2006/2007 Budget Review | South Africa Tax Guide 2006

Relief for individuals

Personal income Tax

  • The primary rebate is raised to R7 200, from R6 300, increasing the income tax threshold by 14.3% to R40 000.
  • The tax threshold for taxpayers age 65 and over is raised to R65 000 from R60 000, an increase of 8.3%
  • Brackets are adjusted to provide relief across the income spectrum.

Interest and dividend income exemption.

As from 1 March 2006, the exemption threshold will increase to R16 500 (10%) for taxpayers younger than 65 years and to R24 500 (11.4%) for taxpayers age 65 and over. It is also proposed to increase the  proportion of the exemption applicable to foreign interest income and dividends from R2 00 to R2 500 per year.

Proposed rate of transfer duty, 2006/ 07

Property value Rates of Tax
R0 - R500 000 0%
R500 001   - R1 000 000 5% on the value above R500 000
R1 000 001 and above R25 000 plus 8% on the value over R1 000 000

It is also proposed to reduce the flat 10 % transfer duty rate for companies and trusts to 8 %, and will come into effect on 1 March 2006.

Stamp Duties

It is proposed to increase the threshold exemption for stamp duties on leases from R200 to R500 per agreement from 1 March 2006.

Individual Monetary Thresholds

It is proposed that the annual donations tax exemption be increased from R30 000 to R50 000 and the estate duty exemption be increased from R1.5 million to R2.5 million, effective from 1 March 2006.

Capital gains tax

The following proposals are made for tax years commencing on or after 1 March 2006:

The annual capital gain/ loss exclusion will increase from R10 000 to R12 500

The primary residence exclusion will increase from R1 million to R1.5 million

The exclusion on death will increase from R50 000 to R60 000.

Motor Vehicle allowances

As announced in the 2005 budget, the deemed private kilometres for individuals who receive motor vehicle allowances will be increased to 18 000 per year, and the monthly taxable fringe benefit of a company car will be increased to 2.5% of the determined value of the vehicle, effective from 1 March 2006. The percentage of the monthly motor vehicle allowances subject to tax will be increased from 50% to 60% from 1 March 2006.

Medical Scheme contributions and medical expenses

This new regime introduces monthly monetary caps for tax - free medical scheme contributions ( with the caps to be adjusted annually) and increases the threshold for individual tax - deductible medical expenses from 5 to 7 % of income. Taxpayers 65 years and older will continue to enjoy a full deduction for all medical expenses. These changes take effect on 1 March 2006.

Promoting retirement savings

The tax on retirement funds will be reduced from 18% to 9% from 1 March 2006.

Relief for business

RSC Levy Reform

By eliminating the RSC levies from 30 June 2006, the 2006 Budget provides significant direct tax relief to business.

Small business

The monetary tax thresholds for small business will be adjusted as follows:

For small business corporations, the following amendments will come into effect for tax years ending on or after 1 April 2006:

  • Firms with an annual turnover of up to R14 million (increased from a level of R6 million) will qualify for the special graduated corporate tax regime
  • The taxable income threshold for the reduced corporate tax rate of 10% will be increased from R250 000 to R300 000
  • The small business income tax exemption threshold will be increased from R35 000 to R40 000.

The one-time capital gains tax relief for small business will increase from R500 000 to R750 000 with effect from tax years commencing on or after 1 March 2006.

Immediate 100% depreciation exists for individual small items purchased for business purposes. This threshold will increase from R2 000 to R5 000 for assets purchased on or after 1 March 2006.

The VAT threshold for both small farmers and small business four-monthly filers will increase from R1 MILLION RO r1.2 million for tax periods commencing on or after 1 July 2006.

Tax amnesty for small business

The proposed amnesty will allow SARS to waive taxes due by small businesses for years of assessment ending on or before 31 March 2004, where the turnover for the 2005 year of assessment does not exceed R5 million. This waiver will require submission of an income tax return for 2005 as well as a non-disclosure penalty of 10% based on taxable income for 2005. It will not be available to taxpayers who have already disclosed the amounts concerned, or who have been formally notified that they are under investigation before applying for amnesty. It is also proposed to waive penalties, additional taxes and interest on interest on the underlying taxes due.

Incentives for intellectual capital and training.

Extension and increase of the learnership allowance

It is proposed that this allowance be extended to October 2011. The maximum initial allowances will increase from R17 500 to R20 000 per year for existing employees and from R25 000 to R30 000 for new employees. Similarly, the maximum allowance upon the completion of the learnership will increase from R25 000 to R30 000 for agreements entered into from 1 March 2006.

Given the additional expenses associated with employing disabled persons as learners, a more favourable allowance will be introduced effective 1 July 2006. An employer will be allowed to deduct an initial allowance of 150% of the annual salary of an existing learner with a disability, up to a maximum of R40 000; and 175% for an unemployed learner with a disability, up to a maximum of R50 000. The tax allowance for disabled persons completing a learnership will be 1755 of the employee's annual salary, up to a maximum of R50 000.

Enhancement of scholarships and bursaries

Bursaries and scholarships for current and future employees will be tax-exempt as long as the employer's fund go directly to tuition and tuition-related expenses, and the employee agrees to repay the employer if the employee fails to fulfil their scholarship or bursary obligations. This proposal will take effect from 1 March 2007.

Enhancement of research and development

To encourage businesses to increase investment in R&D, the deduction for current R&D expenditure will be increased from 100% to 150%. In addition, the depreciation allowance for capital expenditure will be increased from the current 40:20:20:20 to 50:30:20.

Zero-rating of municipal property rates

It is proposed to zero-rate municipal property rates for VAT purposes for tax periods commencing on or after 1 July 2006.

Consumption taxes

Exercise Duties: Alcoholic Beverages

Excise duties on sparkling wine, unfortified wine, fortified wine, malt beer, alcoholic fruit beverages and spirits increase by 20%, 12.5%, 9.4%, 9%, and 9.5% respectively with immediate effect.

Excise Duties: Tobacco products

 The excise duties on cigarettes, cigarette tobacco, pipe tobacco and cigars will increase by 10.2%, 4.7%,8.3% and 4.8% respectively with immediate effect.

Road Accident Fund Levy

 The RAF fuel levy is to increase by 5 cents per litre effective 5 April 2006 to allow the fund to settle it's expected road accident claims for 2006/07.

Exchange Control

South African Resident Private Individuals

Private individuals who are over 18 and tax payers in good standing have been permitted to invest abroad since 1 July 1997. The current limit is now increased from R750 000 to R2 000 000 per person.

SARS Interest Rates

Rates of interest

Effective from 1 September 2005

 Rate
Fringe benefits - interest - free or low - interest loan

Effective from 1 November 2004

 8% p.a
Late or underpayments of tax 10,5%  p.a
Refund of overpayments of provisional tax 6,5% p.a
Refund of tax on successful appeal or where the appeal was conceded by SARS 10,5% p.a
Refund of VAT after prescribed period 10,5% p.a
Late payments of VAT 10,5% p.a
Customs and Excise 10,5% p.a

Rates of interest ( Effective from 1 September 2005)