SMALL BUSINESS. Finance Minister Pravin Gordhan has given owners of small businesses a break by raising the taxable income thresholds and introducing a new tax bracket for businesses with an annual income of between R365 001 and R550 000.
The turnover threshold for small businesses has also been increased from R14 million to R20 million.
From April, businesses with a taxable income of less than R67 111 a year will pay no tax; those with an annual income of between R67 112 and R365 000 will pay tax at a rate of seven percent; those with an annual income of R365 001 to R550 000 will pay 21 percent; and those with an annual income of more than R550 001 will pay 28 percent.
DONATIONS TAX. In future you may be able to make donations to public benefit organisations (PBOs) that exceed the amount you are allowed to claim as a deduction in a tax year and still enjoy tax relief on the full amount by spreading the deduction over a number of tax years.
In the Budget Review, National Treasury says that, currently, donations to PBOs that exceed 10 percent of your taxable income cannot be carried forward, and this reportedly discourages large donations. It will therefore propose that tax legislation is amended to allow donations that exceed 10 percent of your taxable income to be rolled over to the next tax year.
PENALTY RELIEF. Taxpayers who are afraid of mistakenly under-declaring their income and being hit by the penalties that the South African Revenue Service (SARS) introduced recently can rest a little easier knowing that this situation will soon be addressed.
The Budget Review says the penalties for understatement “will be refined, and relief will be provided for bona fide errors”.
You can be penalised 25 percent or even 50 percent of the tax you have underpaid if SARS regards your understatement of tax as substantial. A substantial understatement is defined as one that results in your paying tax that is more than five percent less than what you should have paid.
A penalty of 50 percent is reserved for those who repeatedly understate their income; a penalty of 125 percent can be imposed if you are grossly negligent in stating your income; and 200 percent if your intention was to evade tax.
Stiaan Klue, chief executive of the South African Institute of Tax Practitioners, says the tax laws are vast, and there are changes almost daily. Therefore, it is inevitable that almost all taxpayers will make an honest understatement mistake, whether technical in nature or through some other error.
SUBMISSION OF RETURNS. If you earn less than R250 000 a year from a single employer, you may in future not have to submit a tax return. The Budget Review says that, currently, individuals who earn less than R120 000 a year do not have to submit a return, but government plans to raise this income level to R250 000. This will be implemented for this year’s tax filing season.
HEDGE FUNDS. Investors in hedge funds may in future have gains from the sale of units in these funds treated as revenue rather than as capital gains, the Budget Review says.
It is expected that hedge funds will be fully regulated for the first time under the Collective Investment Schemes Control Act, and the flow-through tax regime will apply to them, with one exception.
Keith Engel, director of tax policy at National Treasury, says it is difficult for hedge funds to distribute to investors the cash they make from trades in securities, as is typically required of collective investment schemes. Therefore, it is proposed that gains in hedge funds be exempt from income tax. As a consequence, however, the gains from the disposal of fund units will be taxed as revenue in the hands of the unitholders when they disinvest.
Apart from hedge funds, Engel says interest income funds that hold certain instruments, such as zero-coupon bonds, may be treated in a similar way, because it is difficult to distribute the interest on these instruments until they mature or are sold. In return, unitholders of these funds may also be regarded as receiving taxable income, rather than capital, when they sell their units.
Engel also warned that the unfair preferential tax treatment that a dividend income fund is continuing to receive will be terminated.