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"On the Scales" is produced by Alexander Forbes Legal Services Department as an information service to promote a greater understanding of the issues relating to employee benefits. The issues need to be carefully weighed up in the light of the unique circumstances of each of our clients.
Our Finance Minister, Trevor Manuel, delivered his National Budget speech to Parliament today (15 February 2006). In his usual poetic style he stated that he placed before the nation an account of “…the mountains we have climbed and the frontiers before us”. He continued in line with President Mbeki’s Age of Hope theme.
Contrary to expectations, he did not announce any major restructuring plans for retirement funds. However, in a welcome move, he drastically cut Retirement Funds Tax.
The Minister has stated that the reduction in Retirement Funds Tax, to 9% from 1 March, would be followed by the publication of a discussion document by National Treasury regarding the reform of the Income Tax Act, as it relates to retirement funds (this is expected to be in the form of a follow up to the Discussion Paper on retirement fund reform that was released by Treasury in December 2004). This paper is promised in the next few months.
It was also announced that there would be a reform of the cost-disclosure, commission and governance legislation as it relates to retirement funds, and this is also expected in the reform paper. In the words of the Minister, these reforms will aim to ensure that the benefits of the lower tax rates are passed on to the retirement fund members in the form of improved returns. The Minister also promised that the new proposals would focus on the preservation of retirement benefits.
This note is intended to mainly address employee benefit issues. However, other matters of interest have also been included.
Executive summary
Retirement Funds
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There has been a welcome reduction in Retirement Funds Tax from 18% to 9%. This is in anticipation of the retirement funds tax and legislative reform.
Social Assistance
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Old age and disability pensions are up from R780 to R820.
RSC Levies
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RSC levies will be scrapped from 30 June 2006.
Personal Tax
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Tax brackets have been adjusted to provide relief mainly for lower to middle income levels. The primary rebate is raised to R7 200, and the secondary rebate was unchanged at R4 500. The tax threshold has been increased substantially: for under 65’s it is raised to R40 000, and the R65 000 for over 65’s.
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Interest exemptions have been raised to R16 000 for under 65’s, and to R24 500 for over 65’s.
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Tax exempt donations increase to R50 000, and the estate duty exemption increases to R2.5 million.
Individual Offshore Exchange Control Allowance
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This has increased from R750 000 to R2 million per person.
Car Allowances
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Deemed private kilometres increase and so does the monthly percentage value for that portion of the car allowance that is subject to tax.
Capital Gains Tax (“CGT”)
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The CGT thresholds for taxable annual gains, primary residences and gains on death, have all been increased.
Medical Scheme Contributions and Medical Expenses
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A reminder that the new tax regime introduced in 2005 takes effect from 1 March 2006.
Transfer Duty
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The thresholds on property values on which transfer duty is payable by individuals will, with effect from 1 March 2006 be increased.
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The current flat rate of 10% for companies and trusts will reduce to a flat rate of 8%.
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Transfer duty on divorce is no longer applicable in respect of all types of marriages.
Business Taxes
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There will be a tax amnesty for small businesses operating outside of the tax system.
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The learnership tax allowance is to be extended to 2011.
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Tax changes to be considered to assist employers funding for post-retirement medical aid liabilities.
Public Benefit Organisations (“PBO’s”)
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Government continues to review tax rules for Public Benefit Organisations, including refining the list of tax-exempt PBO’s.
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