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2010 Budget and Tax Update. 2010 BUDGET. Main Tax Proposals. Personal income tax relief of R6.5 billion Fuel taxes to increase by 25.5 c per litre Voluntary disclosure programme Curbing of avoidance schemes Increased sin taxes Cash grant for hiring unskilled youth.

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slide1

2010

Budget and Tax Update

main tax proposals
Main Tax Proposals
  • Personal income tax relief of R6.5 billion
  • Fuel taxes to increase by 25.5 c per litre
  • Voluntary disclosure programme
  • Curbing of avoidance schemes
  • Increased sin taxes
  • Cash grant for hiring unskilled youth
individuals
Individuals
  • R6,5 billion relief: revised tax tables, rebates and exemptions
  • Focus on tax avoidance and tax structuring
  • SITE to be abolished from 1 March 2011
  • Gambling winnings to be taxed
fringe benefits
Fringe Benefits
  • Company car and other fringe benefit rules to be revised
  • Employer deductions to be fully reflected in employee’s gross income
  • Employee insurance packages to be taxed on a monthly basis
medical aid contributions
Medical Aid Contributions
  • Monthly caps to increase
    • from R625 to R670 (7.2%) for each of the first two beneficiaries and
    • from R380 to R410 (7.9%) for each additional beneficiary
  • Proposed conversion to a tax credit system deferred until 2012/13
lump sum gratuities
Lump Sum Gratuities
  • R30 000* exemption to be merged into the retirement fund lump sum benefit system - aggregation principle will apply.

* Last adjusted in 1984

subsistence allowances
Subsistence Allowances
  • Travel in the Republic
  • meals and incidental costs: R276 (was R260) per day
  • incidental costs only: R85 (was R80) per day
  • Travel outside the Republic
  • daily amount per country
estate duty
Estate Duty
  • Double tax on death: CGT and Estate Duty
    • Estate duty to be reviewed
tax administration
Tax Administration
  • Increased focus on enforcement and collections
  • Level of tax compliance has "deteriorated”
  • Third party information and "targeted lifestyle audits"
  • Enhanced focus on "large taxpayers and high-net worth individuals”
voluntary disclosure programme
Voluntary Disclosure Programme
  • 1 Nov 2010 – 30 Oct 2011
  • Some relief for
    • Penalties
    • Exchange control
    • Criminal prosecution
slide20
VAT
  • Possible relief
    • for claw-back on temporary rentals by developers
    • renting of furnished residential accommodation
  • 12-month claw-back rule to be relaxed on deregistration (to avoid double-tax)
youth employment grant
Youth Employment Grant
  • Two-year cash grant
    • For tax-compliant businesses, non-governmental organisations and municipalities
urban development zone udz allowance
Urban Development Zone (UDZ) Allowance
  • New buildings: 20%(first year); 8% p.a. (next 10 yrs)
  • Low cost housing in UDZ
    • New buildings: 25% (first year); 13% (next 5 yrs); 10% (year 7)
    • Improvements to existing buildings: 25% p.a.
  • Enhanced allowances to be considered for private developers who improve another party\'s land
dividends tax
Dividends Tax
  • Definition of “dividend” to be refined
  • New definition of “foreign dividend”
  • Transitional issues
  • Practical problems relating to in specie dividends
  • Further refinements to the withholding system where companies would pay dividend tax on a shareholder’s behalf
  • Implementation 2011 (/2012?)
corporate tax
Corporate Tax
  • Attack on sophisticated tax avoidance schemes
  • Interest cost allocation for financial institutions
  • Offshore protected cell companies
  • Schemes channeling deductible amounts to residents
  • Restricting the interest exemption for non-residents investing in financial instruments other than South African bonds, unit trusts or publicly available interest bearing instruments
headquarter companies
Headquarter Companies
  • Exchange control and tax relief to be considered for various types of headquarter companies located in South Africa
fuel levies
Fuel Levies
  • To be increased by 25,5c/l on 7 April 2010
    • General fuel levy on petrol and diesel increases by 10c/l
    • Additional 7.5c/l for the funding of the new petroleum pipeline between Durban and Gauteng
    • Road Accident Fund levy on petrol and diesel increases by 8c/l cents per litre
  • Total = 243.5 c/l on petrol; 228.51c/l on diesel
green taxes
Green Taxes
  • Carbon emissions tax to be introduced on new passenger vehicles from 1 September 2010
  • Congestion, pollution and landfill taxes to be considered
sin taxes
Sin Taxes
  • Tax on -
    • Cigarettes increases from R7.70 per pack of 20 cigarettes to R8.94
    • Beer increases from 79c to 85c on a 340ml can
    • Wine increases from R1.98 to R2.14 a litre
  • Expected revenue: R2.3bn 2010/11
primary residence exclusion para 45 1 b of the eighth schedule
Primary Residence Exclusion(Para 45 (1) (b) of the Eighth Schedule)
  • Capital gains & losses on proceeds up to R2million disregarded
    • Applies only where... (see Para 45(4))
    • Effective for years of assessment commencing on or after 1 March 2009
    • NB: Primary residence exclusion remains at R1,5m
travel allowance repeal of deemed kilometer method s 8 1 b ii para 1 of the fourth schedule
Travel Allowance: Repeal of Deemed Kilometer Method(S 8 (1)(b)(ii) & Para. 1 of the Fourth Schedule)
  • The deemed kilometre method (first 18 000 km traveled per year deemed to be private travel) to be repealed from 1 March 2010
  • Amount included in “remuneration” increased from 60% to 80%
    • from 1 March 2010
  • Can still claim business travel expenses for actual kilometers recorded in a log book
conversion of the stc to dividend withholding tax
Conversion of the STC to Dividend Withholding Tax
  • 10% tax on dividends will fall on the shareholders
  • A number of exemptions (e.g. pension funds; company-to-company)
  • Treaty reductions (5% on re-negotiated DTAs)
conversion of the stc to dividend withholding tax33
Conversion of the STC to Dividend Withholding Tax
  • Withholding obligation on the company payer (or a regulated intermediary)
  • New definition of “dividend” and “contributed tax capital”
  • Anti-avoidance rules will become effective on implementation
controlled foreign companies s 9d
Controlled Foreign Companies (S 9D)

“Foreign Business Establishment” definition

  • Fixed place
  • Located outside South Africa
  • Conducted continuously and regularly
  • Takes into account certain activities of CFC group members if located in the same foreign country
controlled foreign companies s 9d35
Controlled Foreign Companies (S 9D)

“Foreign Business Establishment” definition

  • Establishment located in foreign country solely or mainly for non-tax avoidance reasons

High tax jurisdictions

  • CFCs will be exempt from tax in SA if subject to high foreign country taxes
depreciation on improvements ss 11d 12b 12c 12d 2 12f 12i and 37b
Depreciation on Improvements (ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B)
  • Amendments clarify that the depreciation allowance applies equally to improvements associated with underlying assets. Depreciation of improvements should be determined as if the improvement were a stand-alone asset.
depreciation on improvements ss 11d 12b 12c 12d 2 12f 12i and 37b37
Depreciation on Improvements (ss 11D, 12B, 12C, 12D(2), 12F, 12I and 37B)
  • Effectivefor expenditure incurred in respect of years of assessment ending on or after 1 January 2010
lease improvements allowance s 11 g
Lease Improvements Allowance (s 11(g))
  • The prohibition against deducting improvements where the lessor is tax-exempt will no longer apply if:
    • (i) the lessee is leasing land or buildings owned directly by government (national, provincial or municipal) or indirectly by government (through institutions exempt in terms of section 10(1)(cA) and section 10(1)(t)); and
lease improvements allowance s 11 g39
Lease Improvements Allowance (s 11(g))
  • The prohibition against deducting improvements where the lessor is tax-exempt will no longer apply if:
    • (ii) the lease is of a duration of 20 years or more.
  • Effectivefor improvements brought into use on or after 1 January 2009
pre trade expenses s 11a
Pre-Trade Expenses(s 11A)
  • S 24J expenditure now included
  • Effective for years of assessment ending on or after 1 January 2005 (backdated)
small business corporations s 12e 4 a ii hh para 3 f iii of the sixth schedule
Small Business Corporations (S 12E(4)(a)(ii)(hh); para 3(f)(iii) of the Sixth Schedule)
  • Inactive or dormant shelf companies added to the list of permitted investments
    • A shelf company is inactive or dormant until the company trades or holds assets exceeding R5 000
  • Effective for years of assessment ending on or after 1 January 2010
example
Example

Facts:

  • Employer X enters into a learnership contract with a learner.
  • At the end of month 6, the learner leaves Employer X and moves to Employer Y.
  • The learner subsequently completes the learnership with Employer Y.
  • The learner has no disabilities and the learnership spans a single year of assessment for both Employer X and Employer Y.
example44
Example

Result:

  • The commencement allowance is divided pro rata between Employer X and Employer Y (each based on a 6/12 ratio).
  • Employer X is entitled to a commencement allowance of R15 000 (1/2 of R30000), and Employer Y is entitled to a commencement allowance of R15 000 (1/2 of R30 000).
  • Employer Y is also entitled to claim the completion allowance of R30000 (i.e. the full amount).
example45
Example

Facts:

  • Employer X (Dec year-end) concludes a 3-year learnership with a learner at the beginning of January 2010.
  • The learner changes employment to Employer Y (Dec year-end) at the end of June 2011.
  • The learner subsequently completes the learnership with Employer Y.
  • Assume the learner does not have any disabilities.
example46
Example

Result:

2010: Employer X may claim the full R30 000 commencement allowance.

2011: Employer X may claim R15 000 of the

commencement allowance and Employer Y claims the remaining R15 000.

2012: Employer Y claims the final R30 000

allowance as well as a R90000 completion

allowance (R30 000 x 3)

Source: Explanatory Memorandum

venture capital companies vccs s 12j
Venture Capital Companies (VCCs) (s 12J)

VCC

(FAIS Compliant)

100% Deduction

Investor: Indiv/Listed

Qualifying SME

Individual – R750 000 pa deduction limit

Listed – No limit; subject to 40% shareholding limit in the VCC

80% - R10m gross assets

vcc allowance section 12j
VCC Allowance(Section 12J)
  • 100% upfront deduction for investments in VCC ordinary shares
    • Capped at R750 000 p.a. for individuals (with a (R2.25 m life-time limit)
    • No limit for listed companies (but 40% holding)
    • Unlisted corporations are excluded
vccs excluded activities s 12j
VCCs: Excluded Activities (s 12J)
  • Dealing in or renting land (excluding hotel keepers)
  • Financial services e.g. banking, insurance, money lending, HP financing
  • Provision of professional services e.g. legal, tax advisory, broking, management consulting, auditing, accounting and other related activities
  • Casinos, other gambling-related activities and any other games of chance
vccs excluded activities s 12j50
VCCs: Excluded Activities (s 12J)
  • Manufacturing, buying or selling liquor, tobacco products or arms
  • Franchisees
  • Businesses conducted mainly outside SA
  • Investment income exceeds 20% of gross income
exemption of certified emission reductions s 12k
Exemption of Certified Emission Reductions (S 12K)
  • CERs represent emission reductions that are verified and certified by the Department of Energy
  • Disposals of CERs are exempt from income tax in respect of any person that carries the Clean Development Mechanism (CDM) project registration and implements that project
  • Effective from 11 February 2009 and applies in respect of disposals on or after that date
energy efficiency allowance s 12l
Energy Efficiency Allowance(S 12L)
  • Annual notional allowance for energy savings achieved in the production of income
    • South African National Energy Development Institute (SANEDI) energy savings certificate required
energy efficiency allowance s 12l53
Energy Efficiency Allowance (S 12L)
  • Basic formula - Energy efficiency

Savings in kWh (x) Applied rate

2 (or a number by the Minister)

(Comes into operation on a date determined by

the Minister of Finance by notice in the Gazette)

employer provided post retirement medical aid s 12m
Employer-Provided Post-Retirement Medical Aid (S 12M)
  • Lump sum payment of post-retirement medical scheme contributions to retired employees (or their spouses/dependants) or to an insurer is deductible when paid
    • Applies to post-retirement medical scheme lump sums paid on or after 1 September 2009
medical aid contributions s 18 para 12a 1 of the seventh schedule
Medical Aid Contributions(S 18 & para 12A(1) of the Seventh Schedule)
  • Increase in monthly monetary caps from 1 March 2009:
    • From R570 to R625 for first 2 beneficiaries, and
    • From R345 to R380 for each additional beneficiary
medical aid contributions s 18 para 12a 1 of the seventh schedule56
Medical Aid Contributions(S 18 & para 12A(1) of the Seventh Schedule)
  • Tax-free fringe benefit for medical scheme contributions paid by employer removed from 1/3/2010
    • All contributions by an employer will be taxable and the employee will get a tax deduction for contributions up to the cap
    • Neutral tax impact for both employee and employer
provisional tax exemption for taxpayers over 65 para 18 1 d of the fourth schedule
Provisional Tax Exemption For Taxpayers Over 65(para. 18(1)(d) of the Fourth Schedule)
  • Exemption if
    • Not company directors and
    • Only receive employment income, interest, rental or dividends and
      • Taxable income up to R80 000: to increase to R120 000
      • Effective for years of assessment ending on or after 1 January 2010
provisional tax para 19 of fourth schedule
Provisional Tax(para 19 of Fourth Schedule)

1. Second provisional payment

  • Rules for calculating estimated taxable income differ
    • Tier 1
    • Tier 2

2. 1st and 2nd provisional tax payments

  • Basic amount increases by 8% a year if last assessed more than a year previously
tier one smaller taxpayers to up to r1million
Tier One - Smaller Taxpayers (to up to R1million )
  • Largely reverts to previous basis
  • No penalty if estimate of taxable income is at least equal to the lesser of -

- The basic amount (adjusted) or

    • 90% of actual taxable income for the year
tier one smaller taxpayers to up to r1million60
Tier One - Smaller Taxpayers (to up to R1million )
  • Penalty of 20% of the shortfall if the estimated TI is below this level
  • Unless the estimate ‘‘was seriously calculated with due regard to the factors having a bearing thereon or was not deliberately or negligently understated’’
tier two larger taxpayers
Tier Two - Larger Taxpayers
  • Estimated taxable income must be equal to at least 80% of actual taxable income for the year
  • 20% penalty of the shortfall if the estimate does not reach this level
  • Unless the estimate was ‘‘seriously calculated…(etc)”
residential accommodation fringe benefit para 9 of the seventh schedule
Residential Accommodation Fringe Benefit (para 9 of the Seventh Schedule)
  • “B” in the formula increases from R46 000 to R54 200
    • Effective for years of assessment ending on or after 1 January 2010
slide63
Transfer of Properties Out of Companies and Trusts(S 9(20) of the Transfer Duty Act, para 51 of the Eighth Schedule, s64B(5)(k))
  • Until 31/12/2011 a distribution of a domestic residence from a company or trust to a sole shareholder is treated as a CGT ‘roll-over event’
  • The distribution is exempt from STC and transfer duty
  • Certain requirements must be met
requirements to qualify para 51 of the eighth schedule
Requirements to Qualify(Para 51 of the Eighth Schedule)
  • Transfer of an interest in a residence from a company or trust to an individual who:
  • Acquires that interest no later than 31/12/2011
  • Lived (alone or with his/her spouse) in that residence and used it mainly for domestic purposes from 11/2/09 until date of transfer
  • Directly held 100% of share capital or members’ interest in the company (alone or with spouse) from 11/2/09 to date of registration in his/her/spouse’s name
  • OR donated or sold that residence to the trust (or financed expenditure)
case law
Case Law
  • Anglovaal v SARS (411/08) [2009] ZASCA 109

Whether shares were acquired as a capital investment or

Trading stock

  • Fourie Beleggings v CSARS (168/08) [2009] ZASCA 37

Payment in compensation for cancellation of a contract was

not capital nature

  • Grundlingh v CSARS [2009] SAFSHC 88

Whether partnership income from Lesotho was taxable in

South Africa

thank you
Thank-you

Fasset Call Centre

086 101 0001

www.fasset.org.za

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