The Budget 2014

TAXATION: WHAT IS IN IT FOR YOU, THE EMPLOYEE AND OWNER OF A SMALL BUSINESS?

The major budget tax changes are:

• The lifetime exclusion on retirement lump sums has increased to R500,000.  In other words a lump sum payment on retirement may be exempt from tax on an amount up to R500,000 (the exemption was previously R315,000).
• Interest payable to SARS on outstanding tax increases from 8.5% to 9% with effect from 1 May 2014.  This new rate of 9% will also apply to the refund of VAT after the prescribed period.
• Conversely SARS will with effect from 1 May 2014 increase the rate of interest payable to taxpayers on the overpayment of provisional tax from 4.5% to 5%.
• The general fuel levy will increase by 12c per litre and the Road Accident Fund Levy will increase by 8c per litre with from 2 April 2014.  The general fuel levy will therefore increase to R2.25 per litre of petrol and R2.10 per litre of diesel.
• Excise duties on alcoholic beverages will increase between 6.2% and 12%.  There is no increase in the excise duty on traditional African beer or beer powder.
• Small businesses are taxed at progressive tax rates.  This relief does not address tax compliance costs and only benefits profitable businesses.  There has been a recommendation to replace the progressive tax rate structure with a compliance tax rebate for tax compliant small and medium businesses.  There is also a recommendation to reduce the maximum turnover tax rate from 6% to 5%.
• The travelling allowance table reflecting fixed, fuel and maintenance cost elements has increased as has the reimbursive rate per kilometre from R3.24 to R3.30 per business kilometre travelled.

CHANGES EFFECTIVE FROM 1 MARCH 2014

The major changes (as tabled last year) affecting employees and small businesses effective from 1 March 2014 are:

1. Medical expenses and tax credits

Previously if you were under the age of 65, medical aid contributions exceeding 4 times the medical tax credit plus other qualifying medical costs were deductible from your taxable income to the extent that such amount exceeded 7.5% of your taxable income before this deduction.  For taxpayer 65 and older, all qualifying medical expenditure and medical aid contributions were deductible in the determination of taxable income.

Amendment

a)     Under 65 years of age –

                                               i.          Your tax credit for medical aid contributions continues to be determined by reference to the applicable credit per member. 

                                             ii.          You will then compute your excess medical contributions by taking your contributions that exceed 4 times your medical tax credit.  To this you will add your qualifying medical expenditure that exceeds 7.5% of your taxable income.  The sum thereof multiplied by 25% will represent the balance of your medical tax credit.

b)     Over 65 years of age – your tax credit for contributions will be determined in the same way as for a person under 65 years of age.  You will then receive a further tax credit equal to 33.3% of your contributions that exceed 3 times your medical tax credit.  You will in addition receive a medical tax credit equal to 33.3% of your qualifying medical costs not recovered from your medical aid.

c)     Under 65 years of age (with a disability factor) – calculated as for a person over 65 years of age

1. Employment tax incentive

With effect from 1 January 2014, employers registered with SARS may claim a reduction in the PAYE liability for salaries paid to:

1. first time employees who were employed after 1 October 2013 and were not previously employed by that business or an associated company,
2. employees who are between the ages of 18 and 29 years of age
3. employees who are not a connected person to the employer
4. employees who are not domestic workers
5. And earn between the minimum wage /R2,000 and R6,000 per month.

The monthly incentive is determined in accordance with a table and will range from a maximum of 50% of the monthly remuneration in the first year to a maximum of 25% of the monthly remuneration in the second year.

The following represents the budgeted tax rates and rebates:

2014/2015 Tax Tables – Tax year ending 28 February 2015

Trusts other than Special / Testamentary Trusts                           40%

Companies                                                                                                                  28%

Primary Rebate (all individuals)       R12,726

Age rebates:

• Secondary: Persons of 65 years at 28/2/2015 and older        R7,110
• Tertiary: Persons of 75 years and older                                 R2,367

Medical tax Credits

• R257 for main member
• R257 for the first dependent
• R172 for each additional dependent

Tax thresholds

If your taxable income is lower than the tax threshold, you will have no income tax to pay.

• Persons under 65                                R70,700 (previously R67,111)
• Persons of 65 – 74 years                    R110,200 (previously (R104,611)
• Persons of 75 years and older                        R123,350 (previously R117,111)

Basic interest exemption

Interest earned by any natural person under 65 years of age, up to R23,800 per annum and for persons 65 and older R34,500 per annum remains exempt from tax.  There were no changes to the amount of these exemptions.

Deductions

Pension fund contributions:

• Current contributions: Limited to the greater of:

a)     R1,750; or

b)     7.5% of pensionable remuneration

• Arrear contributions: R1,800

Retirement annuity fund contributions

• Current contributions: Limited to the greatest of:

a)     15% of net income, excluding income used to determine pension and provident fund contributions;

b)     R3,500 less deductible current pension contributions; or

c)     R1,750

Note provident fund contributions made by an individual employee are not deductible.