA but foreign government imposes services within SA but foreign government imposes

withholding taxwithholding tax

Limited to related taxable incomeLimited to related taxable income

Replaces s 11C(4) & (5)Replaces s 11C(4) & (5)

9292

Research and development Research and development allowance (s 11D)allowance (s 11D)

Recoupment – s 8(4)(a) N/A to s 11D(1)Recoupment – s 8(4)(a) N/A to s 11D(1)

Scrapping allowance – s 11(o)Scrapping allowance – s 11(o)

Pre-trade expenses – s 11APre-trade expenses – s 11A

Limitation for sale & leaseback transactions – s 23DLimitation for sale & leaseback transactions – s 23D

Reinvestment in replacement assets - Para 66 of the Eighth Reinvestment in replacement assets - Para 66 of the Eighth Schedule Schedule

Effective 2/11/06Effective 2/11/06

9393

Amendments to s 11DAmendments to s 11D

Asset must be Asset must be Owned by the taxpayer or acquired i.t.o an instalment credit Owned by the taxpayer or acquired i.t.o an instalment credit

agreementagreement

Brought into use for the 1Brought into use for the 1stst time time

Used solely and directly for qualifying R&D (NB “part of a Used solely and directly for qualifying R&D (NB “part of a building”)building”)

If expenditure qualifies for both the 150% deduction If expenditure qualifies for both the 150% deduction and the 50/30/20 allowance, the capital allowance and the 50/30/20 allowance, the capital allowance takes precedencetakes precedence

S 11D(6) – taxpayer can elect that another capital S 11D(6) – taxpayer can elect that another capital allowance applies (if the asset qualifies)allowance applies (if the asset qualifies)

9494

Foreign currency transactionsForeign currency transactions

Exchange difference subject to s 24I(7A) (10% Exchange difference subject to s 24I(7A) (10% p.a.) cannot be subject to s 24I(10) (deferral of p.a.) cannot be subject to s 24I(10) (deferral of exchange differences until loans are realised)exchange differences until loans are realised) NB: s 24I(7A) applies to loans granted in any YOA ending NB: s 24I(7A) applies to loans granted in any YOA ending

before 8/11/05before 8/11/05

9595

Dividend stripping / extraordinary div’sDividend stripping / extraordinary div’s(para 19 of Eighth Schedule)(para 19 of Eighth Schedule)

Capital loss disregarded Capital loss disregarded

up to the amount of the up to the amount of the extraordinary dividendextraordinary dividend

distributed within 2 years distributed within 2 years before before disposaldisposal of the share of the share

9696

ExampleExample

H Co purchased 100% of S Co for R20 million in 2000H Co purchased 100% of S Co for R20 million in 2000 S Co has increased in value to R35 millionS Co has increased in value to R35 million 15/3/2008: S Co distributes R20 million to H Co & H 15/3/2008: S Co distributes R20 million to H Co & H

Co then sells the S Co shares for R15 million Co then sells the S Co shares for R15 million (R5 million loss)(R5 million loss) Extraordinary dividend = amount exceeding 15% Extraordinary dividend = amount exceeding 15%

of the R15 million proceeds (R20m – 2.25m = of the R15 million proceeds (R20m – 2.25m = R17.75m)R17.75m)

H Co must disregard the R5 million loss (up to the H Co must disregard the R5 million loss (up to the amount of the extraordinary dividend)amount of the extraordinary dividend)

9797

Capital distributions (paras 76 and Capital distributions (paras 76 and 76A of the Eighth Schedule)76A of the Eighth Schedule)

Previously deferred, i.e.Previously deferred, i.e. distributions on or after 1/10/01 were added to proceeds on the distributions on or after 1/10/01 were added to proceeds on the

eventual disposal of the shares eventual disposal of the shares

pre-2001 distributions reduced base cost of the sharepre-2001 distributions reduced base cost of the share

From 1/10/07: each capital distribution will trigger a From 1/10/07: each capital distribution will trigger a part-disposalpart-disposal

Distributions before 1/10/07 will be deemed to trigger Distributions before 1/10/07 will be deemed to trigger a part disposal on 1 July 2011a part disposal on 1 July 2011

9898

ExampleExample

Taxpayer acquired a share for R120 in 2002; Taxpayer acquired a share for R120 in 2002; now has a value of R200now has a value of R200

Taxpayer receives a capital distribution of Taxpayer receives a capital distribution of R20 in July 2009R20 in July 2009

Capital distribution gives rise to a part-Capital distribution gives rise to a part-disposal. 10% of base cost (10% x R120) is disposal. 10% of base cost (10% x R120) is allocated to the part-disposal allocated to the part-disposal

Capital gain = R20 – R12 = R8Capital gain = R20 – R12 = R8

9999

Sporting bodies (s 11E)Sporting bodies (s 11E)

National sporting organisations can amalgamate National sporting organisations can amalgamate amateur and professional divisions before 31/12/09amateur and professional divisions before 31/12/09

professional arm’s disposal of all its assets to the professional arm’s disposal of all its assets to the amateur arm will be tax neutral amateur arm will be tax neutral

professional arm then ceases to existprofessional arm then ceases to exist

amalgamated entity will be taxableamalgamated entity will be taxable

Section 11E: special deduction for non-capital Section 11E: special deduction for non-capital expenditure incurred on development and promotion expenditure incurred on development and promotion of qualifying amateur sport of qualifying amateur sport

100100

Withholding of CGT from payments to non-Withholding of CGT from payments to non-resident sellers of immovable property (s 35A)resident sellers of immovable property (s 35A)

Disposals on/after 1/9/07Disposals on/after 1/9/07 5% of the amount payable if the seller is a natural person5% of the amount payable if the seller is a natural person

7,5% of the amount payable if the seller is a company7,5% of the amount payable if the seller is a company

10% of the amount payable if the seller is a trust10% of the amount payable if the seller is a trust

If the selling price of the property exceeds If the selling price of the property exceeds R2 million R2 million

101101

Waiver of debtWaiver of debt

Regulations published 13 April 2007Regulations published 13 April 2007

102102

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