NEWSLETTER FEBRUARY 2017

SERVICES WE OFFER:

· Auditing

· Tax planning

· Due diligence

· Special investigations

· Accounting

· Registration of trusts and companies

· Management and financial advisory services

· Planning and installation of information systems

1

.

National Budget Day, Wednesday, 22nd February 2017

The Treasury recently confirmed that Finance Minister

Pravin Gordhan will present South Africa’s National

Budget to Parliament on Wednesday, 22nd February

2017.

South Africa’s slower economy last year resulted in tax

revenues falling well short of expectations, and this

shortfall must now be dealt with. To ‘balance the

books’, government spending will have to be cut even

more, and taxes will have to be raised.

In October 2016, it was proposed in the medium-term

budget policy statement (MTBPS) that a further R26-billion in reductions to the public

expenditure ceiling would have to be implemented over the next two years. New tax

measures amounting to R13-billion in the 2017-2018 financial year were proposed. Combined

with the higher taxes announced in the 2016 budget, the MTBPS specified that total revenue

increases would amount to R43-billion over the next two years.

Last year, the demand for free higher education and the resulting chaos at campuses across

the country, placed the funding of higher education under tremendous pressure. In his

MTBPS, Finance Minister Gordhan said that an extra R17.6-billion would be needed over the

medium-term to fund South Africa’s higher education system. Gordhan made it clear that

allocations to post-school education and training will be the fastest growing element of the

upcoming national budget.

Against this background, South Africans can expect to pay more tax. Higher taxes that were

outlined during the MTBPS include:

• higher excise duties

• an increase in the fuel levy and other environmental taxes

• adjustments to capital gains tax and transfer duty

• shifting higher income earners into a higher tax bracket

Perhaps there are some ‘green shoots’ in sight for the economy - Treasury appears to be

optimistic that an economic recovery is emerging. There has been a slight rebound in

commodity prices, drought conditions have eased, and electricity problems are apparently

less of an issue. Thankfully, all three rating agencies (S&P, Moody’s and Fitch) decided at the

end of last year to retain South Africa in an investment grade.

Given the events of 2016, and the huge challenges facing our country, the upcoming

National Budget promises to be an interesting event.

2

How the New Tax Legislation May Affect You

On January 11 2017, President Jacob Zuma signed several

Bills into law.

The following pieces of legislation give effect to the tax

proposals of the 2016-17 budget and the budgetary

adjustments announced in the medium-term budget policy

statement in October:

• Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2016

• Tax Administration Laws Amendment Act, 2016

• Taxation Laws Amendment Act, 2016

Some ways in which this new legislation may affect you:

• The ability of taxpayers to transfer wealth to their trusts without being subject to

tax has been limited by the introduction of a new section (7C), which relates to

interest-free or low-interest loans to trusts. As from 1 March 2017, the difference

between official rate of interest, and the amount of interest charged on the loan

to the trust, will be deemed to be a continuing donation made by the trust and

will thus be subject to donations tax.

• Employees will now be taxed on the dividend proceeds received from the

disposal or redemption of the underlying equity shares in Company Share

Incentive Schemes.

• The expiry date for Employment Tax Incentive (ETI) has been extended until 28

February 2019 (effective date 01 October 2016), thus encouraging employers to

hire young people by reducing the cost of employment to the employer.

• The period for Learnership Allowances has been extended to 31 March 2022.

(Effective 1 October 2016 and applicable to Learnership Agreements entered into

on or after that date).

• Car tyres will cost more with the introduction of a new tyre levy at a rate of

R2.30/kg.

• Loss of privacy on bank accounts - From September 2017, a new international

Common Reporting Standard (CRS) will allow governments to obtain detailed

account information from financial institutions, enabling an annual automatic

exchange of information with other jurisdictions.

• Overseas assets must be disclosed - the Special Voluntary Disclosure Programme

(SVDP) provides a “grace period” during which previously undisclosed overseas

assets can be declared (assets held between 1 March 2010 and 28 February

2015). The original term of the SVDP has been extended to 31 August 2017.

Should you have any concerns regarding how these changes in tax legislation may affect

you, please contact us for assistance.

3

THE UNEMPLOYMENT INSURANCE AMENDMENT ACT, 2016

Over the years, the Unemployment Insurance Fund in

South Africa has accumulated a huge surplus in financial

reserves because revenue and investment returns have

exceeded the benefits paid.

Some of the surplus is currently used to fund poverty-

alleviation schemes and socially responsible investments

like housing, hospitals and student accommodation, as

well as other investments that result in job-preservation

and job-creation.

On 11 January 2017, President Zuma signed into law the long-awaited amendments to the

Unemployment Insurance Act which are aimed at increasing the rate at which the

Unemployment Insurance Fund (UIF) pays out benefits. The Unemployment Insurance

Amendment Act also widens the categories of those who qualify for benefits.

Here are some of the changes included in The Unemployment Insurance Amendment Act,

2016:

• The period over which unemployment benefits are paid has been increased from 238

to 365 days

• UIF benefits have been extended to people in learnership training as well as to civil

servants (under the old legislation, provincial and national public servants, including

the police, were not entitled to UIF benefits)

• UIF benefits for pregnant women have been increased to 66% of their basic salary

• Employees may apply for maternity leave benefits eight weeks before delivery and

up to 12 months after birth

• Payment of maternity benefits will no longer be deducted from the mother's

unemployment insurance benefit

• Women who have suffered miscarriages during the third trimester or a still born birth

may claim benefits

• Families and/or nominated beneficiaries of a deceased claimant will be allowed to

receive

the deceased’s benefits within 18 months of the death of the contributor

• Employees who have lost working hours due to reduced time at their workplaces, will

be entitled to benefits

• The new legislation prohibits the charging of fees by any party to an Unemployment

Insurance Fund (UIF) claimant

These changes to the Unemployment Insurance Act have been a long time in the making,

but the new legislation will not only benefit thousands of unemployed workers, but also

women going on maternity leave.

4

TAXATION OF RENTAL INCOME

Many people are making money via online platforms

which allow them to list and earn rental income from

rooms, apartments and other forms of dwellings. In

particular, Airbnb has blossomed globally, and an

increasing number of South Africans are earning extra

income by renting out their homes in this way.

Just as any other rental income is taxable, rental income

earned through these online platforms is regarded as

taxable income.

According to SARS, the rental of residential accommodation includes:

• holiday homes

• bed-and-breakfast establishments

• guesthouses

• sub-renting part of your house, e.g. a room or a garden flat

• dwelling houses and

• other similar residential dwellings

Rental income should be added to any other taxable income that you may have. In

addition to the regular monthly rental income, any other amount paid to you is also subject

to income tax. These additional amounts or lease premiums are usually paid in the form of

lump sums at the start of the lease and the full amount is then subject to tax in the year that it

is received.

A refundable deposit paid by a tenant is not taxable as long as it is held separately in a trust

account.

Rental income may be reduced by the expenses incurred during the period in which the

property was let. These expenses must relate directly to the production of the rental income.

Expenses that may be deducted from taxable income include:

• rates and taxes

• bond interest

• advertising

• agency fees of estate agents

• insurance

• garden services

• repairs in respect of the area let

• security and property levies

It is important not to confuse the cost of repairs and maintenance with improvement costs

(capital expenditure). Capital and/or private expenses are not permitted as a deduction.

Airbnb is legally obliged to supply details of the earnings of Airbnb hosts to the tax authorities,

so it is important that you keep sufficient records to demonstrate that you have declared all

income received and to substantiate expenditure claimed.