Tax Guide

Capital Gains Tax:

	Inclusion rate	Effective rate of tax
Individuals, Special Trusts and Testamentary Trusts set up for the benefit of minor children	25%	4.5 - 10%
All other Trusts	50%	20%
Companies and CCs	50%	14%
Individual Policyholder Fund	25%	7.5%
Company Policyholder Fund	50%	14%
Corporate Fund	50%	14%
Untaxed Policyholder Fund	0	0

The effective rate applicable to the four funds is calculated by multiplying the inclusion rate applicable to each fund by the tax rate of that particular fund.

For individuals and special trusts, there is a R17 500 exemption per annum and R120 000 on death

Calculation of base cost for CGT

Base cost properties acquired after 1 October 2001 is the cost of acquiring such property.

Methods to determine base cost of an asset acquired before 1 October 2001:

Time-based apportionment
Market value (can be used only if property was valued by 1 October 2001)
20% rule

1. What is the time apportionment method?

If the taxpayer does not choose to use the market value of the asset at 1 October 2001 as the value of that asset, or if they have not valued the property by 1 October 2001, they must use the time apportionment method of calculating the base cost of the asset.

This method requires that the person must know when the asset was bought and how much it cost.

It is also necessary to know how much was spent on improving the asset over the period it was held and when the expenditure was incurred before or after 1 October 2001.

The legislation then provides a formula to be used in calculating the base cost. It is therefore important that one keeps proper records to enable the formula to be applied. It is suggested that taxpayers seek professional advice in determining the base cost value if this method is used.

2. Market value

Type of asset	Market value
Financial instrument listed on a recognised exchange	Average of listed buying and selling prices at close of business on last trading day before disposal.
Long-term insurance policy	Greater of: Surrender value; or Insurer’s fair market value (assume policy runs to maturity).
Unit trusts and property unit trust	Management company’s repurchase
Foreign unit trust interest	Management company’s repurchase price or, if not available, selling price based on willing buyer, willing seller acting at arm’s length in open market.
Fiduciary,usufructuary and other	Present value of future benefits discounted at 12% p.a. over life expectancy of person entitled to asset or lesser period of enjoyment. Commissioner may approve less than 12% where justified.
Property subject to fiduciary, usufructuary and other like interests	Market value of full ownership, less value of fideicommissum or usufruct, etc. as determined above.
Immovable farming property	Land Bank value (defined in the Estate Duty Act). Effective 1 February 2006, fair market value (as defined in the Estate Duty Act) in relation to immovable property on which a bona fide farming undertaking is being carried on in the Republic, is the amount determined by reducing the price dealing at arm’s length in an open market by 30%; OR Price based on willing buyer, willing seller at arm’s length in open market. On disposal by death, donation or non-arm’s length transaction, only the Land Bank value may be used.
Any other asset	Price based on willing buyer, willing seller at arm’s length in open market.
Unlisted shares	Price based on willing buyer, willing seller at arm’s length in open market, ignoring any: Restrictions on transferability Stipulated method of valuation If shareholder is entitled to greater share of assets on winding up, the value must not be less than the amount the shareholder would have received had the company been wound up.

3. 20% Rule

20% of proceeds on disposal of asset

Donations Tax:

Donations tax is payable at the rate of 20% on the value of all property donated on or after 1 October 2001.

Exemptions include donations to:

Certain public benefit organisations as approved by SARS
The donor’s spouse, including donations for the benefit of the spouse under a duly registered ante nuptial contract.
Anybody – the first R100 000 of assets donated in each year by a natural person.
Government, provincial and local authorities.
In the case of a taxpayer who is not natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total.

Employees Tax:

Employees’ tax represents tax withheld by an employer from remuneration paid to an employee. Remuneration includes salary, wages, commission, bonuses, the taxable value of fringe benefits and 60% of a travel allowance, as well as annuities and pensions paid to annuitants and pensioners. Employees’ tax is turn classified as:

Standard income tax on employees (SITE)

Applicable to:

A taxpayer whose “net remuneration”* does not exceed R60 000 per annum.

Implications:

The employer’s SITE deduction will constitute a final tax liability for the year for those employees subject to SITE only.
Employees subject to SITE only are released from the obligation to submit annual tax returns.
For other taxpayers, any deductions made during the year in respect of SITE and/or PAYE will be a minimum tax liability and will constitute a credit towards the final tax liability.

“Remuneration” means earnings from employment (including annuities from pension, provident or benefit funds), but does not include income from investments, voluntary purchase annuities or annuities from a retirement annuity fund.

Pay as you earn (PAYE)

PAYE is the tax applicable to any portion of net remuneration in excess of R60 000 and to remuneration which is not remuneration (e.g. lump sum benefits, travel allowances, and any remuneration paid to a director of a company or earned by a person who has an assessed loss).

PAYE is calculated on :

The balance of remuneration remaining after the deduction of contributions to a pension fund or retirement annuity fund (RA fund).
At the option of the employer, the balance of remuneration remaining after the deduction of contributions to an RA fund by an employee and in respect of which proof of payment has been furnished to the employer.
At the option of the employer, any premium paid by the employee in respect of which proof of payment has been furnished to the employer, in terms of an insurance policy:
- To the extent that it covers that employee against the loss of income as a result of illness, injury, disability or unemployment; and
- in respect of which all amounts payable in terms of that policy constitute income as defined, but limited to the deduction to which the employee is entitled under section 11(a); and
at the option of the employer, any contribution by the employee to a medical scheme as contemplated in section 18(1)(a) in respect of which proof of payment has been furnished to the employer, if the employee is entitled to a rebate under section 6(2)(b).

PAYE and labour brokers

With effect from 27 July 2004, a labour broker who receives or is likely to receive more than 80% of his or her income from one client or any associated institution, is able to apply for a certificate of exemption from withholding PAYE from the remuneration of his or her employees, provided that he or she employs more than three full-time employees:

who are on a full-time basis engaged in the business of that labour broker of providing or procuring persons for clients of that labour broker; and
who are not connected persons in relation to that labour broker.

As from 1 March 2009 a company, close corporation and trust is no longer defined as a labour broker and is therefore no longer eligible for an exempiton certificate. Instead the definition of "Personal service provider" in paragraph 1 of the Fourth Schedule must be considered in respect of companies, close corporations and trusts which provide a service (including the provision of labour). This does not necessarily imply that PAYE is deductible. The client to whom a company, close corporation or trust render services will have to determine whether or not a company, close corporation or trust meets the definition of "Personal service company" before it makes a payment. The reason for that is because if a company, close corporation or trust is a personal service provider as defined, the client must deduct employees' tax from payments made to the company, close corporation or trust (the client will be held responsible by SARS if the client has an obligation to deduct employees' tax and the client did not do so)

Employer Owned Policies:

Premiums

Tax deductible, provided:

the employer actually paid the premiums; and
the policy was on the life of an employer at the time of paying the premiums; and
the policy was the property of the employer at the time of paying the premiums; and
only the employer would have been entitled to the proceeds that were or could have become payable under the said policy; and
no loan by third party secured by the policy is outstanding except in limited cases; and
the policy was accepted before 1 June 1982 or proposed for before 25 May 1982 and accepted by 21 June 1982. In such cases the deduction is limited to the premiums as payable in terms of the policy conditions as at 31 May 1982;

the policy is a term policy or personal accident policy;

the policy conforms to the State President’s Regulations, premiums limited to 10% of the employee’s or director’s remunerations. To conform to the State President’s Regulations, the policy contract must have:
- a prescribed minimum element of life cover (lesser of the maturity term or 20 year x 80% of lowest net premium);
- only one life assured;
- regular premium payment periods

Premiums are not taxable in the employee’s hands unless he or she is given a vested right to the proceeds under all circumstances.

Proceeds

Any premiums disallowed as a deduction may be offset against the taxable proceeds.

If no premium was ever tax deductible, the proceeds will normally be tax free.

Loans

Policy loans from the insurer are also taxable if premiums are tax deductible.

Retirement gratuities

Employer

Tax deductible for the employer if incurred in the production of income, as evidenced by payment over to the employee in terms of:

a service agreement; or
established employer practice

Employee

Maximum of R30 000 tax free if:

the age of 55 has been reached (unless earlier retirement is due to ill health);
retrenched on or after 1 March 2002,irrespective of age.

Balance exceeding R30 000:

up to 3 times the employee’s earnings over the 3 previous years is taxed at average rates of tax;

Where the employee does not qualify, the full retirement gratuity or cession value of any policy will be taxed as income.

Gratuities in excess of the tax-free limit paid to employees who are retrenched may be taxed at the employee’s who are retrenched may be taxed at the employee’s average rate of tax.

Estate duty donations tax and capital gains:

Estate duty

A basic deduction of R 3.5 million is allowed in the determination of an estate's liablility for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses.

A flat rate of 20% is levied on balance of estate on all property of residents and SA property of non-residents.

Donations tax

The threshold below which no donations tax is payable is R100 000. There after a 20% flat rate on value on property is payable.

In the case of a tax payer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R 10 000 p.a. in total.

Dispositions betweeen spouses and donations to certain public benefit organisations are exempt from donations tax.

Capital gains tax

The annual capital gains tax exemption for individuals has been increased from R15 000 to R16 000. The monetary threshold below which no capital gains tax is imposed at death is R120 000.

All shares disposed of after three years will trigger a capital gains tax event.

Estate duty rates:

Estate duty will be payable at a rate of 20% on the dutiable amount of an estate, of a person who died on or after 1 October 2001.

Both spouses are entitled to this estate duty deduction and it is accepted that each spouse will seek to use the R3.5 miljon deduction by removing assets worth that amount from the estate whilst keeping practical control of the assets for the benefit of the spouse via a trust vehicle. It is now proposed that spouses be given flexibility in using their combined estate duty deductions without the artifice of the trust vehicle. The surviving spouse's estate will automatically benefit from the unused deduction of the deceased spouse.

Abatements

Single abatement……………….R3 500 000

Assurance and estate duty

Proceed of policies on the deceased’s life are deemed to be property in his or her estate subject to these concessions:

Premiums paid by another who is entitled to the policy proceeds, plus 6% compound interest, may be deducted from the policy proceeds.

Proceeds of policy on the life of the deceased are entirely exempt from estate duty where:

Proceeds payable to a surviving spouse or child of the deceased in terms of a registered ante nuptial or postnuptial contract or payable to a surviving spouse under any circumstances.
Policy taken out by partner, co-shareholder or co-member:
- for purpose of acquiring deceased’s interest in a partnership, company or close corporation, and
- no premium on policy paid or borne by deceased
Policy taken out by or at instance of deceased:
- no premium on policy paid or borne by deceased, and
- proceeds not paid to, or for benefit of: deceased’s estate; any relative of the deceased; any person wholly or partly dependent for his or her maintenance upon the deceased; company which at any time was family company in relation to deceased.
Other deductions:
- Liabilities at date of death (including CGT due on death)
- Bequests to charitible, educational and religious institutions within SA
- Property accruing (including bequests) to a surviving spouse

Farm property and estate duty

Effective 1 February 2006, the fair market value of farm property is its market value less 30%.

Community of property marriages

Only half of the joint estate is brought to account.

Exchange control allowances:

Individuals

1a. Offshore investment allowance

Taxpayers in good standing who are natural persons, over the age of 18 ... R2 million each
Tax clearance certificate required.
Income earned on investment may remain offshore.

1b. Setting-in allowance on emigration

Single persons ... R2 million (Less any amount invested in terms of the foreign investment allowance)
Family unit ... R4 million (Less any amount invested in terms of the foreign investment allowance)
Household and personal effects, motor vehicles, motorcycles, trailers, stamps and coins (excluding Kruger Rand) to the insured value of R1 million (These goods, other than clothing, must have been in the emigrant's possession for at least one year prior to emigration.)

The distinction between the setting-in allowance and private individual allowance has fallen away.

Emigrants can, on application, request to transfer blocked assets in excess of the limit of R4 million per family unit or R2 million per single person, subject to an exiting schedule, at the discretion of the Exchange Control Department of the South African Reserve Bank, and an exit charge of 10% of the amount. Persons who have emigrated, but have not fully utilised the current authorised foreign capital allowance, may be accorded additional capital transfers, provided the amount availed of does not exceed the current limits.

2. Travel allowance

A travel allowance of R 500 000 granted per individual.

Travel Allowances for visits outside the Common Monetary Area (CMA) :

Adults - the travel allowance forms part of the discretionary allowance referred to above.

Persons under the age of 18 - R160 000 per calendar year.

Travel facilities may be provided by way of traveller's cheques, foreign bank notes and credit/debit cards. Travel facilities not availed of during one calendar year may not be carried forward to the following year. Travellers proceeding on visits outside the CMA are permitted to export up to R5000 per person in SA Reserve Bank notes. This is not regarded as being part of the travel allowance.

Common monetary area residents travelling to and from Namibia may be provided with Botswana Pula to an amount of R5 000 per annum over the above limits.

3. Blocked Rand

The remaining assets constitute blocked assets and must be placed under control of an authorised dealer (the emigrant’s banker) with effect from the date of departure.
Authorised avenues for blocked Rand investments include SA securities and unit trusts.
Blocked assets can be used to pay premiums on policies and retirement annuity funds which existed prior to emigration.
New policies are not authorised avenues of investment. Special approval is required.
New emigrants wishing to transfer more than R2 million can apply to Exchange Control to do so, with approval subject to an exiting schedule and an exit charge of 10%.
Persons who have emigrated but have not fully utilised the current authorised foreign capital allowance, may be accorded additional capital transfers, provided the total amount availed of does not exceed the current limits are exceeded, an exit charge of 10% is payable.
R100 000 may be released from blocked Rand accounts each year for the purpose of gifts, donations and maintenance of third parties in the Republic. Emigrants visiting the Republic are entitled to have funds released from their blocked Rand accounts of R3 000 per day per adult and R1 500 per child under 12. This is subject to a maximum amount of R75 000 per family unit per year.
Return airfares to and from the Republic may be paid from blocked Rand’s

4. Income from the Republic

Current income earned on blocked assets may be transferred to the emigrant’s new residence through normal banking channels. Income includes: interest, director’s fees, monthly pension payments, retirement annuity payments (specific approval required), the income portion only of a voluntary annuity.

5. Study allowances

Tuitions fees may be paid in full on production of documentary evidence.
Students attending full-time course at foreign universities are entitled to an allowance of R160 000 (single person) or R320 000 (accompanied by spouse) per year.
R50 000 (R100 000 if accompanied by spouse) to cover travel during vacation periods.

6. Maintenance payments

Maintenance payments to family members (mothers, fathers, sisters, brothers) of up to R9 000 per month are allowed on the production of certified documentary evidence proving need and the relationship.

7. Alimony

An amount of R9 000 more than the amount of the court order is allowed.

8. Inheritances

Inheritances bequeathed to non-residents are freely transferable.

9. Gifts

Residents may send gifts of money to the value of R30 000 per year to non-residents.

10. Reserve Bank notes

Up to R5 000 in cash may be taken in Rand notes when departing from the Republic, in addition to travel allowance.

11. Credit card payments

Credit card payment can be made for offshore purchases up to R20 000 per transaction.

Controls on SA and foreign corporates

Exchange control limits on new outward foreign direct investments by South African corporates are abolished. Requests by corporates to invest overseas are considered in the light of the national interest. Application to the Reserve Bank’s Exchange Control department is still required for monitoring purposes and for approval in terms of existing foreign direct investment criteria, including demonstrated benefit to South Africa. The South African Reserve Bank reserves the right to stagger capital outflows relating to very large foreign investments so as to manage any potential impact on the foreign exchange market.

South Africa corporates will be able to retain foreign dividends offshore. Foreign dividends repatriated to South Africa after 26 October 2004 may be transferred offshore again at any time for any purpose.

Foreign companies, governments and institutions may list on South Africa’s bond and securities exchanges, (South African private individuals will now be able to invest, without restriction, in inward listed instruments on South African exchanges.)

Foreign portfolio investment by South African institutional investors

As an interim step towards prudential regulation, retirement funds, long-terms insurers, collective investment scheme management companies and investment managers are allowed to transfer funds from South Africa for investment abroad.

The exchange control limit on foreign portfolio investment by institutional investors is applied to an institution’s total retail assets.

The foreign exposure of retail assets may not exceed 15% in the case of retirement funds, long-term insurers and 25% in the case of collective investment scheme management companies and investment managers registered as institutional investors for exchange control purposes.

Institutional investors will on application, be allowed to invest an additional 5% of their total retail assets by acquiring foreign currency denominated portfolio assets in Africa through foreign currency transfers from South Africa or by acquiring inward listed securities.

Immigrants

On arrival, immigrants must notify their bank of their foreign assets and undertake not to dispose of these to residents.

Within 5 Years of immigration, an immigrant may freely transfer from SA all assets brought into the country.

After 5 Years, the same rules which are applicable to SA residents apply to that person.

Non-residents

Non-residents may freely invest in or disinvest from SA

Restrictions exist on local borrowings where 75% of share or control of an entity is held by non-residents.

Where certain assets such as unlisted shares, fixed property or businesses are transferred between non-residents and residents, the value of the asset must be verified by a commercial bank.

Ex con approval is required for the remittance of certain income such as royalties and certain dividends

Fringe benefit taxation:

In terms of the Seventh Schedule, the following fringe benefits which are provided to an employee or the holder of an office for a consideration less than the actual value or cost, give rise to a taxable benefit:
Kindly note that this is a broad summery of fringe benefit taxation,

The acquisition of an asset
Right of use of an asset (other than residential accommodation any motor vehicle)
Meals, refreshments or vouchers for such
Free or cheap services
Use of residential accommodation*
Interest – free or low – interest loans
Housing loans or subsidies
Payment of an employee’s debt or release from such obligation
Private use of an employer – owned motor vehicle (company car)
- Value placed on private use of motor vehicle has been increased to 2.5% (from 1.8%) of the determined value of the motor vehicle
- Fuel cost paid by the employee for private use gets 0.22% relief
- Maintenance paid by the employee gets 0.18% relief
- There’s no relief if employee gets travel allowance
Contributions to a medical aid scheme

In addition, certain other perks are also treated as a taxable benefit:

Where the recipient is obliged to spend at least one night away from his/her usual place of residence on business and the accommodation to which that allowance or advance relates is in the Republic and the allowance or advance is paid or granted to pay for:
- Meals and incidental cost, one amount of R240 per day is deemed to have been expended
- Incidental costs only, an amount of R73.50 for each day is deemed to have been expended
Travelling allowances not used for business travel
Where the accommodation to which that allowance or advance relates is outside the Republic and that allowance or advance is paid or granted to defray the cost of meals and incidental cost, an amount equal to $215 per day This allowance only applies to continuous periods not exceeding 6 weeks away from home. There was a proposal for specific rates per foreign country and it is anticipated that these will be introduced 1 March 2009.

Official rate of interest

The official rate of interest, which changes from time to time, is used for the calculation of the fringe benefit where an employer provides a loan to an employee at a low rate of interest or interest free. No benefit is placed on a casual loan to an employee up to R3000 or a study loan to enable the employee to further his own studies.

From 1 September 2008 the effective rate is 13%.

The fringe benefit, which is the difference between the official rate and the charged, is subject to tax at the employee’s marginal rate of tax.

General Exemptions and deductions:

Income tax rates:

For natural persons and special trusts (Year of assessment ending 2011/02/28)

Taxable income

Exceed	But does not exceed		Rate of Tax
R 0	R 140 000		18%	of each R1	-
R 140 001	R 221 000	R 25 200	+ 25%	of the amount over	R 140 000
R 221 001	R 305 000	R 45 450	+ 30%	of the amount over	R 221 000
R 305 001	R 431 000	R 70 650	+ 35%	of the amount over	R 305 000
R 431 001	R 552 000	R 114 750	+ 38%	of the amount over	R 431 000
R 552 001	and above	R 160 730	+ 40%	of the amount over	R 552 000

Tax rebates

Primary	R 10 260
Persons 65 and older Secondary rebate	R 5 675

Tax Thresholds

Below age 65	R 57 000 pa.
Age 65 and older	R 88 528 pa.

TRUSTS

The tax rate on trusts (no special trusts) remains unchanged at 40%

Interest and dividend exemption:

The current annual interest exemption will increase from R21 000 to R22 300 for taxpayers under the age of 65 and from R30 000 to R32 000 for taxpayers aged 65 years and older.

Foreign interest and foreign dividends are only exempt up to R3 700 out of the total exemption.

Most Dividends received by individuals from foreign entities are taxable. Interest is exempt where earned by non-residents who are physically absent from SA for 183 days or more per annum and who are not carrying on business in SA.

Comment:
This interest exemption encourages a culture of savings and assists retired South Africans who invest in fixed- interest investments. A pensioner and his or her spouse (both over the age of 65) can invest R600 000 at an Interest rate of 8.5% per annum. They will not pay tax on the combined interest income of R51 000 earned the tax year.

…individuals will again benefit from personal income tax relief that eliminates the effect of inflation on income tax liabilities.

Lump Sum Benefits:

Taxation Laws Amendment act, 2007

Certain lump sum payments received on trmination of service, qualify for taxation at the average rate of tax. The average rate of tax to be used in determining the tax liability on the lump sum will be the higher of the average rate of tax in respect of taxable income (Excluding the lump sum) accrued in the current and preceding years of assessment.

Lump sum payments received by the taxpayer from his employer by way of bonus, gratuity or compensation upon either reaching the age of 55, retirement due to superannuation, ill health or other infirmity are tax free to a maximum of R30 000 over the lifetime of the taxpayer.

Furthermore, all employees who lose their jobs as a result of either the employer ceasing to operate or because of a general reduction of staff, will qualify for the R30 000 tax free concession regardless of age. This exemption will however not apply to any present or past director of the employer company nor to any shareholder who holds or held more than 5% of a company's shares.

Lump sums paid by the employer as a result of the death of any person that arises out of the course of the employment of that person, may qualify for an exemption up to the amount of R300 000. The exempt amount must be reduced with the portion of a lump sum that qualified for the R30 000 exemption, as mentioned in the prior paragraph.

Lump sum benefits payable by approved funds are aggregated for tax purposes and subject to tax as detailed below.

ON RETIREMENT OR DEATH

Pension Funds, Retirement Annuity Funds and Provident Funds.

A maximum of one third of the taxpayer's entitlement from a pension or retirement annuity fund may be commuted to a lump sum.

The taxable portion of the lump sum from a pension, provident or retirement annuity fund received on or after 1 October 2007 as a result of death or retirement is calculated as :

THE TOTAL LUMP SUM LESS THE DEDUCTIBLE AMOUNT

The deductible amount is calculated by means of a formula B which is as follows :

Z = C + E - D where

Z is the deductible amount / C is a fixed amount of R300 000 less any withdrawal benefit deducted after 1 March 2009 the taxpayer qualifies for this deduction once during his or her lifetime / E is the sum total of fund contributions made by the taxpayer that did not qualify as a deduction during prior years / D is the sum of all the Z-values deductible amounts allowed in prior years.

The taxable portion of the lump sum on death or retirement is taxed separately from the other taxable income of the taxpayer at the following tax rate :

RETIREMENT OR DEATH

Taxable amount	Tax Liability
Up to R300 000	0%
R300 001 - R600 000	18% x taxable amount in excess of R300 000
R600 001 - R900 000	R54 000 + 27% of the amount above R600 000
R900 001 and above	R135 000 + 36% of the amount above R900 000

ON WITHDRAWAL FROM THE FUND

With effect from 1 March 2009, the exempt portions, upon withdrawal, will be as follows :

PENSION FUNDS

The tax-free portion will be R22 500 plus any amount paid into any approved pension fund or retirement annuity fund

RETIREMENT ANNUITY FUNDS

The tax-free portion will be R22 500, plus the amount paid into another retirement annuity fund or used to purchase an approved insurance policy that provides benefits similar to a retirement annuity fund.

PROVIDENT FUNDS

The tax-free portion will be R22 500, plus any amount paid into any approved pension, provident or retirement annuity fund.

The taxable portion of a lump sum upon withdrawal from a fund will be taxed separately from other taxable income, with effect from 1 March 2009. The rate will be as follows :

WITHDRAWALS FROM RETIREMENT SAVINGS

Taxable amount	Tax Liability
R0 - R22 500	0%
R22 501 - R600 000	18% of the amount above R22 500
R600 001 - R900 000	R103 950 + 27% of the amount above R600 000
R900 001 and above	R184 950 + 36% of the amount above R900 000

In all cases, the tax-free portions from either a pension, provident or retirement annuity fund shall not be less than the lesser of the lump sum benefit or any contributions made to the fund by the member which were not previously allowed as deductions.

New Proposed Rules on WIthdrawal of Pension, Provident Funds, Preservations Funds is NOT YET being applied by SARS.

The new changes to tax on withdrawal (As announced in the Budget Speech) have not yet been promulgated into law. This is causing much confusion as Sars is applying the new R22500 tax free allowance but the blaance of the benefit is still being tax at old average rates as was the case prior to 1/3/2009. Sars have confirmed that they will only change their systems to apply te table when it is passed into law which they expect will be in the latter part of this year. As the expectation is that it will apply retrospectively to 1 March 2009 SARS have advised that any member who is over taxed as a result of this will be reimbursed with their next assessment. (i.e. 2010 tax year.)

Small annuities - retirement benefits of R75 000 or less, may now be commuted in full as a lump sum. Previously pension and retirement annuity funds could pay out only up to one third of the retirement benefit in a lump sum and the balance of the fund was used to purchase a compulsory annuity and only benefits of R25 200 could be commuted in full.
Draft legislation to be tabled in Parliament shortly should bring relief to divorcees who have been unable to access their share of their former spouses' retirement funds despite recent changes to the law and a ruling on the matter by the Pension Funds Adjudicator. A Personal Finance report says the draft General Financial Services Laws Amendment Bill contains provisions to amend the Pension Funds Act to clearly state that every divorcee who has been awarded a share of a former spouse's retirement fund in a divorce order will be able to access the benefits with effect from 13 September 2007. The efforts of many divorcees who were divorced before this date to access these benefits have been thwarted by retirement funds and their administrators, which claimed that the law was unclear. An amendment to the Pension Funds Act promulgated in September was intended to introduce a ‘clean break’ in pension interests on divorce for all divorcees. But legal advisers to funds and their administrators argued that it was incorrectly drafted and applied only to divorce orders made after the amendment was promulgated.

Provisional tax:

A provisional taxpayer is any person who earns income other than remuneration or an allowance or advance payable by the person’s principal.

The following individuals are exempt from the payment of provisional tax:

Individuals below the age of 65 who do not carry on a business and whose taxable income
- will not exceed the tax threshold for the tax year; or
- from interest, dividends and rental will be R20 000 or less for the tax year
Individuals aged 65 and older if their annual taxable income
- consists exclusively of remuneration, interest, dividends or rent from the lease of fixed property; and
- is R120 000 or less for the tax year

Remuneration means earning from employment (including annuities from pension, provident or benefit funds) but does not include income from investments, voluntary purchase annuities or annuities from a retirement annuity fund.

Definition of Taxable income

Total income (less allowable deductions) plus overseas income which is not taxable overseas (rule applies where less than 183 days in a foreign country)

Due dates for Provisional Returns

FIRST PROVISIONAL TAX RETURN

Due within the first 6 months of the tax year - 31 August (Applies to all individuals, juristic persons with a February year end and most Trusts)

SECOND PROVISIONAL TAX RETURN

Due before the end of the tax year - 28 February (Applies to all individuals, juristic persons with a February year end and most Trusts)

THIRD PROVISIONAL TAX RETURN

Due on 30 September, seven months after the end of the tax year for February year ends. (Applies to all individuals, jurstic persons with a February year end and most Trusts). Due six months after the end of the tax year, for year ends other than the end of February.

The third provisional tax payment must bring the total tax paid for the year to 100% of the taxpayer's liability to avoid interest and penalties.

Retirement planning vehicles:

Deductible contribution

	Provident fund	Pension fund	Retirement annuity	Deferred compensation
Employer	10% of approved Remuneration of pension and provident funds. In practice up to 20% is allowed if justifiable Section 11(1)	10% of approved Remuneration of pension and provident funds. In practice up to 20% is allowed if justifiable Section 11(1)	No contribution	Pre – June 1982; full premium Term policy; full premium Regulation policy; maximum of remuneration Section 11(w) (dd)
Employee (Current)	No tax deduction	Deductible with a max. of the greater of: R1 750 OR 7.5% of pension remuneration Any excess may not be carried forward to the following year of assessment Limit now also applies to public sector employees. Deduction per person. Section 11(1)	Deductible with a max. of the greater of; 15% of non- retirement funding income; OR R3 500 allowable pension fund contribution; OR R1 750 Section 11(n)(aa)	No contribution
Employee (Arrear)	No tax deduction	R1 800 deductible p.a. Deduction per person. Any excess over R1 800 may be carried forward to the following year assessment. Section 11(k) (ii)(aa)	R 1 800 deductible p.a Section 11(n)(bb)	Not applicable

Retirement benefit

	Provident fund	Pension fund	Retirement annuity	Deferred compensation
Cash lump sum	Entire amount or surrender value of Policy	1/3 of total value (if annuity less than R1 800, full benefit) Section 1 “pension fund”(c)(ii)(d) Balance purchases compulsory annuity. Taxed i.t.o. tax table	1/3 of the total value (if annuity less than R1 800, full benefit) Section1 “Ra fund” (b)(ii) Balance purchases compulsory Annuity, taxed i.t.o. tax table	Entire cash amount or surrender value if ceded (taxed on value)
Tax-free portion
Taxable portion				Any one the first two requirement for the R30 000 exemption is met (see below) OR Termination was due to ceasing business or redundancy as a result of employer’s general reduction in personnel and circumstances warrant concession. Section 7A(4A),5(10)(g) The amount subject to average rate is limited to 3x average annual remuneration. Excess taxed at Marginal rate. Section 5(10)(d)(iA)(bb)

Withdrawal benefit

	Provident fund	Pension fund	Retirement annuity	Deferred compensation
Cash lump sum	Entire amount or surrender value of policy	Subject to rules fund.	Withdrawal not allowed prior to Age 55, except upon death or Disability	Cash or surrender value if discretion Of the employer (taxed at cession value).
Tax-free portion	Greater of: R1 800 + amounts transferred to approved funds; or member’s contributions previously disallowed.	Greater of: R1 800 + amounts transferred approved funds; or member’s contributions previously disallowed. Second Schedule paragraph 6	The amount transferred into another Approved RA fund Second Schedule paragraph 6	Concessions same as at retirement
Taxable portion	Taxed at the higher of the average Rates in year of retirement and the Preceding year. Section 5(10)(g) Second Schedule paragraph 7	Taxed at the higher of the average Rates in year of retirement and the Preceding year. Section 5(10)(g) Second Schedule paragraph 7	Taxed at the higher of the average Rates in year of retirement and the Preceding year. Section 5(10)(g) Second Schedule paragraph 7	Concessions same as at retirement

Death benefit

	Provident fund	Pension fund	Retirement annuity	Deferred compensation
Cash lump sum	Full death benefit	Subject to rules of fund	Premiums + 7% + 1/3(death benefit less premiums + 7%) Balance purchases compulsory annuity Section 1(b)(vi) “RA fund”	Full death benefit
Tax-free portion
Taxable portion	Taxed at the average rate of the deceased in year of death Second Schedule paragraph 5(1) Section 5(10)(g)	Taxed at the average rate of the deceased in year of death Second Schedule paragraph 5(1) Section 5(10)(g)	Taxed at the average rate of the deceased in year of death Second Schedule paragraph 5(1) Section 5(10)(g)	Taxed at the average rate of the deceased in year of death. Limit to same as at retirement. Second Schedule paragraph 5(1) Section 5(10)(g)

Taxes on some common investment:

	Tax deductible	Life Office tax	Personal income Tax on benefits/proceeds	Capital gains tax	Estate duty
1. Shares	No	-	-	?	?
2. Bank investments	No	-	?	-	?
3. Unit trust	No	-	?	?	?
4. LISP	No	-	?	?	?
5. Life policy	No	?	-	-	?
6. Endowment policy	No	?	-	-	?
7. Sinking fund policy	No	?	-	-	?
8. Retirement annuity	Yes	-	?	-	?
9. Pension/provident funds	Yes	-	?	-	?
10. Compulsory annuity	No	-	?	-	-
11. Voluntary annuity	No	-	?	-	-
12. Disability income replacement policy	Yes	?	?	-	-
13. Second-hand policy	No	?	-	?	?
Number - see notes	? = Tax applies		- = Tax does not apply

The Taxation Laws Amendment Act No 3 of 2008:

The Taxation Laws Amendment Act No 3 of 2008 (“the Act”) was promulgated on 22 July 2008. Below is a brief summary of some of the provisions of the Act.

Please Note: Where the amendments affect any of our retirement funds, rule amendments may be necessary before we can give effect to the amended legislation.

1. Retirement Annuities

The maximum retirement age of 70 years has been removed. Members of retirement annuity funds can now retire at ANY age after age 55
Retirement annuity benefits can be commuted on emigration. The emigration must be recognised by the South Africa reserve bank for the purposes of exchange control. The benefit may be subject to tax depending on the specific circumstances of the member
Commutation of a lump sum from a “paid up” retirement annuity fund prior to retirement is provided for. The amount which can be commuted will be as determined by the Minister by notice in the Gazette. Currently the Gazetted amount is R7000.

2. Preservation Funds

Pension and provident preservation funds are now defined in the Income Tax Act
The Act also serves to govern (together with the Pension Funds Act) preservation funds and the intention is that this legislation should replace the SARS retirement fund notes (RF1/98 and its addenda etc.) which previously governed preservation funds
Where a benefit is being transferred from an occupational pension or provident fund to a preservation fund there is no longer a requirement for a “participating employer”
Where a benefit is being transferred from one preservation fund to another preservation fund the “eligibility” requirements as set out in RF1/98 no longer apply. More specifically it is no longer a requirement that the member:
- be employed; and/or
- be contributing to an employer’s retirement fund
Benefits paid to non-member spouses in terms of valid divorce orders and unclaimed befits can be transferred into preservation funds

3. Living Annuities

Living annuities are now defined in the Income Tax Act
The Act also serves to govern (together with the Long Term Insurance Act) living annuities and the intention is that this legislation should replace the SARS retirement fund notes (RF1/96 and its addenda etc.) which previously governed living annuities
More specifically the Act provides for the following:
- Commutation from living annuities up to an amount prescribed by the Minister by notice in the Gazette. We have been verbally advised that this amount is likely to be R75 000
- That the amount of income which can be drawn from a living annuity will be prescribed by the Minister by notice in the Gazette. Consequently this amount will remain within the existing parameters of 2.5%-17.5% until the Minister determines that it should be amended
- On the death of an annuitant the value of the annuity may be paid to the beneficiary/ies or the deceased estate as a lump sum. Alternatively, the beneficiary/ies may elect to receive an annuity

Transfer duty rates:

Where the person acquiring the immovable property is a natural person:

(With effect from 1 March 2006)

On the:

first R500 000 of the purchase consideration ... 0%
purchase consideration exceeding R500 000 but not exceeding R1 000,000 ... 5% on the value above R500 000
purchase consideration exceeding R1 000,000 ... R25 000 + 8% on the value above R1 000,000

Where the person acquiring the immovable property is not a natural person:

On the purchase consideration ... 8%

For natural persons no transfer duty is payable where the value of property does not exceed R500 000. Where the sale of fixed property attracts VAT, no transfer duty is payable. Where the transfer of fixed property is not subject to VAT (at either the standard or zero rate), transfer duty is payable.

Transfer between spouses on divorce, and transfers to heirs from a deceased estate, are exempt from transfer duty.

Effective 1 March 2004, an estate agent who receives remuneration for facilitating the transfer of fixed property from a seller to a buyer is obliged to submit the details of the transaction to SARS within six months of the date of acquisition of the property by the buyer.

Refunds of excess transfer duty, additional duty, penalty or interest paid to SARS are refundable provided it is claimed within 5 years from date of acquisition of property of renunciation of any interest in property.