ASSETS
The Brutal Budget of 2017
Implications for Trusts, Companies and Investors
BY JOSE DELGADO
A
highly-anticipated event in South Africa is the annual budget speech, which is delivered by the Minister of Finance at the beginning of each fiscal year. This year there were no fisticuffs or walkouts, the Parliamentary session was very well attended and our MPs were on their absolute best behaviour.
The 2017 ‒ 2018 budget is, as usual, a delicate balancing act between devising methods to extract the maximum tax from income generators and achieving the Government’ s objectives. Good news for some, bad news for others …
The salient points of the Budget Speech, of concern to investors, high income earners and business owners, relate to the new tax thresholds. The only good news for property investors is that the transfer duty rate will only be applicable to property transfers in excess of R900 000.00. This will offer some relief to purchasers of property.
Further good news is that the capital gains tax inclusion rates have not been changed and that the donations tax and estate duty rates have also remained unchanged.
The bad news for high-income earners is that individuals earning in excess of R 1.5 million per annum will be taxed at 45 %, affecting any person earning R125 000.00 or more per month. The new rates are effective from the 1st of March 2017.
Beware professionals such as Doctors, Attorneys and Engineers! You are in the firing line too if you practice as sole practitioners or in a partnership.
The tax rate for Trusts, which are taxed at the maximum individual rate, has consequently also increased from 41 % to 45 %. If you generate income via a Trust, it is time to review your structure, specifically if your beneficiaries are also highly taxed.
Whilst the capital gains inclusion rates have remained the same, the increase in the tax rate for top earners and Trusts will result in Trusts paying a capital gains tax rate of 36 % and individuals at 18 %.
The really nasty surprise in the budget was the raising of the dividends’ tax rate by 33,3 % ‒ from 15 % to 20 %. A company that makes a profit and declares a dividend to shareholders, will result in a cumulative effective tax result of 42,4 %. Similarly, if a company realizes a capital
62 MARCH 2017 SA Real Estate Investor www. reimag. co. za