TAX GUIDE 2016/2017
PRETORIA 369 Queens Crescent Lynnwood PO Box 11101 Hatfield, 0028 Tel: 012 348 6404 Fax: 012 348 6484 Email: pretoria@leask.co.za JAMES LEASK jdl@leask.co.za 083 375 5033 www.leask.co.za PARTNERS TERESA VENTER teresa@leask.co.za 082 689 4002 BALLITO Suite G, MGA House Wimble Close Ballito Office Park PO Box 233, Ballito, 4420 Tel: 032 946 3955 Fax: 032 946 3956 Email: ballito@leask.co.za GRANT LEASK grant@leask.co.za 082 968 8040 LEASK & PARTNERS Originally formed in 1981, Leask & Partners is an independent firm of Chartered Accountants with a basic philosophy: Service is the bottom line. With highly qualified, experienced and long standing partners and staff, we offer the personal touch and strive to offer each client an individualised service, with continuity, quality and integrity. Our firm s reputation for providing quality service reflects the high standards we demand of ourselves. We have clients situated throughout the country as well as outside South-Africa. We have client groups within disciplines such as manufacturing, engineering, construction, retail, wholesale, import and export, catering, business services, agriculture, realty, investment, hotels, film, franchise, BEE related and more. Leask & Partners are geared to provide technical support and strategic planning in Income Tax matters, including this annual Income Tax guide. SERVICES WE OFFER Chartered Accountants, Registered Auditors, Registered Tax Practitioners Audit and assurance Independent review Accounting Compilations Advisory Company/CC registrations Company secretarial CIPRO annual returns Trusts business and family Estate planning and administration Tax consulting Tax returns and compliance Tax Practitioner SME tax efficient structuring VAT registrations and returns Non residents BEE scorecards Payrol and EMP returns THE ANNUAL FINANCE BUDGET AND TAX GUIDE Published by Leask & Partners in February 2016 and based on current legislation together with budget proposals announced by the Minister of Finance on 24 February 2016 and which are subject to approval by Parliament and enactment. This publication is a source of general information and guidance only and at the time of going to print, the information contained in this booklet is believed to be correct. However, it should not be used as a basis for making decisions without consulting ourselves or other suitably qualified professionals. 1
CONTENTS 2016/2017 Budget Proposals 4 Tax Rates Individuals and Special Trusts 6 Tax rebates 6 Tax Thresholds 7 Historical Tax Rates 7 Tax Rates - Trusts 7 Tax Rates - Companies, including 8 Small Business Corporations 8 Micro Business 9 Effective Corporate Tax Rates 10 Capital Gains Tax, including 11 Exemptions (increased) 11 Inclusion rates (increased) 13 Exemptions - Individuals, including 14 Tax Free Investment Accounts (TFIA) 14 Dividends - local and foreign 14 Learnership Allowances 15 Deductions - Individuals, including 16 Retirement fund contributions - increased for 2017 16 Medical tax credits 17 Subsistence allowances 19 Fringe Benefits, including 20 Company cars 20 Travel allowances 21 Employee bursaries 23 Intellectual Property 25 Provisional Tax 26 Wear and Tear 27 Capital Allowances 28 Lump Sum Benefits 30 Value Added Tax 31 Dividend Tax (DT) 32 Small Business Corporations 34 Micro Business 35 Donations Tax 36 Estate Duty 37 Trusts 37 Personal Service Providers - Companies and Trusts 38 Recreational Clubs and Sporting Bodies 39 Body Corporates 39 Residence Based Taxation 40 Non Residents, including 41 Interest income and withholding tax 41 Royalties withholding tax 42 Controlled Foreign Companies (CFC) 43 Exchange Control 44 Transfer Duty, Securities Transfer Tax and Stamp Duty 46 Residential Property Companies 47 Penalties For Non Compliance 48 Employment Tax Incentive (ETI) 50 Retention Of Records 52 Audit Exemption And Independent Review, including 54 Public Interest scores 55 Financial reporting standards requirements 58 Prime Interest Rates 59 SARS Interest Rates 60 2 3
2016/2017 BUDGET PROPOSALS In the context of only having been in office for 5 to 6 weeks, Minister Pravin Gordhan seems to have been adequately prepared for current internal circumstances, in presenting a full in-depth analysis and forecast of the present economic situation in South Africa. It is a fact however that most sectors of society are aware of the deep financial crisis at the present time with huge economic demands and the spectre of Junk Status being allocated to South Africa. In turn this would have further dire consequences on the financial structures and capacity of South Africa to achieve success in emerging from a Junk Status classification being postulated. In the opening remarks of the Minister it is evident that he has nevertheless based his proposals and advices on such deep financial crisis by analysing the factors that should be addressed namely: Corruption and waste Bailing out state entities Support for small businesses Job opportunities targeting the youth. It is in the context of the present economic situation that the Minister effectively acknowledges that certain facets of government administration included overspending with inefficiency and fragmentation. His admission that the capability of the State and one could add capacity of a strong leadership necessary to in future drive development and promote social cohesion highlights the emphasis of some 10 years ago namely the advantages of partnerships between government, business, organised labour and civil society which is the key policy to coherence and rapid development. It will be recalled that this principle was emphasised and implemented in the Trevor Manuel era of fiscal consolidation which is not the position at the present time. The Minister acknowledged that there has been adverse governance over the past years and the total size of the government employment has grown unnecessary and expanded far too much exceeding economic and reasonable boundaries. In this context the Minister suggests that the total budget deficit will be reduced to 2.4% by 2018/2019. With a view to improving growth and development, the private sector will be mobilised with civil society capacity. Identified areas of improvement in the overall economic strength of South Africa are suggested in the following areas: Renewable energy initiatives be extended to include: Gas power projects Strengthening of tourism, agriculture and agro processing Improving border management and streamlining trade flows Transport and communication corridors with regional partner countries Partnerships and participation of developers in housing, infrastructure and commercial development Mining investment and employment are to be addressed Municipalities working on identified reforms including the cost of doing business in minimum wage frameworks The national health scheme has been published and further details will be released in the following year One of the most important aspects and aims of the budget is certainly the improvement of economic prospects intertwined with global economic development and the rectification of substantial declines in the following: Low export earnings Lower revenue collections Declining investments from local and overseas Business failures and their job losses International structural imbalances and global volatility has not yet fully recovered to normal standards and overall growth is still declining with an estimated 3.1% in 2015 however a moderate recovery is anticipated during the next two years. In this context we should take note of other countries who have achieved the opening of trade opportunities and overall export growth to the rest of Africa now exceeds R300 million. Fiscal consolidation will continue to be emphasised with particular reference to the reduction in national debt of 46.2% of GDP to a much lower figure - latter level is far too high and adds to the perception of Junk Status classification. At a breakfast session the day following the budget presentation, the previous minister of finance, Trevor Manuel, confirmed the seriousness of our economic status. He suggested that there had been a mismatch of expenditure to income and dramatic changes are needed. He was however confident that the Rand exchange rate should improve in the future with the positive Budget proposal of the Minister when and if implemented. The difficult aspect of the budget proposals and which will determine its success or otherwise is whether in fact the proposals of the Minister regarding government spending and cost savings will generate sufficient income to achieve the National Development plan without further increases in taxation from the public sector. 4 5
TAX RATES INDIVIDUALS AND SPECIAL TRUSTS. Individuals and special trusts: 2017 Taxable income Rates of tax R0 R188 000 18% R188 001 R293 600 R33 840 + 26% of taxable income above R188 000 R293 601 R406 400 R61 296 + 31% of taxable income above R293 600 R406 401 R550 100 R96 264 + 36% of taxable income above R406 400 R550 101 R701 300 R147 996 + 39% of taxable income above R550 100 R701 301 + R206 964 + 41% of taxable income above R701 300 Individuals and special trusts: 2016 Taxable income Rates of tax R0 R181 900 18% R181 900 R284 100 R32 742 + 26% of taxable income above R181 900 R284 101 R393 200 R59 314 + 31% of taxable income above R284 100 R393 201 R550 100 R93 135 + 36% of taxable income above R393 200 R550 101 R701 300 R149 619 + 39% of taxable income above R550 100 R701 301 + R208 587 + 41% of taxable income above R701 300 Excludes income from Micro Businesses - refer section elsewhere in this publication. TAX REBATES Amounts deductible from tax payable 2014 2015 2016 2017 Persons under 65 R12 080 R12 726 R13 257 R13 500 Persons 65 to below 75 R18 830 R19 836 R20 664 R20 907 Persons 75 and over R21 080 R22 203 R23 130 R23 373 TAX THRESHOLD INDIVIDUALS Individuals 2014 2015 2016 2017 Under 65 R67 111 R70 700 R73 650 R75 000 Age 65 to below 75 R104 611 R110 200 R114 800 R116 150 Age 75 and over R117 111 R123 350 R128 500 R129 850 HISTORICAL TAX RATES INDIVIDUALS Tax year Maximum rate Tax on income at maximum rate threshold Income at which maximum rate applies Primary rebate 2008 40% R131 125 R450 000 R7 740 2009 40% R143 010 R490 000 R8 280 2010 40% R152 960 R525 000 R9 756 2011 40% R160 730 R552 000 R10 260 2012 40% R168 250 R580 000 R10 755 2013 40% R178 940 R617 000 R11 440 2014 40% R185 205 R638 601 R12 080 2015 40% R195 212 R673 101 R12 726 2016 41% R208 587 R701 300 R13 257 2017 41% R206 964 R701 300 R13 500 TAX RATES TRUSTS Type Special trusts Charitable trusts Rate All other trusts 41% (2016: 41%) At the rate applicable to individuals, without the rebate Exempt provided an exemption certificate has been granted 6 7
TAX RATES COMPANIES Other than other than Small Business Corporations and Micro Businesses References to companies throughout this publication include close corporations. Type 2017 2016 Companies, Public Benefit Organisations and Recreational Clubs 28% 28% Branches of foreign companies and foreign resident companies 28% 28% Employment companies, including personal service companies 28% 28% Dividend Tax is levied at 15% of net dividends declared by companies. Dividend Tax is dealt with in the relevant section elsewhere in this publication. The effective corporate tax rate including the effect of Dividend Tax is outlined at the end of this section. TAX RATES SMALL BUSINESS CORPORATIONS Turnover limit of R20 million and other conditions apply as outlined in the separate section dealing with Small Business Corporations in this booklet. Financial years ending from 1 April 2016 to 31 March 2017 Taxable income Rates of tax R0 R75 000 0% R75 001 R 365 000 7% of amount above R75 000 R365 001 R550 000 R20 300 + 21% of amount above R365 000 R550 001 + R59 150 + 28% of amount above R550 000 TAX RATES MICRO BUSINESS Turnover limit of R1 million and other conditions apply as outlined in the separate section on Micro Business entities in this booklet. Tax rates below are levied on turnover as defined. Micro Business: Financial year ending from 1 April 2016 and 31 March 2017 Taxable income R0 R335 000 0% Rates of tax R335 001 R500 000 1% of amount above R335 000 R500 001 R750 000 R1 650 + 2% of the amount above R500 000 R750 001 and above R6 650 + 3% of the amount above R750 000 Micro Business: Financial year ending from 1 April 2015 and 31 March 2016 Taxable income R0 R335 000 0% Rates of tax R335 001 R500 000 1% of amount above R335 000 R500 001 R750 000 R1 650 + 2% of the amount above R500 000 R750 001 and above R6 650 + 3% of the amount above R750 000 Financial years ending from 1 April 2015 to 31 March 2016 Taxable income Rates of tax R0 R73 650 0% R73 651 R365 000 7% of amount above R73 700 R365 001 R550 000 R20 395 + 21% of amount above R365 000 R550 001 + R59 245 + 28% of amount above R550 000 8 9
EFFECTIVE CORPORATE TAX RATES Companies and close corporations are subject to Income Tax at flat rates as well as Dividend Tax (DT) on dividends distributed. Assuming that companies will ultimately distribute all reserves to shareholders and ignoring any exemption from DT, the effective tax rate paid on a company s profits is more than just the applicable Income Tax rate. The effective rate of tax paid by companies including DT is set out below. Financial years ending from 1 April 2016 to 31 March 2017 Small Business Corporation* Company type General First R75 000 R75 001 to R365 000 R365 001 to R550 000* Income tax 28.00% 0.00% 7.00% 21.00% DT 10.80% 15.00% 13.95% 11.85% Effective 38.80% 15.00% 20.95% 32.85% Financial years ending from 1 April 2015 to 31 March 2016 Small Business Corporation* Company type General First R73 650 R73 651 to R365 000 R365 001 to R550 000* Income tax 28.00% 0.00% 7.00% 21.00% DT 10.80% 15.00% 13.95% 11.85% Effective 38.80% 15.00% 20.95% 32.85% * Rates applicable to general companies apply to profits over R550 000. CAPITAL GAINS TAX Capital Gains Tax (CGT) is imposed on all capital gains realised by SA residents and in the case of non residents, on the sale of immovable property or interests in immovable property located in South Africa. CGT was introduced with effect from 1 October 2001. Calculating capital gains and losses A capital gain is the difference between the proceeds arising on disposal of an asset and the base cost. Capital losses can be set off against capital gains arising in the same tax year but cannot be offset against revenue profits but revenue losses can be offset against capital gains. Unused capital losses that exceed the annual exclusion allowed of R40,000, (2016: R30 000) are carried forward to subsequent years. The base cost of an asset represents the cost of acquiring the asset plus all improvements or additions to an asset. Determining the base cost of assets acquired prior to 1 October 2001 is dealt with below. Exemptions An annual exclusion of R40 000 (2016: R30 000) is granted to individuals and special trusts. The first R2 million (2016: R2 million) of a gain on sale of a primary residence. The sale of a primary residence for an amount not exceeding R2 million. Gains from disposal of the following assets are exempt: Private motor vehicles, personal belongings and effects, coins not used as legal tender, stamps, lump sum benefits in respect of superannuation and certain life policies, compensation for personal injury and defamation, betting, local lottery and other chance prizes, foreign legal tender on return from abroad and gains and losses made by foreign governments and agencies. The first R300 000 (2016: R300 000) capital gain on death (replaces the annual exemption in that year). The first R1.8 million (2016: R1.8 million) arising on sale of small business assets provided the taxpayer has attained the age of 55 or the disposal is in consequence of ill health, infirmity, superannuation or death. This includes the property from where the business traded. A small business is one where the market value does not exceed R10 million (2016: R10 million). Capital gains or losses on exchange of foreign currency with effect from 1 March 2011 in the case of natural persons and certain trusts. 10 11
Rollover (Deferral) In certain cases, transactions are subject to rollover. A rollover will not give rise to an immediate CGT liability but is deferred to a subsequent CGT event. When a subsequent CGT event occurs, the base cost of an asset will be at the base cost prior to the rollover. The result is that CGT will be paid when the asset is ultimately realised. Where heirs or legatees enter into a redistribution agreement of assets and one of the parties to the agreement is the surviving spouse, the deceased must be treated as having disposed of an asset to his surviving spouse if ownership of the asset is acquired by that surviving spouse by intestate or testamentary succession or as a result of a redistribution agreement between the heirs and legatees in the course of settling the deceased estate. Valuation of assets acquired prior to CGT Where assets were acquired prior to the introduction of CGT, only the gain made after the introduction of CGT will be subject to tax. Three methods are available for determining this, namely a time apportionment basis, actual valuation (certain assets have specific valuation formulae or rules) and the 20% rule which provides that 80% of the gain is subject to CGT. Where a person elects to utilise a valuation basis, the asset must have been valued by 30 September 2004. This valuation must state the value as at 1 October 2001. There is no restriction as to who may effect the valuation although where carried out by someone unqualified, SARS may be more inclined to challenge the valuation. Donations and bequests A person must disregard a capital gain or capital loss arising on donation or bequest of an asset by him to a government or provincial administration. Rate relief A proportion of capital gains are added to the normal taxable income and taxed at the appropriate rate applicable to the type of taxpayer. The following rates are applied to calculate the proportion to be included in taxable income (not applicable to gains made by a Micro Business). Inclusion rates: 2017 Inclusion rate Effective tax rate Natural persons and special trusts 40% 0% - 16,4% Trusts other than special trusts 80% 32,8% Companies and close corporations (other than Small Business Corporations and Micro Business*) 80% 22,4% Small Business Corporations 80% 0% - 22,4% Inclusion rates: 2015 and 2016 Inclusion rate Effective tax rate Natural persons and special trusts 33.3% 0% - 13.32% Trusts other than special trusts 66.6% 26.64% Companies and close corporations (other than Small Business Corporations and Micro Business*) 66.6% 18.65% Small Business Corporations 66.6% 0% - 18.65% *In the case of a Micro Business, 50% of capital receipts up to a maximum of R1.5 million from sale of immovable property used for business and other assets used mainly for business, will be taxed at the prescribed rates for a Micro Business. No deduction is therefore allowed for the base cost of these assets. Any capital receipts not falling within aforementioned limit will cause the entity to no longer qualify as a Micro Business and be taxed according to normal rules and rates. Capital versus revenue equity investments With effect from 1 October 2007, the previous 5 year rule was replaced with a new mandatory 3 year rule whereby a sale of shares which have been held for a period of at least 3 years will be deemed to be of a capital nature. Certain exceptions apply. This rule applies equally to gains and losses. 12 13
EXEMPTIONS INDIVIDUALS The main Income Tax exemptions available to natural persons are as follows: Interest income Excluding distributions from property collective investments. 2017 2016 Natural persons aged under 65 R23 800 R23 800 Natural persons aged 65 and over R34 500 R34 500 Interest received by or accrued to non residents is exempt from tax subject to certain limitations as well as a withholding tax of 15% with effect from 1 March 2015 except for certain defined investments. For details refer to the section on Non Residents in this publication. Tax Free Investment Accounts (TFIA) Various regulated and authorised service providers may offer TFIA s whereby natural persons can invest up to R30 000 per annum and be exempt from income tax, capital gain tax and dividend tax on the returns from the investments. TFIA s could be fixed deposits, unit trusts (collective investment schemes), retail savings bonds, certain endowment policies, linked investment products and exchange traded funds (ETFs) that are classified as collective investment schemes. Investments in TFIA s are limited to R30 000 per annum and a life time limit of R500 000 per person. If a person exceeds the limits, there is a penalty of 40% calculated on the excess amount. E.g. if taxpayer invests R35 000 thus exceeding the annual limit by R5000, R2 000 must be paid to SARS (40% of R5 000). Any portion not utilised in a year cannot be carried over and is forfeited. Returns that are reinvested in the TFIA are in addition to and do not utilise the limits. However, where a person withdraws the returns and reinvests the same amount, that amount is regarded as a new contribution and impacts on both the annual and lifetime limits. Parents can invest on behalf of their minor child. The minor child will use his/her own annual or lifetime limits. Dividends Local dividends are exempt from normal tax but are subject to a final withholding tax. Refer to the section on Dividend Tax elsewhere in this publication. The following portions of foreign dividends are exempt, the effect of which is to limit tax thereon to a maximum of 15%. If the recipient is a natural person, deceased estate, insolvent estate or trust, then dividend received x 25/40. If the recipient is not a natural person, deceased estate, insolvent estate or trust or if the recipient is an insurer in respect of its company policyholder fund and corporate fund, then Dividend received x 13/28, If the recipient is an insurer in respect of its individual policyholder fund, then dividend received x 15/30. Foreign dividends are exempt from normal tax if the recipient holds 10% or more of the equity shares and voting rights in the company. Foreign service Salaries, both South African and foreign, in respect of service rendered outside the Republic provided the employee is outside the Republic for at least 183 days, of which at least 60 days are continuous, during any 12 month period commencing or ending during the tax year. Scholarships and bursaries granted by employers in bona fide cases. LEARNERSHIP ALLOWANCES In order to encourage employment, deductions are awarded to employers who enter into learnership agreements with employees. Where an employer enters into a registered learnership agreement prior to 1 October 2016 with a learner during years of assessment ending on or after 1 January 2010 and the agreement was entered into pursuant to a trade carried on by the employer, a deduction of R30 000 (R50 000 if employee is disabled) is allowed against the employer s income. If the agreement was not in place for the entire year of assessment, the allowance is apportioned. Upon successful completion of the learnership, the employer receives a completion allowance of R30 000 for each consecutive 12 month period within the duration of the agreement. In cases where the duration of the agreement was less than 24 full months, the completion allowance is limited to R30 000. A deduction will not be allowed if the learner previously failed to complete any other registered learnership with the same employer which has the same educational and training component. 14 15
DEDUCTIONS - INDIVIDUALS Retirement fund contributions 2017 tax year Contributions to pension, retirement annuity and now also provident funds Up to and including 2016 Pension fund contributions Retirement Annuity funds Provident funds Limited to the greater of 27.5% of remuneration which is subject to PAYE or taxable income, both excluding retirement fund lump sum and severance benefits. Deduction is also limited to R350 000 per annum. Employer contributions are taxed as a fringe benefit and rank for deduction by employee. Employer contributions exempt to certain limits. Limited to greater of 7.5% of retirement funding employment income or R1 750. Limited to greater of 15% of non retirement funding income or R3 500. No deduction until retirement. Medical expenses The deduction of medical expenses from taxable income has been replaced altogether with a medical tax credit with, including the unlimited deduction previously available in the case of taxpayers aged over 65 or where disabilities applied. This tax credit is a rebate deducted from tax owed and depends on whether the taxpayer is aged under or over 65 and whether the taxpayer, spouse or his/her child have any disability as defined. Medical tax credits are available to the person who pays relevant expenses for him or herself or dependants, including expenses paid by the person s employer. For purposes of the tax credits, a dependant includes: The taxpayer s spouse Taxpayer s child as defined or spouse s child Any other immediate family member in respect of whom taxpayer is liable for family care and support Any other person recognised as a dependant of taxpayer in terms of the rules of a recognised medical scheme Where the taxpayer, spouse or dependant suffer from a disability, allowable expenditure includes expenditure necessarily incurred in consequence of the disability such as attendant care, travel and transportation, equipment and devices, insurance and maintenance of equipment and devices, artificial limbs and other, and services such as rehabilitation and special school/tutoring fees. Disability as defined includes physical and sensory impairment as well as mental and intellectual disabilities. Medical scheme fees tax credit A tax rebate as follows 2017 2016 For taxpayer, per month R286 R270 For first dependant, per month R286 R270 For each further dependant, per month R192 R181 The tax credit is limited to the amount of medical scheme contributions paid and is deducted from the tax charge on assessment. The tax credit cannot exceed the tax charge. Monthly PAYE deductions can be reduced. Additional medical expenses tax credit Persons aged under 65 without disabilities A tax rebate equal to 25% of: The amount of medical scheme contributions as exceeds four times the medical scheme fees tax credit awarded, plus qualifying medical expenses, limited to the amount which exceeds 7.5% of taxable income excluding retirement fund lump sum benefits and severance benefits. Persons aged 65 and over or with disabilities A tax rebate equal to 33.3% of: The amount of medical scheme contributions as exceeds three times the medical scheme fees tax credit, plus qualifying medical expenses, plus expenses as defined where taxpayer, spouse or dependant suffer from a disability. The tax credit is deducted from tax payable at year end on assessment and cannot exceed the tax charge for the year. 16 17
Other deductions Income Protection Policies Donations to public benefit organisations Travel expenditure Company car Subsistence allowances Local travel Meals and incidentals Incidentals only Overseas travel Daily allowance for meals and incidentals in addition to travel and accommodation Home office expenditure Wear and tear Employees earning commission As from 1 March 2016 no deduction will be allowed for premiums and the proceeds from such policies will be tax free. Limited to 10% of taxable income excluding retirement fund lump sums and severance benefits. The excess may be carried forward for deduction in the following year. A log book must be kept. Deductible by self employed persons or employees who receive a travel allowance - refer Fringe Benefits below. A reduction of taxable benefit can be claimed for actual business mileage and expenses borne by the employee or deemed expenses. Log book required. See section on Fringe Benefits. At least one night spent away from home Tax free allowance can be paid to employees in addition to accommodation costs: 2017: R372 per day 2016: R353 per day 2017: R115 per day 2016: R109 per day Specific amount per country is deemed to be expended. A list of rates for selected countries is set out at the end of this section. Costs of office/study at home used exclusively for business is deductible by self employed persons or employees not provided an office and who receive an office allowance. On equipment, where an allowance is received. Expenditure incurred mainly to produce income is deductible where more than 50% of earnings are from sales commission. Tax free subsistence allowance per day for travel outside the Republic Country Currency 2017 2016 Australia AUS $ 230 209 Botswana Pula 826 826 China, People s Republic US $ 127 127 Democratic Republic of Congo US $ 164 163 France Euro 128 128 Germany Euro 120 120 Hong Kong Hong Kong $ 1 000 1 000 Ireland Euro 139 123 Italy Euro 125 125 Mauritius US $ 135 135 Mozambique US $ 128 128 Namibia Rand 950 950 Netherlands Euro 117 117 New Zealand NZ $ 191 191 Nigeria US $ 242 242 Portugal Euro 87 87 Switzerland Swiss franc 201 201 United Arab Emirates UAE dirham 699 674 United Kingdom British pound 102 102 USA US $ 146 143 Zambia US $ 119 119 Zimbabwe US $ 123 141 For countries not listed, refer to list published by SARS or contact Leask & Partners. 18 19
FRINGE BENEFITS Company cars A taxable fringe benefit arises when an employee is granted use of a company car. Value of benefit and PAYE deduction Taxable fringe benefit calculated at 3.5% of vehicle cash cost including VAT per month. Where the vehicle is covered by a maintenance plan at the time of purchase, the fringe benefit is calculated at 3.25% of the vehicle cost including VAT per month. The rate of 3.25% or 3.5% also applies to any additional company cars provided to the employee. Where the vehicle is acquired by the employer under an operating lease, the fringe benefit is equal to the lease cost plus fuel cost. No fringe benefit applies if private use is infrequent or incidental and the vehicle is not normally kept at or near the employee s residence. No fringe benefit applies to vehicles used by employees in general, i.e. a pool car. PAYE must be deducted from 80% of the fringe benefit determined as aforesaid. This may be reduced to 20% if the employer is satisfied that 80% or more of the kilometres travelled will be for business purposes. If an employee also receives a travel allowance, the travel allowance is taxed in full and no deduction is allowed in the Income Tax return against the allowance. Reduction for business mileage If the employee has kept a log book and can demonstrate business mileage incurred, a deduction can be claimed against the fringe benefit in the year end Income Tax return. The deduction will be equal to the fringe benefit multiplied by the percentage of business mileage to total mileage. Reduction where employee bears costs If an employee has kept a log book, a reduction can be claimed in the year end Income Tax return for any of the following costs born by the employee in full. Maintenance, insurance or license cost. Employee can claim a reduction equal to actual costs incurred multiplied by the percentage of private to total mileage. Fuel costs. Reduction calculated at private mileage multiplied by standard rate per kilometre allowed by SARS based on cost of vehicle. These rates are detailed under Travel Allowances later in this section. A log book must be kept to substantiate private mileage. A reduction cannot be claimed if any reimbursement is made by the employer for aforementioned costs, in part or in full. Travel allowances 80% of travel allowances are subject to employees tax. This is reduced to 20% where the employer is satisfied that at least 80% of kilometres travelled will be for business purposes. A deduction may be claimed in the employee s Income Tax return for business kilometres travelled, which must be substantiated by a log book. Any difference in tax paid will be payable or refundable as the case may be. Vehicle costs can be based on actual records or determined using the tables set out on the next page. No fuel costs may be claimed if the employee has not borne the full cost thereof for the year and no maintenance costs can be claimed if the employee has not borne the full cost of maintenance, e.g. where a maintenance plan applies. Where an employee chooses to utilise actual expenditure to determine the deduction, lease payments are limited to the fixed cost element reflected on the table of the corresponding vehicle cost. Where the employee incurred interest to finance the vehicle, the interest is limited to the interest costs on a vehicle costing R560 000 (2016: R560 000). In addition, wear and tear must be determined over seven years and is limited to a cost of R560 000 (2016: R560 000). Where a taxpayer is in receipt of both a travel allowance and an employer owned car, no deduction is allowed against the travel allowance, only against the car benefit as described under section dealing with company cars above. For purposes of the table set out on the next page, the value of a means the following. Where that vehicle was acquired by that recipient under a bona fide agreement of sale or exchange concluded by parties dealing at arm s length, the original cost thereof to him/her, including VAT but excluding any finance charge or interest payable by him/her in respect of the acquisition thereof; or where that vehicle is held by that recipient under a lease contemplated in paragraph (b) of the definition of instalment credit agreement in section 1 of the Value Added Tax Act, 1991; or was held by him/her under such a lease and the ownership thereof was acquired by him/her on the termination of the lease, the cash value thereof as contemplated in the definition of cash value in section 1 of the VAT act; or in any other case, the market value of that vehicle at the time when that recipient first obtained the vehicle or the right of use thereof, plus VAT. Fixed cost in the table below applies to total kilometres travelled, business and private, and must be reduced pro rata if a vehicle is used for business purposes for less than a full year. 20 21
An exemption exists in respect of reimbursement of travelling not exceeding 8 000 kilometres per annum and at specified rates. Refer to the section on reimbursement of travel costs below. Deemed vehicle costs: 2017 Value of vehicle incl. VAT Fixed Fuel Maintenance From: To: Cost Cost Cost R0 R80 000 R26 675 R0.824 R0.308 R80 001 R160 000 R47 644 R0.920 R0.386 R160 001 R240 000 R68 684 R1.000 R0.425 R240 001 R320 000 R87 223 R1.075 R0.464 R320 001 R400 000 R102 233 R1.289 R0.488 R400 001 R480 000 R125 303 R1.320 R0.640 R480 001 R560 000 R144 784 R1.365 R0.795 Exceeding R560 000 R144 784 R1.365 R0.795 Deemed vehicle costs: 2016 Value of vehicle incl. VAT Fixed Fuel Maintenance From: To: Cost Cost Cost R0 R80 000 R26 105 R0.787 R0.293 R80 001 R160 000 R46 505 R0.879 R0.367 R160 001 R240 000 R66 976 R0.955 R0.404 R240 001 R320 000 R84 945 R1.027 R0.441 R320 001 R400 000 R102 974 R1.099 R0.518 R400 001 R480 000 R121 886 R1.261 R0.608 R480 001 R560 000 R140 797 R1.304 R0.756 Exceeding R560 000 R140 797 R1.304 R0.756 Reimbursement of travel costs Employees may receive tax free reimbursements for business mileage where the total business travel does not exceed 8 000 kilometres in the tax year and the rate reimbursed per kilometre does not exceed R3.29 (2016: R3.18). This option will not apply if any other compensation, allowance or reimbursement is received in respect of travelling. Family visits The provision of free travel facilities to relatives of an employee to visit the employee at a place of business of the employer in the Republic, is exempt from fringe benefits tax if the employee is stationed more than 250 km from his ordinary residence and if he is required to spend at least 183 days there in any year of assessment. Medical scheme benefits The value of medical scheme contributions paid by an employer is subject to tax. A corresponding amount known as the medical scheme tax credit can however be deducted from PAYE payable by the employee. 2017 2016 For employee, per month R286 R270 For first dependant, per month R286 R270 For each further dependant, per month R192 R181 Medical contributions paid by employers are accordingly deemed to be medical expenditure incurred by the employee for purposes of calculating any medical deduction in the employee s annual income tax return. No fringe benefit however arises in the following cases. An employee who has retired by reason of superannuation, ill health or other infirmity. The dependants of a person after his/her death if such person was in the employ of the employer at the time of death. The dependants of a retired employee after his/here death. Medical service costs Where an employer has directly or indirectly made payments or contributions towards the medical costs of employees or their families, other than by way of medical scheme contributions, the amount incurred by the employer will constitute a fringe benefit in the hands of the employee, subject to certain exemptions. Any amount included in taxable income will rank for a deduction and/or tax rebate in the employee s tax return. Refer to section on medical expenses in this guide. 22 23
Cellular phones and computers Where an employer provides cellular phones and computers for business use, the incidental private use thereof will not be regarded as fringe benefit. Telephone and internet No fringe benefit will apply if the service is used mainly (more than 50%) for business. Employee scholarships and bursaries Bona fide bursaries that enable a person to study at a recognised educational or research institution are tax exempt. Open bursaries Bona fide bursaries and scholarships awarded solely on merit and not limited to employees, are exempt from tax. Certain limitations exist where granted to employees or relatives of employees, dealt with below. Bursaries and scholarships Exempt if granted to an employee and the employee agrees to repay the bursary if the employee does not complete the studies. Partially exempt if granted to a relative of an employee if the employee s remuneration for the year of assessment was less than R250 000 (2014: R200 000) and to the extent that the bursary or scholarship does not exceed the following levels for each relative of the employee. - R30 000 in the case of an NQF level 5 to 10 qualification; - R10 000 in the case of an NQF level 1 to 4 qualification; - R10 000 in the case of grade R to grade 12 education. Reimbursements Amounts reimbursed to employees must be included in their income. Exceptions are travel costs and subsistence allowances dealt with elsewhere in this publication and reimbursement of expenses incurred by employees. Proof of such expenditure must be submitted to the employer and where any asset was acquired, ownership of that asset must vest in the employer. Professional fees Professional subscriptions of employees paid by employers are not regarded as a fringe benefit where membership is a condition of employment. Also applies to other fees that largely benefit the employer. Low cost housing (use of immovable property provided to employee) A taxable fringe benefit must be determined based on a prescribed formula. The formula is designed to benefit low income earners in bona fide cases. Exemptions apply in cases where employees are provided housing while working away from home. Refer to SARS website for full details or contact Leask & Partners. Low cost housing (immovable property acquired by employee) With effect from 1 March 2014, no taxable fringe benefit applies where immovable property is sold to an employee at no value or below market value, provided that: the remuneration of the employee for the year previous tax year was less than R250 000, and the market value of the immovable property is less than R450 000, and employee is not a connected person in relation to the employer. Meals and refreshments A taxable benefit is deemed to be granted where the employee has been provided with any meal, refreshment or voucher for any meal or refreshment, either free of charge or for less than the value of such meal, refreshment or voucher. The value of the benefit is the cost to employer less anything paid by the employee. The following are exempt and tax free. Any meal or refreshment supplied by an employer to his/her employees in a canteen, cafeteria or dining room operated by or on behalf of the employer and patronised mainly by employees or on the business premises of the employer, Any meal or refreshment supplied by an employer to any employee during business hours or extended working hours or on special occasions, Any meal or refreshment enjoyed by an employee in the course of providing a meal or refreshment to any person whom the employee is required to entertain on behalf of the employer. Board and meals provided with accommodation are dealt with under a separate section of the Income Tax Act relating to accommodation provided to employees. INTELLECTUAL PROPERTY An allowance is available in respect of costs incurred on or after 1 January 2004 in devising or inventing patents, designs, copyrights or similar property (excluding trademarks), at the following rates. 5% in respect of inventions, patents or copyright expenditure. 10% in respect of designs or property of a similar nature. When property is acquired from a connected person, the cost is limited to the lesser of the cost or market value on the date it was acquired by the seller. No deduction is permitted in respect of expenditure incurred on or after 1 January 2004 to extend the term or renew the registration of the trademark. 24 25
PROVISIONAL TAX Provisional tax is not a separate form of taxation but merely a term used by SARS and legislation to refer to a system whereby certain taxpayers are required to submit at least two preliminary returns during the tax year. A provisional tax return must be submitted by these taxpayers half way through a tax year and at the end of the tax year. Taxpayers whose tax year ends on 28 February 2016 would therefore submit the first return by 31 August 2015 and the second by 28 February 2016. These returns contain an estimate by the taxpayer of his taxable income for the current tax year and require the taxpayer to make an advance payment of tax payable for the year calculated on the estimated income and after deducting any tax already paid in the form of Employees tax (PAYE) or provisional tax. The process is designed to collect preliminary tax payments from taxpayers who have earned income from a source not already subjected to a tax deduction and measures are in place, including penalties, to counter income being underestimated. After the end of the tax year, normally from about June, taxpayers are required to submit an annual Income Tax return and any provisional tax paid would then be deducted from the actual tax payable for the particular tax year. A provisional taxpayer is any person who earns income other than remuneration or an allowance from an employer. Provisional taxpayers may be exempt from the payment of provisional tax in a particular year and, in which case a provisional tax return need only be submitted if the Commissioner of SARS so requires. An exemption would apply in the following circumstances. Individuals who do not carry on a business and: - taxable income will not exceed the tax threshold for the tax year; or - income from interest, foreign dividends and rental will not exceed R30 000 for the tax year. Individuals 65 years of age and older if their taxable income for the tax year consists exclusively of remuneration, interest, foreign dividends or rent from the letting of fixed property and does not exceed R120 000. Late submission In the event that provisional tax returns are submitted late, the returns will be deemed to be zero returns, giving rise to possible underestimate of income penalties. WEAR AND TEAR The more common wear and tear allowances allowed by SARS are set out below. A shorter period may be used if it can be motivated. Accelerated rates apply to Small Business Corporations as deal with elsewhere in this guide. Aircraft 25% Air conditioners window type 16.6% Air conditioners mobile 20% Air conditioners room unit 10% Cellular telephones 50% Computers main frame 20% Computers personal 33.3% Computer software purchased 33.3% Computer software developed 100% Delivery vehicles 25% Fax machines 33.3% Furniture and fittings 16.6% Generator portable 20% Generator standby 6.66% Law reports 20% Motor cycles 25% Neon signs and advertising boards 10% Passenger cars 20% Photocopiers 20% Security systems 20% Shop fittings 16.6% Small assets less than R7 000 100% Staff training equipment 20% Television sets, video players, decoders 16.6% Telephone equipment 20% Textbooks 33.3% Tractor 25% Trailers 20% Notes SARS will allow an asset having a cost of less than R7 000 (R5 000 prior to 1 March 2009) to be written off on acquisition. Does not apply to assets used for letting. The above rates apply to new assets. Used assets must be written off over its expected useful life taking account of its condition. Wear and tear is claimed from when an asset is first brought into use. The allowance must be reduced pro rata where an asset is not used for the full tax year. 26 27
CAPITAL ALLOWANCES Capital allowances are deductible when the taxpayer is the owner of the asset or holds the asset under an instalment sale agreement (and not a lease/finance lease). The more common capital allowances available are set out below. Small assets Aircraft Hotel buildings and improvements Industrial buildings and improvements Commercial buildings and improvements Small business corporations Cost less than R7 000 (R5 000 prior to 1 March 2009). Does not apply to assets used for letting. Purchased on or after 1 April 1995 for transporting persons for reward. Erection commenced on or after 4 June 1988. Refurbishment, not extending outer shell of building. Used in process of or a process similar to a process of manufacture. Erected on or after 1 January 1989. Erected prior to 1 January 1989 Erection commenced between 1 July 1996 and 30 September 1999 and brought into use on or before 31 March 2000. New and unused commercial buildings and improvements which fall outside other available capital allowance regimes. Plant and machinery brought into use for the first time and used directly in a process of or process similar to a process of manufacture. Other assets but not buildings, brought into use on or after 1 April 2005 (not pro rata for part years) 100% 20% 5% 2% 5% 2% 10% 5% 100% 50/30/20% Research and development expenditure (including buildings) Oil and gas pipelines Electricity and telephone lines Effective 1 October 2012, operating expenses incurred and approved by the Minister of Science and Technology. Capital allowance assets, other than prototypes and pilot plants, created solely for purposes of research and development. New and unused, used directly in the taxpayer s sole business and in the production of income. New and unused, used directly in the taxpayer s sole business and in the production of income. Plant and Brought into use before 1 March 2002 20% machinery New and unused equipment brought into use 40/20/20/ used in a on or after 1 March 2002 20 manufacturing or similar process 28 29 150% 50/30/20% 10% Railway lines Contracted for on or after 23 February 2000. 5% Farming equipment Rolling stock (trains, carriages and other things pulled by trains) Airport and port assets Environmental assets and activities Energy efficient equipment Used by a farmer in his farming operations, including game farming. Brought into use by the taxpayer in his trade for the first time on or after 1 January 2008 and must be used wholly or partly for the transportation of persons, goods or things. New and unused aircraft hangers, aprons, runways, taxiways and new and unused port terminals, breakwaters, berths and shipways. New and unused production environmental assets (waste treatment and recycling facilities or improvements thereto) and post production assets (waste dumps and dams or improvements thereto). Post production environmental assets, e.g; dams, reservoirs, evaporation ponds, etc Savings occur in years of assessment ending before1 January 2020 5% 50/30/20% 20% 5% 40/20/20/ 20% 5% Determined formula
LUMP SUM BENEFITS Lump sums received from pension, provident or retirement annuity funds, including pension and provident preservation funds and on retrenchment, are taxed according to one of two scales depending on which of the following categories they fall into. A. Withdrawal other than retirement, severance or death Amounts received on resignation from a fund prior to retirement age. Amounts received on resignation from the fund due to retrenchment are excluded and fall into category B below. Tax determined by applying the following table to the lump sum accruing plus all other retirement fund withdrawal benefits that have accrued since 1 March 2009, all retirement fund lump sum benefits that have accrued since 1 October 2007 and all severance benefits received or accrued from 1 March 2011. Deduct the tax determined by applying the tax table to the aggregate determined above but excluding the lump sum now accruing. Tax determined by applying the following table to the aggregate of the lump sum or severance benefit now accruing plus all other retirement fund withdrawal benefits that have accrued since March 2009 and all retirement fund lump sum benefits that have accrued since October 2007 and all severance benefits received or accrued from March 2011. Deduct the tax determined by applying the tax table to the above mentioned aggregate amount but excluding the lump sum now accruing. Rates of tax: 2015 to 2017 Taxable amount R0 R500 000 0% Rate of tax R500 001 R700 000 18% of amount above R500 000 R700 001 R1 050 000 R36 000 + 27% of amount above R700 000 Rates of tax: 2015 to 2017 R1 050 001 + R130 500 + 36% of amount above R1 050 000 Taxable amount Rate of tax Rates of tax: 2012 to 2014 R0 R25 000 0% Taxable amount Rate of tax R25 001 R660 000 18% of amount above R25 000 R0 R315 000 0% R660 001 R990 000 R114 300 + 27% of amount above R660 000 R315 001 R630 000 18% of amount above R315 000 R990 001 + R203 400 + 36% of amount above R990 000 R630 001 R945 000 R56 700 + 27% of amount above R630 000 Rates: 2010 to 2014 R945 000 + R141 750 + 36% of amount above R945 000 Taxable amount Rate of tax R0 R22 500 0% VALUE ADDED TAX (VAT) VAT is levied at the standard rate of 14% on the supply of goods and services by R22 501 R600 000 18% of amount above R22 500 registered vendors. R600 001 R900 000 R103 950 + 27% of amount above R600 000 An entity must register as a vendor for VAT if taxable supplies exceed R1 million per annum. An entity whose taxable supplies do not exceed R1 million, may R900 001 + R184 950 + 36% of amount above R900 000 register voluntarily if taxable supplies exceed R50 000 per annum. B. Retirement, severance or death Certain supplies are exempt from VAT while some others are zero rated, meaning that VAT is charged at 0%, enabling the vendor to claim any VAT incurred in Amounts received on retirement from a fund at retirement age or death. Also making the zero rated supplies. includes amounts received on resignation from the fund prior to retirement because of retrenchment. Also includes severance pay awarded on retrenchment or Goods exported are also zero rated as well as services rendered outside South termination due to age, sickness, accident, injury or mental incapacity with effect Africa or rendered to customers who are outside South Africa. Conditions and from 1 March 2011. documentation requirements apply. Non residents can also claim a VAT refund when exiting the country, at airports, seaports and border posts. 30 31