You pay no transfer duty if the property you are buying sells for less than the set threshold. The threshold wasn’t increased last year, so this year’s proposed 10% increase from R1,100,000 to R1,210,000 (from 1 April) is a welcome adjustment for inflation.
With all the brackets adjusted upwards by 10% as per the table below, properties at every level become that much more affordable to buyers, and by extension sellers will also benefit.
The proposal to increase VAT from 15% to 16% over two years, with a 0.5% hike planned to take effect on 1 May 2025 and the other 0.5% on 1 April 2026, has met with fierce resistance from business, consumers and trade unions – and from the opposition benches in parliament.
As to when we can expect clarity on whether government will be able to muster enough support in parliament to convert this and its other proposals into law, we are sailing in uncharted waters and only time will tell. Hold thumbs!
The unchanged tax tables, and no new taxes
Individual taxpayers: Your tax rates (and the associated rebates and medical tax credits) are unchanged, so we can at least be thankful that there were none of the major increases that had been hinted at.
What will hurt us is that for the second consecutive year there is no inflation adjustment to the tax brackets, which means that “fiscal drag” (also referred to as “bracket creep”) will leave you paying more tax if you receive an increase – particularly if it pushes you into a higher tax bracket.
Trusts: Special trusts are by and large taxed as individuals, but other trusts are taxed at a flat rate of 45% – again unchanged from last year.
Corporate and other taxes: Corporate and dividend tax rates, capital gains taxes, donations tax and estate duty all remain unchanged. With all the pre-Budget speculation about possible increases in these taxes, perhaps coupled with a new wealth tax and/or new taxes to fund the NHI (National Health Insurance), this is good news.
How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.
Note: There is (at time of writing) uncertainty as to whether or not the Minister will proceed with his proposed tax changes – even if he fails to garner sufficient political support to ultimately ensure their adoption by parliament. If he does proceed, it’s equally unclear how long they will be valid for. Regardless, expect a lot of political manoeuvring and perhaps some major changes in the weeks ahead!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.
The unchanged transfer duty and tax tables, with a note on fiscal drag
Unchanged from last year, so taxpayers can breathe a sigh of relief that rates have not been increased as many forecasters had feared.
But the other side of the coin of course is that there is no inflation adjustment to the rates this year, which means that “fiscal drag” will leave you paying more tax if your inflation-linked increase pushes you into a higher tax bracket. Effectively, the buying power of your net income will fall. Plus if your property has increased in value into a higher threshold, your buyer will pay more transfer duty.
The proposed “two-pot” retirement reform: Per National Treasury:“Early access to retirement funds – “The two-pot retirement system will allow retirement fund members to make withdrawals from their retirement funds while they are still active members, so members need not resign to access part of their retirement benefits. … This reform is proposed to come into effect on 1 September 2024. The National Treasury aims to finalise the legislative process rapidly in the next few months to ensure that industry and regulators can prepare for implementation. Policy research and engagement continues on the outstanding auto-enrolment, mandatory enrolment and consolidation retirement reforms.”
The proposals and their tax implications are complex and subject to change, but currently provide for a one-off withdrawal of up to R30,000 on implementation, and thereafter annual “savings withdrawal benefits”.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
“Finally, we pay tribute to the millions of South Africans, whose resilience and courage during these times of pandemic and economic hardship, is an inspiration to all of us who have the privilege to serve in the public sector.” (From the 2022 Budget Speech)
Finance Minister Enoch Godongwana has invited the public to share suggestions on the 2023 Budget he is expected to deliver on Wednesday 22 February 2023.
Go to National Treasury’s “Budget Tips for the Minister of Finance” pageand fill out the online form.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
“Owning one’s own business is an adventure – enjoy it every step of the way.” (From the SME Toolkit article referenced below)
First, three questions to ask yourself…
If you dream of going into business for your own account in 2023, ask yourself these questions before you get started –
Am I an entrepreneur? You have an amazing idea, you can’t wait to launch your new business, success and wealth beckon! But wait a second – are you really suited for the hurly-burly of entrepreneurship? It can be hugely rewarding, not just in the financial sense but also in terms of lifestyle and life satisfaction. But it also carries far more risk than the classic “9 to 5 employee” option, so think long and hard before choosing. There are many online quizzes to help you decide – try for example DeLuxe’s “Quiz: Are you ready to start your own business?” here.
What’s my plan? Without a plan you sail rudderless through some very treacherous and shark-infested waters. Start-up failure rates are high, but luckily there is plenty of advice available to help you plan your course. Read for example the Business Partners “Ten Simple Rules For a Successful Start-up” on SME Toolkit.
What legal entity should I use to trade? Don’t make the rookie mistake of setting sail in just any old boat. Starting off in the wrong entity and then having to change mid-stream will mean a lot of unnecessary expense, hassle and risk. Rather plan long term – ask yourself where you want your business to be in 5 or 10 years, how big it will be, what your exit plan will be and so on.
We set out below some brief thoughts on the various alternatives available to you, but upfront professional advice, specific to your particular needs and circumstances, is a real no-brainer here.
So, what are your choices?
…and four business vehicles to choose from
You have four main options –
A sole proprietorship (“sole trader”). You are the business, trading for your own personal profit and loss, perhaps under a trading name such as “Syd Smith trading as ‘Syds Plumbing’”.
A partnership of 2 to 20 individuals or entities, pooling resources to carry on a trade, business or profession for a share of the profits.
A private company (“Pty Ltd”) with any number of shareholders. Controlled and administered by directors.
A trust (number of trustees and beneficiaries not restricted). There are various types of trust, with trustees controlling and managing trust assets and/or trading for the benefit of beneficiaries.
Note that you might be advised to combine one or more of these entities in a corporate structure, and that there are other specialised types of entity available to, for example, non-profit organisations (charities etc), professionals (lawyers, accountants, doctors etc) and the like.
The pros and the cons of each
Have a look at the illustrative table below for a summary of the advantages and disadvantages of each of these options.
Don’t forget the tax and estate planning implications!
Each of your choices carries with it a mixed bag of positives and negatives when it comes to both tax and estate planning implications. For an overview, have a look at SARS’ “Starting a business and tax” webpage, with a link to its “Tax Guide for Small Businesses” PDF.
That Guide is 102 pages long, and unless you are comfortable with the complexities involved, professional advice specific to your circumstances is again essential.
In a nutshell –
Estate planning: You may be advised to use companies and trusts for tax-efficient and practical transfer of wealth to future generations, as well as for asset protection from creditors both before and after you die. Both companies and trusts are “perpetual” in the sense that they survive changes in directors/trustees (resignation, removal, retirement, insolvency, death etc), with potential multi-generational savings in estate duty and avoidance of the cost and delays inherent in deceased estate administration.
Tax efficiency: Sole traders and partners are taxed at individual rates; trusts other than special trusts at a flat rate of 45%; companies at a flat rate of 27% (27% for years of assessment ending on 31 March 2023 and later, previously 28%) with 20% dividends tax when you take profits out. There are a host of other factors to take into account here, including aspects such as Capital Gains Tax inclusion rates, exclusions, exemptions, small business breaks and the “trust conduit principle” all being highly relevant to the ultimate question – will you be better off being taxed as an individual or will some form of corporate and/or trust structure be more tax efficient for you?
Take that professional advice!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
“Administrative penalties and criminal proceedings do not serve the same purpose. The [one] is aimed at strengthening internal controls of the administrative authority and to promote compliance while the other is aimed at correcting a behaviour that caused harm to the society.” (Extract from judgment below)
SARS has announced major crackdowns on tax defaulters, and a recent High Court decision highlights the dangers of being caught out for “intentional tax evasion”.
R1.3m prejudice to SARS
A close corporation (CC) registered for both income tax and VAT (value added tax) rendered “nil” returns to SARS over a four-year period, indicating that no income had been generated and no expenses incurred.
After a tax audit, SARS determined (and the CC admitted) that the returns were false and that SARS had in consequence suffered prejudice of R819,607 on VAT and R493,600 on Income Tax.
SARS levied 10% late payment penalties and further imposed a 150% understatement penalty on both Income Tax and VAT. The 150% was imposed for “intentional tax evasion”.
Both the CC and the member were then also charged criminally for intentional tax evasion.
Both penalties and prosecution – is that “Double Jeopardy”?
They applied to the High Court for a declaration that the relevant sections of the Tax Administration Act are invalid, arguing that it is inconsistent with the constitution to “criminally punish the taxpayer twice for the same criminal offence of intentional tax evasion.”
Which raised the question of whether or not this was a case of “double jeopardy” – the legal rule that “no one may be punished for the same offence twice.” You cannot, in other words, be repeatedly prosecuted for the same offence.
But, held the Court, “nothing precludes civil administrative proceedings and criminal proceedings from the single act”. Double jeopardy does not apply in a case such as this where “calling the taxpayer to account for the wrongdoing before an administrative body as well as the criminal are two distinct processes”.
In other words, both the CC and the member, having been subjected already to hefty administrative penalties (that 150% understatement penalty must hurt particularly badly!) now face criminal prosecution as well. Criminal records, substantial fines and direct imprisonment are all on the table.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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