Over the past 10 years, Finance Minister Trevor Manuel has charmed taxpayers by continually providing greater tax relief. This year is no different and individuals will pay R12,1-billion less tax once adjustments have been made for reduced vehicle allowances.
Top marginal rate
Although the marginal tax rate has not been lowered from its current 40%, one now has to earn R400 000 a year before one hits the top bracket as opposed to R300 000 last year.
People earning less than R40 000 a year will pay no tax — this has been raised from R35 000 last year.
For pensioners, the tax threshold has also been raised by R5 000 to R65 000. More than 70% of these tax reductions will benefit people earning less than R250 000 a year.
For example a person earning R200 000 a year will pay R4 800 less tax this year before adjustments to travel allowances and medical aids.
Tax-free interest income
To further encourage savings and reduce the tax burden on pensioners who rely on income-generating investments, the minister has once again raised the amount of tax-free interest income, to R16 500 and R24 500 for pensioners.
This means that the average person can now invest approximately R235 000 in a money-market fund without attracting tax.
For pensioners whose sole income is from income-generating assets, their increased tax threshold combined with the interest-exemption increase allows them to invest approximately R1,3-million tax free in a money- market fund yielding 7%.
Travel allowances
True to his word, however, Manuel has clamped down further on travel allowances, calculating the first 18 000km of travel for personal use if a logbook is not kept.
Moreover, to ensure that the correct amount of income tax is collected, he has increased the proportion of the vehicle allowance that is taxable on a monthly basis from 50% to 60%. If employees are able to justify their car allowance fully, they will be able to reclaim the remaining 60% in their year-end tax assessment.
For employees driving company cars, the monthly taxable benefit has increased from 1,8% to 2,5% of the car’s value.
So, while Manuel has provided R13,5-billion in tax breaks, he has taken back R1,4-billion through the tightening of car allowances.
Medical aids
Changes to medical aids, which cap the amount that is tax deductible, will also put a squeeze on the after-tax income of taxpayers.
Home buyers
There is brilliant news for people intending to buy a home. Manuel has drastically reduced transfer duty. In recognising rampant house prices in recent years and the increasing financial burden on people buying homes, all homes costing less than R500 000 will be exempt from transfer duty. This is a massive increase up from the previous threshold of R150 000.
Any new home costing between R500 000 to R1-million will pay 5% duty and the standard 8% will only come into effect for homes more than R1-million.
A person purchasing a property for R1-million will save a massive R35 600 on transfer duty. This will cost the government R4,5-billion in lost revenue.
Estate planners
For estate planners, the minister has increased the tax-free capital amount of a deceased estate from R1,5-million to R2,5-million. With the average house price now at R700 000, many average citizens are starting to enter into the dangerous territory of estate duty, which was designed as a wealth tax on the minority, hence the majority of South Africans will welcome the increase in the exemption.
Capital gains on homes
House prices have also forced Manuel to review his capital gains tax exemption on primary residences, increasing the level of profit that one needs to make on the sale of one’s home, before paying tax, to R1,5-million. In order to make adjustments for inflation, the exclusion of capital gains tax on profits has been increased to R12 500 per annum from R10 000.
Sin taxes
As usual, the sin taxes were lumped on. Manuel lamented that the good work done by the minister of health in reducing smoking and drinking by the population was affecting his revenue streams, so he has upped sin taxes in order to raise a further R1,4-billion in revenue. A litre of wine will cost you 18c more, a packet of cigarettes 52c extra and a can of beer 5c extra. Again, tax on traditional beer and beer powder remains unchanged.
Fuel levy
An unexpected development is that there has not been an increase in the general fuel levy. This could be a result of escalating oil prices, which are already putting strain on consumers. While inflation has been hovering around 4%, if transport costs are stripped out, inflation is currently running at about 2,8%.
Forex controls
Manuel has kept to his word and announced a further relaxation on exchange control for individuals now that the amnesty process has been finalised. Individuals may now invest R2-million offshore.
This will come as a disappointment to proponents of exchange control abolition. Given the strong rand and the fact that R68,6-billion was netted in the amnesty, there was a good chance he would remove exchange control on individuals completely. There was also no increase on the percentages that asset managers and pension fund managers could invest offshore.