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Provided by the South African National Department of Health
Proposed tax changes:
what you need to know
Finance Minister Tito Mboweni’s maiden Budget Speech two weeks ago contained proposed tax policy changes that will be implemented in draft amendment bills to be circulated by mid-2019. We look at some of these important changes.
Working abroad was lucrative for some South African tax residents in the past, especially in countries where expats pay no tax, or tax at low rates, on their foreign employment income. This will, for some, likely come to an abrupt halt from 1 March 2020.
South African expats who are still tax residents of this country and who are employed abroad for more than 183 days during any 12-month period, of which 60 days are consecutive (the 183/60 day rule) are currently exempt from tax in South Africa on such foreign employment income. This is because section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 in its current form provides a specific exemption for tax on such income.
In countries where no tax is levied on this income, the South African tax resident expat will not be liable for tax in either the foreign state or at home.
However, effective from 1 March 2020, section 10(1)(o)(ii) has been amended to allow only the first R1 million of foreign remuneration to qualify for this exemption, provided the 183/60 day rule is adhered to. This will effectively mean these expats will become subject to tax in South Africa on any foreign employment income above the R1 million threshold. In countries where this income is taxed, South Africa will allow a tax credit for the tax paid in the foreign country.
In an attempt to refine the foreign employment income tax exemptions, it has also been proposed that South African employers be allowed to reduce their employees’ monthly local pay-as-you-earn (PAYE) withholding by the amount of foreign taxes withheld on their foreign employment income. The South African Revenue Service will be engaging with employers affected by this change to address their concerns.
This change is applicable to members of retirement funds who retire and receive annuities in the form of retirement benefits. Any contributions to retirement funds such as retirement annuities, and pension and pension preservation funds that didn’t qualify for a deduction when determining the member’s taxable income, can be received tax-free to the extent that these are applied against annuities received.
This exemption, however, doesn’t apply to annuities received from a provident or provident preservation fund. To encourage regular payments in the form of annuities on retirement, it is proposed that this exemption be extended to provident and preservation fund members who elect to receive annuities. This exemption will apply to contributions made after 1 March 2016.
In 2017, Treasury changed the rules governing share buy-backs and dividend stripping to prevent taxpayers from avoiding taxation on share disposals by companies. Treasury noted, however, that taxpayers are continuing to undermine the rules by means of the target company distributing a substantial dividend to its current company shareholder and subsequently issuing shares to a third party.
As a result, the value of the current company shareholder’s holding in the shares of the target company is diluted and these shares are not immediately disposed of. To curb this new form of abuse, it is proposed that the rules governing share buy-backs and dividend stripping be amended. These amendments will take effect on 20 February 2019.
Venture capital companies (VCCs) have recently come under Treasury’s spotlight. Treasury has become aware of abuse around certain aspects of VCCs and will therefore review the rules. In 2018, changes were made to the VCC tax regime to prevent abuse of various aspects of the system. It has come to government’s attention that some taxpayers continue to undermine other aspects of the regime to benefit from excessive tax deductions. It has been proposed that these rules be reviewed to prevent this abuse.
If you have any questions or need assistance to review your tax affairs, call Stanley Broun on 011 778 6648 for an appointment or email stanley@privatewealth.sanlam.co.za.
The formation and registration of trusts, and the provision of independent trusteeships – both local and offshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
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Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
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Stanley Broun has spent 13 years in Fiduciary And Tax.
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