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Budget Review 2008 – 21 February 2007

The Minister of Finance, Mr Trevor Manuel, delivered his budget speech for the 2008 tax year at 2pm today. The following is a summary of the more pertinent points:

Companies

Companies Tax remains at 29%, however Secondary Tax on Companies is to be replaced by a Dividend Tax on Shareholders in two phases. Phase 1, commencing 1 October 2007, will consist of reducing the current STC rate from 12.5% to 10%. Phase 2, which will commence in 2008, will consist of a complete move to a Dividend Tax on Shareholders, although its administrative enforcement will still be by way of a withholding tax at company level.

Whilst the Income Tax Act allows for depreciation of buildings used in manufacturing, there are currently no benefits for commercial buildings. A wear and tear allowance of 5% pa on new buildings and upgrades is proposed.

Small Business Corporations

The tax rates applicable to small business corporations are as follows:

Individuals

• The tax tables applicable to individuals have been revised (see below), however the maximum tax rate remains unchanged at 40%.
• The primary tax rebate has been increased to R7 740 (2007 : R7 200), while the additional rebate applicable to persons over 65 has increased to R4 680.
• These changes have resulted in the annual threshold below which no tax is payable, being increased to R43 000 (2007 : R40 000) for persons under 65 and R69 000 (2007 : R65 000) for persons over 65.
• The monetary caps for tax-free medical scheme contributions has been increased from R500 to R530 for each of the first two beneficiaries and from R300 to R320 for each additional beneficiary.
• Retirement Fund Tax will be abolished from 1 March 2007.
• The interest exemption has been increased to R18 000 (2007 : R16 500) for persons under 65 and R26 000 (2007 : R24 500) for persons over 65. The foreign interest and dividends threshold has increased from R2500 to R3000pa.
• The private/business split with regard to travel allowances has remained unchanged, with the first 18000km still being classified as private in the absence of a logbook.

Capital Gains Tax

• With effect from 1 October 2007, the gains on the sale of any equities which were held for longer than 3 years will be classified as capital gains.
• The annual capital gains exclusion for individuals has increased to R15 000 (previously R12 500)
• The primary residence exclusion for individuals has remained unchanged at R1 500 000.
• The capital gain exclusion on death has increased to R120 000 (previously R60 000)

Donations Tax

Donations up to R100 000 per annum are free of donations tax (previously R50 000). Donations tax will be levied at 20% thereafter.

Estate Duty

It is proposed that the first R3 500 000 (previously R2 500 000) of a persons estate is free of estate duty. Estate duty will be levied at 20% thereafter.

Personal Tax Tables