Adding value to tax

Five important considerations for tax planning in 2016

Businessman failure

What should wealth managers take into consideration with regard to tax planning strategy? Niven Singh traces five important contours for Blue Chip.   

The Harmonisation of the Retirement fund, Provident fund and Pension fund

SARS is looking at aligning these funds in 2016, to ensure consistent tax treatment on all retirement funds. As a result, the employer’s contributions to these funds will be a fringe benefit from 01 March 2016. This may, however, be delayed to 01 March 2017. On the positive side, there may be no limits on the amount an employer may claim as a deduction for contributions made on behalf of the employee to these funds. The total contribution deductible by an employee will be limited to 27.5% of the greater of remuneration or taxable income. This will be capped at an annual limit of R350 000. Any excess contribution will be carried over to the next year of assessment and any fund-to-fund transfers shall have no tax consequence. It has also been proposed that the definition of Retirement annuity fund be amended to allow for expatriates to withdraw a lump sum from their retirement annuity fund if one of the following two criteria are met

  • When the expatriates cease to be tax residents and leave South Africa; or
  • When the expatriates leave South Africa at the end of their work visa.

 The changes in Medical Aid, Dividends and Interest

There will be no changes to the Medical Aid Tax Credit that will have a material impact on a taxpayer. We can expect to see an inflation related increase on the medical aid tax credit. There will be some good news for taxpayers who are over the age of 65. It has been proposed (effective 01 March 2016) that the medical tax credits related to medical scheme contributions be taken into account for both monthly PAYE and Provisional tax computation, which will assist in increasing the cash flow of these individuals.
Dividends tax of 15% is not expected to increase in 2016.
We can expect to have an increase in the annual interest exemption in a range of (R500 - R1000 for individuals under 65 years) and (R1000 – R1500 for individuals over 65 years). Clients should be advised to make use of Tax free savings accounts to reduce their tax liability.

Capital Gains Tax and Trusts

The current Tax rate of a Trust is not expected to change from the current 41% (40% - 2015). However, one has to consider the effectiveness of making use of Trusts, especially since SARS is constantly scrutinizing the tax structures of a trust. Current effective tax rates are as follows:

  • Individual taxpayer (13.7%), 
  • Special Trust (13.7%), 
  • Companies (18.7%) and 
  • Trust (27.3%).

This indicates that SARS is unsatisfied with the current structure of a Trust and we can expect some changes in the near future.

 Value Added Tax

In the October 2015 Medium term budget speech, the Finance Minister announced that the Gross Tax Revenue is down by R7.6 Billion and that the Davis Tax Committee is already covering the VAT topic, coupled with the current pressure that government is under, from the demands of the general public. Vat contributed 26.4% to the Total Tax Revenue. This signifies a high possibility of an increase in the VAT rate, especially since the last increase was on 07 April 1993. An estimated rate increase of anything between 0.5% - 3% can be expected. This means less disposable income for clients and an increase in cost of living. Clients will require high returns from their current investments to compensate the deficit in their personal budgets.

 Estate duty

In an effort to combat the practice of avoiding estate duty through retirement contributions, it has been proposed that contributions made to a retirement fund on or after 01 March 2015 that did not receive a deduction, be included in the dutiable part of the estate for estate duty purposes. The contributions that did not receive a deduction which have been included as part of any lump sum payment to the retirement fund member or that have been used to offset the tax liability for annuity payments to the retirement fund member, will not be included in the dutiable value of the estate. This proposal will apply in respect of the estate of the person who is deceased on or after 01 March 2015 and apply in respect on contributions made on or after this date.



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Issue 72