2018/19 annual tax update - saipa · amendments to section 7c in order to curb the abovementioned...

2018/19 Annual Tax Update

Part One:Amendment Acts promulgated in December 2017

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Amendment Acts

1) Taxation Laws Amendment Act (2017)

2) Tax Administration Laws Amendment Act (2017)

3) Rates and Monetary Amounts and Amendment of Revenue Laws Act (2017)

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Overview of this section

1) Sugary Beverages Levy (SBL)

2) Income tax: individuals and trusts

3) Income tax: business

4) VAT

5) Tax administration

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Sugary Beverages Levy (SBL)

2.1 cents per gram of sugar content that exceeds 4 grams per 100 ml

First 4 grams of sugar per 100 ml are levy free

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1) SARS will collect the SBL from 1 April 2018.

2) Health promotion levy imposed on sugary beverages imported into or manufactured in SA.

3) SBL returns and payments can be submitted electronically through SARS eFiling and will also be accepted at Customs and Excise branches.

Part 7A of Schedule No.1 to the Customs and Excise Act, 1964

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Locally manufactured sugary beverages will be taxed at source.

Imported products will be taxed when they are cleared for home consumption.

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Only commercial manufacturers that produce sugary beverages with a total annual sugar content in excess of 500 kg per year need to be licensed and pay the SBL. Non-commercial producers below this threshold will be expected to register but will not be subject to the SBL.

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Example

1) A 440 ml commercially manufactured beverage contains 46.6 g of sugar.

2) 46.6 g 440 ml 100 = 10.59 g/100 ml

3) 10.59 g – 4 g = 6.59 g

4) 6.59 g x 2.1 cents = 13.84 cents

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4) VAT


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Limitation of foreign employment income exemption

1) Section 10(1)(o)(ii) exemption for remuneration earned in respect of services rendered abroad and person outside for 183 days during year of assessment (of which 60 days must be continuous).

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Background

1) From 1 March 2001, South Africa moved from a source based system of taxation to a residence based system of taxation.

2) Consequently, South African residents are taxed in South Africa on their worldwide income.

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Backgrounds

Two critical questions:

1) When is a person a resident?

2) When in income from a source within SA?

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Definition of a residentSection 1: natural persons

Ordinarily resident in year of assessment

ResidentPhysical presence test

Resident Non-resident

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Definition of a residentSection 1: other persons

Incorporated, established or formed in SA

ResidentPlace of effective

management in SA

Resident Non-resident

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Taxation of non-residents

Section 9Source provisions

Case lawLever Bros & Unilever

SA source income

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a) Dividendsb) Interestc) Royaltiesd) Royaltiese) Imparting of knowledgef) Imparting of knowledgeg) Holding of public officeh) Services to SA governmenti) Pension on services rendered in SAj) Immovable propertyk) Movable propertyl) Exchange differences

Source provisionsSection 9(2)

What if there is no source provision dealing with the type of income?

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CIR v Lever Brothers and Unilever Ltd:

The word ‘source’ has several possible meanings. In this section it is usedfiguratively, and when so used in relation to the receipt of money one possiblemeaning is the originating cause of the receipt of the money, another possiblemeaning is the quarter from which it is received. A series of decisions of this Courtand of the Judicial Committee of the Privy Council upon our Income Tax Acts andupon similar Acts elsewhere have dealt with the meaning of the word ’source‘ andthe inference, which, I think, should be drawn from those decisions is that thesource of receipts, received as income, is not the quarter whence they come, butthe originating cause of their being received as income and that this originatingcause is the work which the taxpayer does to earn them, the quid pro quo whichhe gives in return for which he receives them. The work which he does may be abusiness which he carries on, or an enterprise which he undertakes, or an activityin which he engages and it may take the form of personal exertion, mental orphysical, or it may take the form of employment of capital either by using it to earnincome or by letting its use to someone else. Often the work is some combinationof these.

Source rules: case law

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Rationale for change

1) The current exemption creates opportunities for double non-taxation in cases where the foreign host country does not impose income tax on the employment income or taxes on employment income are imposed at a significantly reduced rate.

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Amendment

‘‘to the extent to which that remuneration does not exceed one million Rand in respect of a year of assessment”

Limited to the first R1 million of foreign remuneration

Effective date:1 March 2020

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Loan or credit advanced to a trust by a connected person

Section 7C

7C(1) When does it apply

7C(2)First consequence: no deduction/loss for disposal

or failure of claim for payment

7C(3)Second consequence: deemed donation if loan

bears interest at lower than official rate

7C(4)If loan is granted by connected company at

instance of more than one connected person

7C(5) Exceptions (when does it not apply)

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General exemption from donations tax

Section 56(2)(b)

1) General exemption from donations tax of R100 000 for natural persons.

2) This exemption can be used by taxpayers to reduce the donations tax imposed as a result of section 7C (to the extent not yet utilised).

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Amendments to section 7CLow or no interest loans to trusts

Loans advanced to a company owned by a

trust

Employee share incentive schemes

Transfer of loan claims to beneficiaries

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Amendments to section 7C

Since the introduction of the section 7C that taxpayers have discovered ways to avoid the deemed annual donation triggered by the anti-avoidance measure:

1. Interest-free loans, advances or credit and low interest loans, advances or credit made to companies owned by trusts

2. Transfer of loan claims to current or future beneficiaries of trusts

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1. Interest-free loans, advances or credit and low interest loans, advances or credit made to companies owned by trusts

In order to avoid the application of the anti-avoidance measure, taxpayers advance interest free or low interest loans to companies whose shares are held by trusts. By advancing the loan to the company rather than the trust, the anti-avoidance measure will not apply as it currently only applies to loans advanced to trusts. As such, the fiscus will forgo the ongoing and annual donations tax on the deemed donation. These companies benefit from this low or no interest funding and tax can only be collected at a much later stage when the company makes distributions to the trust.

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In order to curb the abovementioned avoidance, interest free or low interest loans, advances or credit that are made by a natural person or a company (at the instance of a natural person) to a company that is a connected person in relation to a trust should also fall under the anti-avoidance measure.

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Effective date:19 July 2017

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2. Transfer of loan claims to current or future beneficiaries of trustsUnder this avoidance scheme, taxpayers enter into an arrangement under which the loan claim of the natural person who made the loan, advance or credit to the trust (or the natural person at whose insistence a company made a loan to a trust) is transferred to another natural person. The natural person that the loan claim is transferred to is usually a current beneficiary of the trust or a future beneficiary of the trust to which the loan, advance or credit is made, such as a child or a spouse. By subsequently transferring the loan claim, taxpayers argue that this breaks the link between the natural person who advanced the loan and the loan. Because of this, the natural person to whom the loan claim is transferred does not account for the deemed ongoing and annual donation as that natural person did not advance the loan to the trust.

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Where a person that is a connected person in relation to a trust acquires a loan claim to an amount owing by that trust in respect of a loan, advance or credit that was originally advanced by a natural person or a company (at the instance of a natural person) to that trust, the person who acquires that claim will be deemed to have advanced the amount of that claim as a loan on the date that person acquired that claim.

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Effective date:19 July 2017

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3. Employee share schemes

Section 7C may have a negative impact on some employee shares schemes that often make use of trusts to hold shares in the employer company (or its associate) that will be allocated to qualifying employees.

These types of trusts are established to facilitate incentive programmes for employees and cannot be treated in the same manner as trusts that are established to transfer wealth.

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In order ensure that employee share schemes are not negatively affected, a specific exclusion for employee incentive schemes is now provided. However, certain requirements must be met for the exclusion to apply. These requirements are introduced in order to ensure that owners of businesses do not abuse the exclusion to transfer wealth to family members that are in the employ of the business.


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Requirements for exclusion from section 7C by employee share plans:

• Trust solely created for employee share incentive scheme and loan was provided for share acquisition

• Shares may only be offered by that trust to someone by virtue of that person being in the full-time employment/director of a company

• Par (d)(iv) connected persons may not participate in scheme (20% or more interest)


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Bursary exemption: learners with disabilities

Section 10(1)(qA)

Section 10(1)(q) currently allows for tax-exempt bursaries and scholarships including a limited

exemption for employees (repayment condition) and relatives of employees

(maximum salary condition).

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Current exemptionSection 10(1)(q)

Section 10(1)(q) provides an exemption for bursaries or scholarships for bona fide study at recognised institution.

Distinguishes between bursaries awarded to:

Non-employees EmployeesRelatives of employees

Full exemption for bona fide bursary

Full exemption if agrees to repay if

studies not completed

Limited exemption based on

qualification

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Current exemptionSection 10(1)(q)

1) Bursaries awarded to relatives of employees are only exempt if employees’ remuneration is R600 000 or less.

Annual exemption limits:

1) Grade R – 12 and NQF 1- 4 = R20 000

2) NQF 5 – 10 = R60 000

Relatives of employees

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Exemption for learners with disabilities

The costs encountered by educating students and learners with disabilities tend to exceed the costs faced by students and learners without disabilities.

A new exemption threshold for employer provided bursaries in respect of learners with disabilities is provided for in section 10(1)(qA).

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Disability exemptionSection 10(1)(qA)

1) Bursaries awarded to relatives of employees are only exempt if employee’s remuneration proxy is R600 000 or less.

Annual exemption limits:

1) Grade R – 12 and NQF 1- 4 = R30 000

2) NQF 5 – 10 = R90 000

Relatives of employees

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Definition of “disability”Section 6B(1)

“disability” means a moderate to severe limitation of any person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment, if the limitation—

(a)has lasted or has a prognosis of lasting more than a year; and

(b)is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner;

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NQF Levels

LEVEL QUALIFICATION

1 Grade 9

2 Grade 10 and National (vocational) Certificates level 2

3 Grade 11 and National (vocational) Certificates level 3

4 Grade 12 (National Senior Certificate) and National (vocational) Cert. level 4

5 Higher Certificates and Advanced National (vocational) Cert.

6 National Diploma and Advanced certificates

7 Bachelor's degree, Advanced Diplomas and B-tech

8 Honours degree, Post Graduate diploma and Professional Qualifications

9 Master's degree

10 Doctor's degree

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Retirement fund amendments

1) New section 11F

2) Postponement of annuitisation requirement for provident funds

3) Transferring retirement fund benefits after reaching normal retirement age

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Retirement fund contributionsSection 11F

1) The deduction for employee contributions to a pension fund were historically included in section 11(k), while deductions for contributions to a retirement annuity fund were included in section 11(n).

2) As part of the wider retirement reform objectives, the tax deductibility of contributions to retirement funds was harmonised across all retirement funds through a replacement of section 11(k) from 1 March 2016, where the same deduction now applies to both employer and employee contributions to pension funds, provident funds and retirement annuity funds.

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Before 1 March 2016

Employer funds Private fund

Pension fund Provident fund RAF

2/3 mandatory preservation

2/3 mandatory preservation

No preservation

Deduction: Deduction: Deduction:

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On or after 1 March 2017

1) Harmonised treatment for all three fund types (section 11(k)).

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Wording of section 11(k) has created a few problems:

1) Requires the carrying on of a trade (passive income excluded)

2) Section 11(k) can also create anomalies, such as generating an assessed loss from contributions to retirement funds that are above the allowable limit when taxable capital gains are a part of the higher limit .

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1) To remove the inconsistences and anomalies that arise from the current location of the provisions that allow for a limited deduction for retirement fund contributions under section 11(k), a new section 11F is inserted to effect this deduction.

2) Additionally, a new limiting criteria for the allowable deduction is inserted to avoid circumstances that can create an assessed loss.

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1) Employer contributions = fringe benefit (all three fund types)

2) Limited to lesser of:

a. 27.5% of higher of

Remuneration (excluding lump sums)

Taxable income before capital gains

b. R350 000

3) Excess carried forward to next year.

Deemed effective date: 1 March 2016

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What is the difference between?

Carry forward of deduction

Assessed loss

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Provident funds: postponement of annuitisation requirement

1) Compulsory annuitisation now also applicable to new provident fund contributions (initially 1 March 2016).

2) Later postponed to 1 March 2018.

3) National Economic Development and Labour Council (NEDLAC) discussions still in progress.

4) Now postponed until 1 March 2019.

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Transferring retirement benefits after reaching normal retirement age

1) 2014 amendments allowed members of retirement funds to postpone ‘retirement’ by keeping their benefits within their funds past the ‘normal retirement age’.

2) Since they are no longer active employees or members of the fund, administrative problems resulted (communication and administrative burden).

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1) In order to address these concerns, changes were made in the Act to allow employees to transfer their benefits into a retirement annuity for later consumption.

2) Transfers to preservation funds are not currently included in the proposal as this would create a situation where members of pension funds can transfer their benefits into preservation funds and withdraw all the benefits in a lump sum withdrawal, thereby going against preservation.

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Effective date: 1 March 2018

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4) VAT


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In duplum rule anti-avoidanceSection 7D

Various provisions now exist that deem interest to have incurred where no or low interest is charged:

Seventh Schedule

7C Trusts64E(4)

Shareholder loans

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Certain taxpayers claim that if a zero or low interest loan is advanced and the unpaid interest on that loan

(and other costs, in the case of the statutory“induplum”rule) reaches the amount of the unpaid

principal debt, the“in duplum” rules apply to stop the interest (and other costs, in the case of the

statutory“in duplum”rule) from running. Consequently, if the“in duplum”rules apply, then the application of

the current anti-avoidance rules on the tax benefit on zero or low interest loans must also not be applied

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Effective date: 1 January 2018

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1) Definition now in section 1

2) Repo + 1%

3) Separate definition for foreign currency denominated debt: repo rate for that currency + 1%

Official rate of interest

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Tax implications of contingent liabilities under corporate rules

Section 41

1) South Africa does not have a group taxation regime.

2) Each company in group is treated as a separate taxpayer.

3) Corporate restructures that comply with the corporate restructuring rules do not immediately trigger tax but postpone tax consequences.

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Section 41

The corporate restructuring rules allow a seller to sell or transfer assets in exchange for equity shares in the purchaser or, in some instances, allow a purchaser to assume the debts of the seller in exchange for the assets.

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Section 41

Contingent liabilities of the seller often affect the selling price.

Not currently permissible as consideration.

However, has real economic impact.

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Section 41

Definition of debt expanded to include “contingent liabilities” and deemed to be a debt actually incurred.

Effective date: 18 December 2017

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Addressing abuse of CTC provisionsSection 8G and definition in section 1

1) The concept of contributed tax capital (CTC) was introduced in the Act in 2011.

2) CTC is a notional tax amount derived from contributions made to a company by holders of a class of shares as consideration for the issue of that class of shares by that company.

3) It is reduced by any capital amount that is subsequently transferred back by the company to one or more shareholders of that class of shares (commonly known as a capital distribution) utilising that notional tax amount so received.

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CTC

"Pure" share capitaland premium

Consideration received for shares issued

Amount of CTC transferred to shareholders

Excludes amount included here that constitutes a 'dividend' under old

definition

Determined to be CTC by directors

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1) A distribution to shareholders which leads to a reduction of CTC does not constitute a dividend and is specifically excluded from the definition of “dividend” in section 1 of the Act and as a result not subject to dividends tax.

2) Any transfer by a company to a shareholder, in cash or in kind, which does not constitute a return of CTC will be regarded as a dividend.

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Dividend vs CTCMutually exclusive

Distribution

Dividend Return of capital (CTC)OR

Dividends tax CGT

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How does one “use” CTC?

1) The definition of CTC requires that the company directors (or other persons with comparable authority) determine that the transfer constitutes a transfer of CTC.

2) This implies that a specific resolution must be taken in order for a company to return CTC to its shareholders.

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Structures have been identified in terms of which South African subsidiary companies with foreign parent shareholders increase their CTC and thereby avoid payment of dividends tax through capital distributions to its foreign shareholders.

These capital distributions are not subject to CGT in the hands of the foreign parent shareholder if the underlying investment is not in immovable property in South Africa and therefore not within the South African CGT net.

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Definition of CTC has been amended and section 8G has been enacted to address such structures.

Effective date: 19 July 2017

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Amendments to debt reduction rules

The reduction or waiver of debt for more than the fair value of the consideration paid by the debtor for such waiver could result in income tax recoupments (section 19) or reductions of base costs of assets or capital losses (paragraph 12A).

Key question to ask:

What was the debt used for (what did it fund)?

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Expansion of debt reduction rules

1) The amendments extend the ambit of the provisions to apply to any “concession and compromise”.

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Debt benefitTax consequences for

debtor

Key question to ask:

What was the debt used for (what did it fund)?


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A "debt benefit" arises for the debtor where the face value of the debt before the arrangement exceeds:

• in the context of change of terms or conditions, exchange of obligations or waivers of debt: the market value of the claim after the arrangement;

• in the context of direct or indirect settlements of debt with equity:• the market value of the shares issued on the settlement, where the

creditor did not hold any shares in the debtor prior to settlement; or

• the difference between the aggregate market value of shares held before and after the settlement, where the creditor held shares in the debtor prior to the settlement.

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Extending the scope of the non-recoupment rule for VCCs

Section 12J

1) Contentious issue: distribution from the VCC in the form of returns of capital. It is argued that returns of capital may trigger a recoupment of the upfront income tax deductions allowed for the initial investment in the VCC, even if those returns of capital occurred after five years (not intended).

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Section 12J

1) Contentious issue: distribution from the VCC in the form of returns of capital. It is argued that returns of capital may trigger a recoupment of the upfront income tax deductions allowed for the initial investment in the VCC, even if those returns of capital occurred after five years (not intended).

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Section 12J

1) Amendment was made to section 12J to make provision for the tax deduction not to be recouped in respect of return of capital on a VCC share if that share has been held by the taxpayer for a period of at least five years.


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4) VAT


79

Amendment:VAT on leasehold improvements

Background

A lessee may, during the period of a lease agreement effectimprovements on the leasehold property that belongs to thelessor. These improvements may either be obligatory orvoluntary. These improvements would generally refer toimprovements that become permanently attached to theleasehold property.

In terms of the common law, improvements that becomepermanently attached to the leasehold property become theproperty of the lessor.

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Background (continued)

Currently, the VAT Act does not provide guidelines in respect ofthe VAT treatment of leasehold improvements effected by thelessee to the leasehold property during the period of a leaseagreement.

Concerns have been raised that lessee and lessor vendors areuncertain of how to treat these leasehold improvements for VATpurposes. The lack of clarity in the VAT Act has led toinconsistencies in the VAT treatment.

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First amendment: Deemed Supply of goods by the Lessee

The lessee shall be deemed to have made a taxable supply ofgoods to the lessor to the extent that the leaseholdimprovements are made for no consideration. The value of thissupply is deemed to be NIL in these circumstances. There is nodeemed supply if the lessee, being a vendor, uses the leaseholdimprovements wholly for purposes of making exempt supplies.

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Second amendment: Adjustments for the lessor

Where leasehold improvements are supplied to the lessor by thelessee, as contemplated in the new section 8(29), the lessor shall bedeemed to have made a taxable supply of goods in the course orfurtherance of its enterprise, to the extent that the lessor, at the timeof completion of the leasehold improvements, uses the fixed propertyotherwise than for making taxable supplies.

This adjustment will ensure that the lessor is placed in the sameposition that it would have been in had the lessor effected theleasehold improvements itself and the use of the improvements werefor the making of non-taxable supplies.

Effective from 1 April 2018

83

Amendment:international travel insurance

Background

It is common for people who travel out of the country to obtain travel insurance to cover medical risks as well as risks related to loss of luggage. In some instances, the international travel may have a domestic leg to it (such as a stop-over in another city in the Republic) before the international leg of the journey commences. In most cases, insurers charge a single premium that provides travel insurance for the entire journey and includes both the domestic portion and the international portion.

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The VAT Act provides for insurance and the arranging of insurance related to international travel to be zero-rated. The provisions of section 11(2)(a) of the VAT Act in relation to passengers or goods, state that the zero-rated insurance is limited to the transport of passengers or goods:

• From a place outside SA to another place outside SA

• From a place in SA to a place in an export country

• From a place in an export country to a place in SA

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In relation to the transport of passengers, in terms of section 11(2)(b) of the VAT Act, the zero-rating also applies where the services comprise the transport of passengers from a place in the Republic to another place in the Republic to the extent that the transport is by air and constitutes “international travel”.

In relation to the transport of goods, the zero-rating also applies where the services comprise the transport of goods from a place in the Republic to another place in the Republic to the extent that those services are supplied by the same supplier as part of the supply of services to which the scenarios stated in section 11(2)(a) apply.

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The zero-rating does not extend to insurance provided during the period that the insured is:

• Transported to and from the insured’s original point of departure (e.g. while en-route to or from the airport); and

• Not being physically transported while on the international journey (for example, while the insured stays in a hotel).

These insurance services would currently be subject to VAT at the standard rate. Since insurers regard the single premium as being in relation to a single supply of

international travel insurance, this provision creates a difficulty in practice since the premium cannot be separated into the cover for the local portion, the international

portion and the period during which the insured is not physically travelling.

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Proposed amendment:international travel insurance

Amendmet

In order to address the practical concerns, the zero rating provisions in the VAT Act pertaining to travel insurance cover provided as part of an international journey is clarified in section 11(2)(d) as follows:

“insuring or the arranging of the insurance of passengers on an international journey where the insurance of those passengers is provided under a single inbound or outbound insurance policy in respect of which a single premium is levied”

Effective from 1 April 2018

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4) VAT


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Taxation of SARS interestSection 7E

1) In determining the taxable income derived by any person during a year of assessment, any amount of interest to which a person becomes entitled that is payable by SARS in terms of a tax Act is deemed to accrue to that person on the date on which that amount is paid to that person.

Effective date: 1 March 2018

90

Exemption from submitting dividends tax return

1) In 2016, persons who derive a dividend from a tax free investment (section 12T) were exempted from submitting a return in respect of that dividend.

2) Retirement funds are tax exempt savings vehicles, as is the case with tax free investments, and the exemption from submitting returns is now also extended to these funds.

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Employees’ tax on reimbursivetravel allowance

1) To facilitate and simplify the calculation and administration of PAYE, UIF and SDL, the the rate indicated by the Minister of Finance by notice in the Gazettefor the simplified method is applied to determine the amount of remuneration irrespective of the actual distance travelled.

2) This means that to the extent an allowance is paid by an employer for business travel by an employee at a rate exceeding the simplified method rate the excess will be regarded as remuneration for purposes of determining the amount of employees’ tax payable.

100% included (not 80%) Effective date: 1 March 2018

Part Two:2018 Budget Speech

93

2018 Budget SpeechMajor tax proposals

1) VAT rate increase to 15% from 1 April 2018

2) 52c per litre increase in the fuel levy

3) Limited PIT relief for lower income taxpayers

4) Increased estate duty, to be levied at 25% for estates above R30 million

5) Increased environmental levies

6) Higher ad valorem excise duties for luxury goods

94

Increase in VAT rate

1) The VAT rate will increase from 14% to 15% from 1 April 2018.

2) Last increase was in April 1993.

3) Increase expected to raise R22.9 billion.

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Does increase undermine progressiveness of VAT?

1) The VAT proposal will increase the cost of living for all households.

2) However, the zero-rating of basic food items and paraffin will reduce the impact on the poor, who will receive further assistance through an above-inflation increase in social grants.

3) The wealthiest 30 per cent of households contribute 85 per cent of VAT revenue.

0.88%

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Implementation of new rate

1) Change in rate is effective from 1 April 2018.

2) The time of supply provisions in section 9 will determine which rate to use.

1 April 2018

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Time of supply rulesSection 9

The general rule of the time of supply is the earlier of

• the date of the invoice, or

• the date the payment is received by the supplier.

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Time of supply rulesSection 9

Special time of supply rules such as for:

• Connected persons

• Rental agreements

• Progressive supplies

• Vending machines

• Fixed property transactions

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VAT: Types of supplies

Standard rated supplies Zero-rated supplies

Taxable supplies Exempt supplies

Supplies

s12

s11

All other supplies

Deemed supplies

100

Zero-rating of basic foodstuffsSection 11(1)(j)

• Brown bread as defined in Regulation 1 of the Regulations in terms of Government Notice No. R.405 published in Government Gazette No. 40828 of 5 May 2017;

• Maize meal graded as super maize meal, special maize meal, sifted maize meal or unsifted maize meal, not further processed other than by the addition of minerals and vitamins not exceeding one per cent by mass of the final product, solely for the purpose of increasing the nutritional value.

• Samp, not further prepared or processed.

• Mealie rice, not further prepared or processed.

• Dried silo screened mealies or dried mealies not further prepared or processed or packaged as seed, but excluding pop corn (zea mays everta).

• Dried beans, whole, split, crushed or in powder form but not further prepared or processed or where packaged as seed.

101

Zero-rating of basic foodstuffs

• Lentils, dried, whole, skinned or split.

• Pilchards or sardinella supplied in tins or cans consisting mainly of such products regardless of whether flavoured, seasoned or preserved in oil, but excluding such products as are supplied as pet food or sardines supplied in tins or cans.

• Milk powder: unflavoured, being the powder obtained by the removal of water from milk and which falls under the following classifications determined by the Minister of Agriculture under the Agricultural Product Standards Act, 1990 (Act No. 119 of 1990), or any regulation under that Act provided the fat or protein content of such milk powder consists solely of milk fat or milk protein.

• Dairy powder blend.

• Rice, whether husked, milled, polished, glazed, parboiled or broken.

102

Zero-rating of basic foodstuffs• Vegetables, not cooked or treated in any manner except for the purpose of

preserving such vegetables in their natural state, but excluding dehydrated, dried, canned or bottled vegetables or such vegetables as are described under separate Items in this PART.

• Fruit, not cooked or treated in any manner except for the purposes of preserving such fruit in its natural state, but excluding dehydrated, dried, canned or bottled fruit and nuts.

• Vegetable oil, marketed and supplied for use in the process of cooking food, but excluding olive oil.

• Milk, including high-fat, full-fat, low-fat or fat-free milk, being the milk of cattle, sheep or goats that has not been concentrated, condensed, evaporated, sweetened, flavoured, cultured or subjected to any other process other than homogenization or preservation by pasteurization, ultra-high temperature treatment, sterilization, chilling or freezing or the addition of minerals, vitamins, enzymes and other similar additives not exceeding one per cent by volume of the final product, solely for the purpose of increasing the nutritional value.

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• Cultured milk, being cultured milk as classified under the Agricultural Product Standards Act, 1990.

• Brown wheaten meal, being pure, sound wheaten meal, but excluding separated wheaten bran, wheaten germ and wheaten semolina.

• Eggs, being raw eggs laid by hens of the species gallus domesticus, whether supplied in their shells or in the form of egg pulp being raw pulp consisting of the yolk and white which is obtained from such eggs after the shells have been removed.

• Edible legumes and pulse of leguminous plants, dried, whole, split, crushed, skinned or in powder form, but not further prepared or processed or where packaged as seed or such pulse as are described under separate Items in this PART.

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The provisions of paragraph 1 shall not apply where any goods mentioned in that paragraph are supplied in the course of carrying out any agreement for the furnishing or serving of any meal, refreshment, cooked or prepared food or any drink, as the case may be, so as to be ready for immediate consumption when so supplied.

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Zero-rating: fuel levy goodsSection 11(1)(h)

The goods consist of fuel levy goods referred to in Fuel Item Levy numbers 195.10.03, 195.10.17, 195.20.01 and 195.20.03 in Part 5A of Schedule No. 1 to the Customs and Excise Act.

106

Increase in fuel levies

1) General fuel levy increases by 22c/l.

2) RAF levy increases by 30c/l.

Increase in general fuel levy expected to raise R1.2 billion in additional revenue.

From 4 April 2018

52c

+-40% of pump price= tax

107

New personal income tax rates

1) No adjustments to the top four income tax brackets, and below- inflation adjustments to the bottom three brackets.

2) Therefore: tax rates increased in real terms!

108

New personal income tax rates2019

Taxable income (R) Rates of tax (R)

0 – 195 850 18% of taxable income

195 851 – 305 850 35 253 + 26% of taxable income above 195 850




708 311 – 1 500 000 207 448 + 41% of taxable income above 708 310

1 500 001 + 532 041 + 45% of taxable income above 1 500 000

109









110









111

Tax rebates

Tax Rebate Tax Year

2019 2018 2017 2016 2015

Primary R14 067 R13 635 R13 500 R13 257 R12 726

Secondary (65 and older)

R7 713 R7 479 R7 407 R7 407 R7 110

Tertiary (75 and older)

R2 574 R2 493 R2 466 R2 466 R2 367

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Tax threshold

Person 2019

Under 65 R78 150

65 an older R121 000

75 and older R135 300

113

Medical scheme credits2019

• Taxpayer: R310 per month (2018: R303)

• First dependant: R310 per month (2018: R303)

• Further dependants: R209 per dependant per month (2019: R204)

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Travel allowance: rates per km2019

Value of the vehicle (R)

Fixed cost (R p.a) Fuel cost (c/km) Maintenance cost (c/km)

0 - 85 000 28 352 95.7 34.4

85 001 - 170 000 50 631 106.8 43.1

170 001 - 255 000 72 983 116.0 47.5

255 001 - 340 000 92 683 124.8 51.9

340 001 - 425 000 112 443 133.5 60.9

425 001 - 510 000 133 147 153.2 71.6

510 001 - 595 000 153 850 158.4 88.9

more than 595 000 153 850 158.4 88.9

115

Alternative simplified method

Where an allowance or advance is based on the actual distance travelled by the employee for business purposes, no tax is payable on an allowance paid by an employer to an employee up to the rate of 361 cents per kilometre, regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

116

Local subsistence allowances

Year Meals and incidental costs per day (R)

Incidental cost only per day (R)

2019 416 128

2018 397 122

2017 372 115

2016 353 109

2015 335 103

2014 319 98

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25% estate duty for large estates

1) Estate duty from will increase from 20% to 25% for estates worth R30 million and more.

2) Any donations above R30 million in one tax year will also be taxed at 25 per cent.

3) Both measures will be effective from 1 March 2018.

118

Raising luxury ad valorem excise duties

1) Effective 1 April 2018, the maximum ad valorem excise duty for motor vehicles will be increased from 25 per cent to 30 per cent.

2) The classification of cellular telephones will be updated to include “smart phones” to ensure they attract ad valorem excise duties.

3) The ad valorem excise duty rates, now at 5 per cent and 7 per cent, will be increased to 7 per cent and 9 per cent, ensuring that households spending more on luxury goods contribute proportionately more to revenue.

119

Environmental taxes

1) To reduce litter and dissuade consumers from buying plastic bags, the plastic bag levy is to be increased by 50 per cent to 12 cents per bag, effective 1 April 2018.

2) The environmental levy on incandescent light bulbs will increase from R6 to R8 to incentivise more energy-efficient behaviour. This measure will take effect from 1 April 2018.

3) he vehicle emissions tax will be increased to R110 for every gram above 120 gCO2/km for passenger vehicles and R150 for every gram above 175 gCO2/km for double cab vehicles, effective 1 April 2018

2018/19 annual tax update - saipa · amendments to section 7c in order to curb the abovementioned...

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