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Income Tax for Individuals

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									Income Tax for Individuals
South African residents are taxed on their worldwide income with certain exemptions. South African residents may also be taxed on a proportionate amount of the net income (and capital gains) of a controlled foreign company, based on their participation rights in that company. Foreign residents are taxed on their South African source income only. SARS may include in the taxable income of a resident an estimated amount of foreign income or capital gains based on undisclosed foreign currency or assets and calculated using the official interest rate (currently 8.5%). The tax rates, rebates, exemptions and deductions set out below are in respect of the year of assessment ending on 28 February 2006.

Tax rates and rebates
Individuals, Estates & Special Trusts (1) Taxable income as exceeds R R R R R R 0 80 000 130 000 180 000 230 000 300 000 R R R R R but does not exceed 80 000 130 000 180 000 230 000 300 000 R R R R R Tax Payable 18% 14 400 + 25% 26 900 + 30% 41 900 + 35% 59 400 + 38% 86 000 + 40%

Other Trusts Tax Rate: 40% Note 1: Trusts for the benefit of ill or disabled persons and testamentary trusts established for the benefit of minor children. All individuals 65 years and older R6 300 R4 500

Primary Rebate: Age Rebate:* * Additional to primary rebate.

Interest and foreign dividends:
n Individuals under 65 years of age R15 000 per annum n Individuals over 65 years R22 000 per annum Notes : 1. Only R2 000 of foreign interest and foreign dividends is exempt. The R2 000 exemption applies first to foreign dividends and then to foreign interest. 2. Non-residents are generally exempt from tax on interest.


Foreign dividends i.e. essentially dividends paid by a non-resident company are subject to income tax in the hands of South African residents. Local dividends and dividends from foreign companies in which more than 25% of the equity is held are exempt. (Dividends paid to non-residents are exempt from income tax and are not subject to withholding tax.)

Income Tax for Individuals (continued)
Medical expenses:
n n n Over 65 years of age: Unlimited. Under 65: Expenses exceeding 5% of taxable income (before the medical expenses deduction). Under 65 and physical handicap (taxpayer, spouse or child): Expenses exceeding R500. Current contributions : Limited to the greater of: (a) R1 750; or (b) 7.5% of pensionable remuneration. Arrear contributions: R1 800 per annum. Current contributions: Limited to the greatest of: (a) 15% of net income, excluding income derived from “retirementfunding employment” (i.e. pensionable earnings); or (b) R3 500 less deductible current pension contributions; or (c) R1 750. Reinstatement contributions: R1 800 per annum.

Pension fund contributions:
n n n

Retirement annuity fund contributions:


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

Donations to certain approved public benefit organisations are tax deductible. The tax deduction is limited to 5% of taxable income (before medical expenses and donations). These organisations include most welfare, health care, education and development, and land and housing organisations, with certain exceptions, and trans-frontier conservation organisations.

Employees’ tax
Employees’ tax is withheld by an employer from remuneration paid to an employee. Directors of private companies are subject to employees’ tax on their “deemed remuneration”, calculated in terms of a formula, as well as on any actual remuneration paid or payable to them, unless (from 1 March 2004) at least 75% of their remuneration in the previous tax year comprised fixed monthly payments. Employees’ tax is classified as: n SITE, which is non-refundable employees’ tax applicable to the first R60 000 per annum of net remuneration earned by employees from standard employment (essentially full-time employment); or n PAYE, which is the tax applicable to any portion of net remuneration in excess of R60 000 and to remuneration which is not net remuneration, as defined. The following income is excluded from net remuneration and is not subject to SITE (but will be subject to PAYE): n income subject to tax at average rates, such as lump sum benefits from pension funds; n income against which the taxpayer can claim a deduction exceeding 1% of such income, for example, estate agent’s commission; n income from non-standard employment; n remuneration paid or payable to any director of a company or member of a close corporation;

Income Tax for Individuals (continued)
Employees’ tax (continued)
n n n n any travel allowance; remuneration derived by any taxpayer if it can be set off against an assessed loss; income of one spouse deemed to be that of the other spouse; and annuities other than from pension, provident or benefit funds.

All allowances paid to employees (except subsistence allowances and travel allowances) are subject to employees’ tax.

Travel allowance
The following table sets out the three components of the rates which may be used in determining the cost of business travel, where actual costs are not used. PAYE is withheld from 50% of travel allowances. Where the value of the vehicle Does not exceed R40 000 Exceeds R40 000 but not R60 000 Exceeds R60 000 but not R80 000 Exceeds R80 000 but not R100 000 Exceeds R100 000 but not R120 000 Exceeds R120 000 but not R140 000 Exceeds R140 000 but not R160 000 Exceeds R160 000 but not R180 000 Exceeds R180 000 but not R200 000 Exceeds R200 000 but not R220 000 Exceeds R220 000 but not R240 000 Exceeds R240 000 but not R260 000 Exceeds R260 000 but not R280 000 Exceeds R280 000 but not R300 000 Exceeds R300 000 but not R320 000 Exceeds R320 000 but not R340 000 Exceeds R340 000 Fixed cost R 14 489 19 869 25 068 30 893 35 578 40 732 46 157 51 930 57 332 63 287 68 697 74 287 78 992 83 744 88 854 94 322 99 240 Fuel cost c/km 34.5 36.2 36.2 40.7 40.7 40.7 45.0 45.0 51.1 51.1 51.1 51.1 53.9 53.9 53.9 53.9 59.8 Maintenance c/km 21.6 22.4 22.4 27.8 27.8 27.8 37.7 37.7 41.6 41.6 41.6 41.6 49.8 49.8 49.8 49.8 65.5

If the travel allowance is applicable to a portion of the tax year, the above figures are reduced proportionately. If no records of business travel are kept, the first 16 000 kilometres will be deemed to be private travel and the balance will be considered to be business travel up to a maximum of 16 000 kilometres i.e. total deemed travel is limited to 32 000 kilometres. Where the travel allowance is based on actual distance travelled and business travel during the tax year does not exceed 8 000 kilometres, the total deemed cost per kilometre is, at the option of the recipient, 238 cents per kilometre, provided that no other compensation is paid.

Company car fringe benefit
Taxable value per month = 1,8% of determined value (cash cost excluding VAT). Second or subsequent vehicle, not used primarily for business purposes: taxable value per month = 4,0% of the determined value.

Income Tax for Individuals (continued)
Company car fringe benefit (continued)
Notes: n Where an employee bears the cost of all fuel used for the private use of the vehicle, the deemed monthly value is reduced by R120. n Where an employee bears the full cost of maintaining the vehicle (including the cost of repairs, servicing, lubrication and tyres), the deemed monthly value is reduced by R85. n If the employee proves that his private travelling is less than 10 000 km per annum (adjusted if the vehicle is used for a lesser period), the taxable benefit may be reduced pro rata on assessment. Note: It was announced in the 2005 Budget that the monthly taxable value will increase to 2,5% with effect from 1 March 2006.

Valuation of certain other fringe benefits
Housing and other soft loans
n n The taxable value is the difference between the interest payable on the loan by the employee and the official rate of interest which is currently 8.5%. Casual loans not exceeding R3 000 in aggregate and certain study loans do not give rise to a taxable benefit.

An employee provided with residential accommodation owned by his employer is taxed in accordance with a formula. Where the accommodation is not owned by the employer, the employee is taxed (with certain exceptions) on the greater of the formula value, or the rentals paid plus expenses incurred by the employer.

Residential accommodation

Subsistence allowance

Subsistence allowances are tax-free if they are granted to an employee who is obliged to spend at least one night away from his usual place of residence whilst on business and if they do not exceed the following amounts: n US$190 per day for meals and incidental costs for travel outside the Republic (maximum six weeks). It was announced in the 2005 Budget that this limit is to be reviewed. n R196 per day for meals and incidental costs for travel within the Republic. n R60 per day for incidental costs only within the Republic.

Estate Duty
Rate: 20% of the dutiable amount of a deceased estate. Standard deduction: R1.5 million per estate.
Certain other deductions are allowed, the most important of which is the deduction for property accruing to the surviving spouse.

Donations Tax
Rate: 20%

Exemptions include: n R30 000 per annum (individuals); n R10 000 per annum (private companies); n donations between spouses; n donations to approved public benefit organisations; n donations by public companies; and n donations between group companies.

Capital Gains Tax (“CGT”)
Inclusion rates
n n n n Individuals, special trusts and insurers’ individual policyholder funds Other taxpayers Individuals Individuals in year of death 25% 50%

Annual exclusion (non-cumulative)

R10 000 R50 000

Transfer Duty
Paid on acquisition of immovable property where the transaction is not subject to VAT. Transfer duty is payable on the acquisition of fixed property through an interest in a company, close corporation or trust. Transfer to a natural person – first R190 000 consideration – R190 001 to R330 000 – excess over R330 000 Transfer to a corporate entity or trust 0% 5% 8% 10%

Value-Added Tax
Rates: 14% and 0%

Withholding Tax on Royalties
There is a final withholding tax of 12% on royalty payments to non-residents, subject to double tax treaty relief.

Corporate Tax Rates
Corporate income tax rates
n Basic rate (other than entities specified below) 29% n Small business corporations (annual turnover less than R6m) R0 - R35 000 taxable income 0% R35 001 - R250 000 taxable income 10% R250 001 + taxable income 29% n Employment companies 34% n Long-term insurers Individual policyholder fund 30% Company policyholder fund 29% Corporate fund 29% Exempt policyholder fund (see retirement fund tax below) n Gold mining companies not subject to STC On gold mining income 45 - (225/x)* * Where “X” is the ratio of taxable income from gold mining to income from gold mining, expressed as a percentage. On other income 37% n Branches of foreign companies 34%

Corporate Tax Rates (continued)
Secondary tax on companies (STC) Retirement fund tax
n Tax on net dividends declared (Local branches of foreign companies are exempt from STC) n Tax on gross interest, foreign dividends and net rentals 12.5%


Note: All rates (other than STC) are effective for years of assessment ending during the period 1 April 2005 to 31 March 2006.

Skills development levy

Remuneration payable 1% Note: Employers with annual payroll of less than R500 000 will be exempt with effect from 1 August 2005.

Capital Allowances for Businesses
Aircraft and ships

Per Annum



n Industrial – manufacture or similar process n Commenced 1/7/96 – 30/9/99 n Other n Agricultural co-operatives – packing or storage n Farming – limited to farming taxable income n Hotels n Hotel refurbishments n Residential (at least 5 family units) – initial – annual n Designated urban development zones n Construction – first year – subsequent 16 years n Refurbishment

10% 5% 5% 100% 5% 20% 10% 2% 20% 5% 20%

Intellectual property (see research and development)

Costs incurred in tax years commencing on/after 1 January 2004 in acquiring i.e. other than developing or creating: n Inventions, patents or copyrights 5% n Designs 10% Costs not exceeding R5 000 may be deducted in full. No deduction is available in respect of trademarks.

Costs incurred in any year of assessment commencing on/after 1 January 2004 on: n Devising, developing or creating any invention, patent, design, copyright (excluding trademarks) 100% n Buildings, plant, machinery, implements or articles used for R&D purposes 40%/20%/20%/20%

Research and development

Capital Allowances for Businesses (cont.)
n Preferred status n Other * No applications can be made after 31 July 2005.

Investment allowance - strategic industrial projects*

100% 50%

Permanent structures(2)
n n n n n

Oil/gas pipelines Electricity transmission lines Telephone transmission lines Railway tracks Aircraft hangars, aprons, runways and taxiways

10% 5% 5% 5% 5%

Plant and machinery

n Agricultural co-operatives – storage, packing 20% n Farming equipment (including biofuels equipment) 50%/30%/20% n Hotel equipment (excluding equipment for offices and staff accommodation) 20% n Manufacturing or similar process n Accelerated depreciation(2) - new only (on or after 1/3/2002) 40%/20%/20%/20% n New or unused (1/7/96 – 30/9/99) 33.3% n Other 20% n Renewable energy technology equipment 50%/30%/20% n Small businesses n All depreciable assets 50%/30%/20% n Manufacturing assets (on or after 1 April 2001) 100% Assets which are not subject to other capital allowances – wear and tear at rates in terms of Practice Notes 15, 19 and 39. Any asset costing R2 000 or less may be written off in the year in which it is acquired. These may be subject to allowances at different rates.

Movable capital assets

Older buildings, plant, aircraft and ships

Notes: 1. Capital allowances in respect of foreign trading assets may be restricted. 2. Not available to banks, financial services, insurance and rental businesses. This guide is based on the budget proposals tabled in Parliament by the Minister of Finance on 23 February 2005. These proposals are, however, subject to approval by Parliament. The information contained in this guide is for general guidance only and is not intended as a substitute for specific advice in considering the tax effects of particular transactions. Whilst every care has been taken in the compilation of the information contained herein, no liability is accepted for the consequences of any inaccuracies contained in this guide. © Copyright Deloitte & Touche – 23 February 2005

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