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1. Personal Income Tax

The 2021 Budget brings about adjustments to the income tax brackets to support economic

growth. One of the most positive outcomes of the Budget was the above-inflation increase of the

personal income tax brackets, of 5%. Most of the relief brought about by this increase will be felt

by the lower and middle-income households.

Tax rates for natural persons and special trusts

2021/2022 tax year*

Taxable Income (R) Rate of tax (R)

0 – 216 200 18% of taxable income

216 201 – 337 800 38 916 + 26% of taxable income above 216 200

337 801 – 467 500 70 532 + 31% of taxable income above 337 800

467 501 – 613 600 110 739 + 36% of taxable income above 467 500

613 601 – 782 200 163 335 + 39% of taxable income above 613 600

782 201 – 1 656 600 229 089 + 41% of taxable income above 782 200

1 656 600 and above 587 593 + 45% of taxable income above 1 656 600

*The above table is extracted from Chapter 4 Revenue Trends and Tax Proposals, 2021

National Treasury Budget Review

Tax rebates

2020/2021 Tax Year (R) 2021/2022 Tax Year (R)

Primary rebate 14 958 15 714

Secondary rebate (Age 65 to

below 75) 8 199 8 613

Tertiary rebate (Age 75 and older) 2 736 2 871

Tax thresholds

2020/2021 Tax Year (R) 2021/2022 Tax Year (R)

Below age 65 83 100 87 300

Age 65 to below 75 128 650 135 150

Age 75 and older 143 850 151 100

This means that a taxpayer earning less than these thresholds will pay no income tax in the

2021/2022 tax year.

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The examples below demonstrate the impact of the proposed changes on individuals

younger than 65:

Tax impact for individuals younger than 65

Taxable

income (R)

2020/2021 rates

(R)

2021/2022 rates

(R)

Tax change (R) % Change

150 000 12 042 11 286 -756 -6.3

300 000 46 570 44 990 -1 580 -3.4

500 000 110 235 106 725 -3 510 -3.2

750 000 205 313 200 817 -4 496 -2.2

1 000 000 307 813 302 673 -5 140 -1.7

1 500 000 512 813 507 673 -5 140 -1.0

2 000 000 734 721 726 409 -8 312 -1.1

2. VAT

The VAT rate remains unchanged at 15%.

3. Estate Duty and Donations Tax Estate duty and donations tax remain unchanged.

Estate duty rates for persons dying on or after 1 March 2018

Dutiable Estate (R) Rate of Estate Duty (R)

0 – 30 000 000 20% of each Rand

30 000 001 and above 6 000 000 + 25% of dutiable estate above

30 000 000

Donations Tax Rates for donations on or after 1 March 2018

Taxable Donation (R) Rate of Donations Tax (R)

0 - 30 000 000 20% of each Rand

30 000 001 and above 6 000 000 + 25% of taxable donation above 30 000 000

From 1 March 2018, donations tax is levied at a rate of 20% on the aggregated value of property

donated not exceeding R30 million, and at a rate of 25% on the value exceeding R30 million. In

this regard, take note of the following guideline provided on the SARS website dated 23 February

2020:

in determining the R30 million threshold, the aggregate value of property donated is calculated

as from 1 March 2018 to date of current donation. Any donations made prior to 1 March 2018

must not be taken into account, and

the aggregate value of property to determine the R30 million threshold is calculated after

deducting any exemptions provided for in section 56 of the Income Tax Act, and

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where the donor has exceeded the R30 million threshold, all subsequent donations will be taxed

at the rate of 25%.

Adjusting section 7C of the Income Tax Act to include Preference Shares and

strengthening anti-avoidance rules in respect of loan transfers between trusts

Anti-avoidance measures were introduced in 2016, via the introduction of section 7C of the

Income Tax Act, to curb the transfer of growth assets to trusts using low-interest or interest-free

loans, which was done to avoid estate duty on the asset’s subsequent growth in value.

Treasury recently introduced section 7C(1B) of the Income Tax Act in the 2020 Taxation Laws

Amendment Act, for the years of assessment commencing on or after 1 January 2021, to curb

the abuse of trusts by making use of preference shares.

According to Government, some taxpayers continue to undermine the current rules by

transferring loans – which finance high-value assets – between trusts, where the founder of one

trust is related to one or more beneficiaries of the other trust. To curb this abuse, it is proposed that

further changes be made to these anti-avoidance rules.

The Estate Duty inclusion of a deceased member’s contributions not allowed as a

deduction as at date of death.

Contributions to a retirement fund not allowed as a tax deduction on date of death are currently

included as property for estate duty purposes. The 2020 Taxation Laws Amendment Act removed

such disallowed contributions from the definition of property and it is now included in the estate

as deemed property.

There is therefore no change on the tax impact to these provisions, and the amendments thus still

provide that the inclusion would apply if the deceased member’s beneficiaries opt for a cash

lump sum. Thus no amount will be included as deemed property if the full retirement interest is

used to purchase an annuity.

Clarifying “the timing of disposal” rules in respect of an asset acquired from a deceased

estate

When a person dies, the Estate Duty Act provides for the assets of the person to be transferred to

the estate of the deceased before the assets are distributed to their heirs.

The Act also provides for the executors to administer this estate, which includes preparing and

submitting the liquidation and distribution account to the Master of the High Court Office, and

submitting the relevant tax returns, including payment of the estate duty, to SARS.

Legally, the liquidation and distribution account must remain open for inspection in the Master of

the High Court Office for 21 business days. Once the liquidation and distribution account is

finalised, the personal right of the heirs to claim delivery of the assets is triggered. At present, there

is timing uncertainty around when the heirs are regarded as having acquired an asset from the

estate of the deceased. To clarify the time of disposal of this personal right, it is proposed that the

legislation be changed so that the disposal by the estate occurs on the date when the liquidation

and distribution account becomes final.

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4. Capital Gains Tax

The Capital Gains Tax inclusion and effective rates remain the same and are as follows:

Type of Taxpayer Inclusion Rate Statutory Tax Rate Effective Tax Rate

Individuals 40% 0 - 45% 0 -18%

Other (local) Trusts 80% 45% 36%

Special Trusts 40% 0 - 45% 0 -18%

Companies 80% 28% 22.4%

The annual exclusion for individuals remains at R40 000, and R300 000 in the year of death.

5. Interest Exemption

The interest exemption thresholds remain as follows:

R23 800 per annum for taxpayers under the age of 65,

R34 500 per annum for taxpayers aged 65 years and older.

6. Dividend withholding tax The local dividend withholding tax rate remains unchanged at 20%.

7. Taxation of Small Businesses The tax rates for small business corporations (gross income not exceeding R20 million) for financial

years ending on any date between 1 April 2021 and 31 March 2022 are:

Tax table applicable to small business corporations

Taxable Income (R) Rate of Tax (R)

1– 87 300 0% of taxable income

87 301 - 365 000 7% of taxable income above 87 300

365 001- 550 000 19 439 + 21% of taxable income above 365 000

550 001 and above 58 289+ 28% of taxable income above 550 000

*The above table is extracted from the 2021 SARS Budget Tax Guide

The tax rates for micro businesses (turnover not exceeding R1 million per year) for financial

years ending on any date between 1 March 2021 and 28 February 2022 are:

Tax table applicable to turnover for micro businesses

Taxable Turnover (R) Rate of Tax (R)

1 - 335 000 0% of taxable turnover

335 001 - 500 000 1% of taxable turnover above 335 000

500 001 - 750 000 1 650 + 2% of taxable turnover above 500 000

750 001 and above 6 650 + 3% of taxable turnover above 750 000

*The above table is extracted from the 2021 SARS Budget Tax Guide

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8. Transfer duty

The rates of transfer duty remain unchanged at:

Rate of transfer duty

Property Value (R) Rate of Tax (R)

0 - 1 000 000 0% of property value

1 000 001 - 1 375 000 3% of property value above 1 000 000

1375 001 - 1 925 000 11 250 + 6% of property value above 1 375 000

1 925 001 - 2 475 000 44 250 + 8% of property value above 1 925 000

2 475 001 - 11 000 000 88 250 + 11% of property value above 2 475 000

11 000 001 and above 1 026 000 + 13% of property value above 11 000 000

9. Medical Tax Credits

The initial monthly tax credit (for contributions to medical schemes) for all taxpayers is increased

to:

R332 for a taxpayer;

R664 for a taxpayer and his or her first dependant;

R224 is afforded for each additional dependant.

For taxpayers younger than the age of 65 an additional tax credit will be afforded in an amount

equal to 25% of the aggregate of:

the amount by which their contribution exceeds four times their tax credit (for contributions),

plus

their out of pocket expenses that exceeds 7.5% of their taxable income (excluding any

retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance

benefit).

For taxpayers 65 years of age or older, or taxpayers who are disabled or who have disabled

dependants, an additional tax credit will be afforded in an amount equal to the aggregate of:

33.3% of the amount by which their contribution exceeds three times their tax credit (for

contributions), plus

33.3% of their out of pocket expenses.

The additional tax credit afforded to employees who are 65 years and older with respect to their

contributions to medical schemes may also be accounted for in the monthly PAYE calculations.

This facility is also afforded to provisional taxpayers who are 65 years of age and older.

10. Tax-Free Savings Accounts Contributions to Tax-Free Savings Accounts remain unchanged.

A taxpayer may not exceed an annual contribution of R36 000, limited to R500 000 over his/her

lifetime, in order to benefit from the tax-free investment returns, growth and payouts.

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Any amount contributed in excess of the above limits will be taxed at a rate of 40%.

11. Retirement Reform Provident and provident preservation fund annuitisation still scheduled for 1 March 2021

Subject to the protection of certain vested commutation rights, provident and provident

preservation fund members will, with effect from 1 March 2021, be subject to the same

annuitisation requirements as pension, pension preservation and retirement annuity fund

members. This is pursuant to the harmonization of retirement fund treatment across all retirement

funds, which commenced on 1 March 2016 when the contribution tax deduction regimes for all

approved retirement funds were harmonized into a single uniform deduction regime. With effect

from 1 March 2021, transfers between pension, pension preservation, provident and provident

preservation funds and all other types of approved retirement funds will be tax free. As regards

transfers from retirement annuity funds, only transfers to other retirement annuity funds will be tax

free.

Allowing flexibility as regards the purchase/provision of annuities upon retirement

Prior to GN18, all pensions had to be provided by a retirement fund. GN18 allowed for compulsory

annuities to also be purchased by the retirement fund on behalf of the retiring member from a

South African registered insurer. However, GN18 prescribed that retirement funds could only

provide such annuities themselves or purchase them from an insurer in the name of the fund or

purchase them from a registered insurer in the name of the individual pensioner – members could

not elect to facilitate their compulsory annuities via a combination of the afore-mentioned

methods. It is proposed that this restriction be lifted so that retiring members can elect to provide

for their compulsory annuities via a combination of these methods if the retirement fund rules

allow therefor.

Increase in the de minimis amount for access to retirement annuity funds

At present, retirement annuity fund members who are younger than age 55 and who remain

South African tax residents may access their retirement annuity fund assets if they amount to less

than R7 000. This amount has not been adjusted for inflation for a number of years and it is

intended to increase this de minimis amount to R15 000.

Withdrawing benefit tax to be applied when individual member ceases to be a tax

resident

At present, retirement fund assets are only taxed when the member actually exits the fund. A tax

accrual does not necessarily occur when the member ceases to be a South African tax resident.

It is proposed to change this state of affairs and to subject retirement fund assets to withdrawal

benefit tax when the member ceases to be a South African tax resident. If the member decides

not to exit the fund at that time and leaves their retirement fund assets in the retirement fund, the

withdrawal benefit tax will be deferred until they actually access the funds. This is so that SARS

does not forfeit its taxing rights to these monies in terms of any double tax agreement that may

be in place between South Africa and the individual’s new country of residence.

Further ongoing reforms or reforms in the pipeline:

Bringing all public retirement funds within the same regulatory framework as private funds;

Rationalising the number of funds so that only the cost effective funds remain;

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Simplifying and reducing the costs of retirement fund products;

There is continued engagement between Nedlac and National Treasury around crisis event

withdrawals subject to certain maximums and minimums – the proposal is that this reform will be

linked to enforced preservation of the residual funds in the retirement fund but the

engagements are far from finality;

It is proposed to amend regulation 28 to allow for retirement funds to more easily invest in

infrastructure

Further reforms will include improving oversight and governance of commercial umbrella funds,

fund consolidation and auto-enrolment

12. “Sin Taxes” and Levies The following increases are proposed:

Tax on a packet of 20 cigarettes increases by: 1.39c

Tax on a 340ml can of beer increases by: 14c

Tax on 750ml of fortified wine increases by: 26c

Tax on a 750ml bottle of spirits increases by: R5.50

Government proposes to increase the general fuel levy by 15c p/l with effect from 7 April 2021. It

is proposed that the RAF Levy will be increased by 11c p/l from 7 April 2021.

The National Treasury will soon publish a discussion paper on proposals to tax electronic nicotine

and non-nicotine delivery systems. An excise duty will be introduced later this year, following

public consultations. Tobacco heating products will be taxed at a rate of 75% of the cigarette

excise rate with immediate effect.

13. Other Proposals Sunset date for venture capital company incentive

The sunset date for the venture capital company incentive, which was incorporated in the

Income Tax Act via section 12J in 2009 to encourage retail investments in smaller businesses, will

not be extended beyond 30 June 2021. A National Treasury assessment determined that this

incentive did not sufficiently achieve its objectives of developing small businesses, generating

economic activity and creating jobs. Instead, it provided a significant tax deduction for wealthy

taxpayers. The majority of investments supported by the incentive seem to be low-risk or

guaranteed return ventures that would have attracted funding without the incentive.

Provisional taxpayers with years of assessment of six months or shorter

Provisional taxpayers are required to make provisional tax payments within six months after the

commencement of a year of assessment and then again by the end of the year of assessment.

Currently, no provision is made for instances where a taxpayer has a short year of assessment, for

example because of death or ceasing to be a tax resident. It is proposed that a first provisional

tax payment and return not be required when the duration of a year of assessment does not

exceed six months.

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Financial sector reforms

Response to COVID-19

Monetary, fiscal and regulatory authorities have taken steps to mitigate the effects of COVID-19

on the economy, mainly by providing financial assistance to companies and workers as well as

reducing the regulatory burden on financial institutions in an effort to support economic activity.

These policy interventions were designed to limit social distress and avert unnecessary

bankruptcies. In 2021, financial sector policy will focus on sustainably supporting the recovery.

Effective policies to address structural challenges facing the sector could result in a faster and

more durable economic recovery. These include harnessing financial technologies to broaden

and deepen financial inclusion, and promoting the sector’s contribution to a green economy.

Measures to help customers

The Financial Sector Conduct Authority (FSCA), which regulates the market conduct of financial

sector institutions, implemented measures to support customers and regulated entities. These

measures included relaxing regulatory reporting timelines for entities.

To ensure that customers were treated fairly, the FSCA communicated its expectations of COVID-19-

related conduct to financial institutions. In addition, the FSCA adjusted regulations to support

insurance premium relief for policyholders, allowing them to still claim while minimising disruptions to

the expected income of intermediaries.

The insurance industry has faced significant uncertainty over how to manage COVID-19-related

claims. The FSCA communicated on specific issues, such as publishing its stance on business

interruption cover. While industry participants sought legal certainty regarding their business

interruption cover obligations through the courts, the FSCA obtained agreement from affected non-

life insurers that they would provide interim relief – in the form of payments – to policyholders with the

appropriate contagious disease extension.

In addition, the FSCA advised the boards of trustees for retirement funds and financially distressed

employers to consider allowing the suspension or reduction of retirement contributions. Where funds

did not have rules enabling this, they were requested to submit such rules for FSCA approval. The FSCA

also encouraged employers and funds to continue paying full risk-benefit premiums for members to

ensure that they and their families continued to be covered in the event of death or disability.

The Conduct of Financial Institutions Bill

The second draft of the Conduct of Financial Institutions Bill was published in 2020 for public

consultation. The National Treasury is engaging stakeholders to discuss and clarify comments

received. A revised draft of the bill will be tabled in Parliament in 2021.

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Tax policy proposals

The following tax policy changes were proposed in the 2021 Budget Speech:

Corporate tax

The corporate income tax rate will be lowered to 27% for companies with years of assessment

commencing on or after 1 April 2022. This will be done alongside a broadening of the corporate

income tax base by limiting interest deductions and assessed losses.

Reviewing tax provisions for travel and working from home

Government has acknowledged the large-scale migration to working at home over the past year.

As a result, National Treasury will review current travel and home office allowances, to determine its

effectiveness in the current environment, equity in application, simplicity of use, certainty for

taxpayers and compatibility with environmental objectives.

Since it has recognised that any changes to these allowances could have an impact on salary

structuring, this will be a multi-year project, starting with consultations during 2021/2022.

Conclusion

Even if it were not for the impact of the COVID-19 pandemic, the Minister would again have

faced a tough task of balancing the books in the face of reduced tax collections, dismal growth

and burgeoning financial commitments. The COVID-19 pandemic has greatly exacerbated the

country’s financial situation.

The Minister acknowledged that our most pressing needs are to conquer the pandemic and our

debt crisis and that to do this we need to grow the economy.

Budget highlights:

1. No personal income tax increases

2. Increase in fuel levy

3. Proposed corporate tax rate reduction

4. Intent to solve our debt crisis

5. Increase in infrastructure spend

6. Tightening belts, not austerity.

The most heartening feature of this year’s Budget is the fact that there are no major tax increases.

In fact, significant tax relief has been afforded to personal taxpayers via above-inflation

adjustments to the marginal tax brackets. It is also proposed that the corporate tax rate be

reduced from 28% to 27%.

However, taxpayers need to take heed that there was a strong theme in the Budget of SARS

targeting tax miscreants. It is self-evident that individual taxpayers need to invest their hard-

earned money in a tax-efficient and compliant way. In this regard, the tax-efficient benefits of

retirement funds and TFSAs remain as sweet as ever. It would be foolhardy to attempt to navigate

the complex regulatory and investment environment without financial advice.

The Minister called on us to remain calm and not become despondent in these trying times. In this

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regard, he recalled the following quote by Archbishop Desmond Tutu that we must all strive to;

“continue to see that there is light despite all of the darkness” and that “the sun continues to shine

behind the clouds”.

PLEASE NOTE THAT THE INFORMATION PROVIDED IN THIS CIRCULAR IS BASED ON PROPOSALS MADE

IN THE NATIONAL BUDGET SPEECH DELIVERED ON 24 FEBRUARY 2021 IN PARLIAMENT. UNTIL THE

PROPOSALS HAVE FORMALLY BEEN PROMULGATED IN LEGISLATION, IT WILL ONLY BE VIEWED AS

PROPOSALS.

Income Tax Calculator

If you want to calculate your monthly income tax and compare it to that of last year, you can

make use of Old Mutual’s Income Tax Calculator, which has been updated to also include the

tax changes applicable to retirement funds. You will therefore be able to see the benefits of

retirement reform where your income tax is concerned.

This calculator takes your monthly income, retirement contributions, medical aid fund

contributions and your employer’s contribution to a medical aid fund and retirement funds into

account and can be found via the following link:

https://www.oldmutual.co.za/personal/tools-and-calculators/income-tax-calculator

Compiled by: Personal Finance Legal & Product Legal

Date: 24 February 2021

Contact your Old Mutual Financial Adviser or your Broker.

www.oldmutual.co.za