President Cyril Ramaphosa has approved several tax changes for South Africa by signing into law the Currency Rates and Amounts and Incomes Amendment Act, the Taxation Act Amendment Act (TLAA) and the Taxation Amendment Act (TLAA). Tax Administration Act (TALAA).
In an analysis of the changes, Jean du Toit, head of tax techniques at Tax Consulting SA, said the Rates Act gives effect to changes in tax rates and certain monetary thresholds. By comparison, the TLAA and TALAA contain deeper technical and administrative changes, he said.
Below, Tax Consulting SA has outlined five key changes included in the laws that taxpayers should be aware of.
Assessed losses will be limited
The TLAA enacts the proposal to limit the offset of the balance of assessed losses carried forward to 80% of taxable income.
To cater for all sectors and recognize that not all companies have sufficient cash flow to meet an additional tax burden in the first year they become profitable, the TLAA imposes a threshold of R1 million above which restriction applies. Therefore, the company will be able to offset the greater of R1 million or 80% of taxable income.
The change comes into force on the day the Minister of Finance announces the reduction in the corporate tax rate in the annual Budget Speech.
Curbing Abuse ETI
The government has amended the Employment Tax Incentives Act to counter schemes where employers claim ETI in relation to sham employment contracts.
These programs involved the “employment” of students who do no work or gain experience for the employer, which undermined the purpose of the ETI. The TLAA changes the definition of “employee” to ensure that the substance of the employment relationship will determine eligibility for the ETI application, as opposed to its legal form.
This principle is reinforced by the inclusion of a provision that the ETI only applies to employees who are not primarily involved in study-related activities. Finally, the TLAA also stipulates that only compensation paid in cash will be taken into account to determine whether the employee is eligible for the ETI.
These amendments come into force on March 1, 2022, which is a departure from the original intent of having a retroactive effective date of March 1, 2021.
Section 7C Proposals Withdrawn
Proposals to strengthen provisions that restrict the transfer of tax-free wealth to trusts through low-interest or interest-free loans have been withdrawn.
The reason for this decision is recognition that the proposal aims to address avoidance systems which fall outside the scope of Section 7C. That being said, the National Treasury has indicated that it may introduce more specific anti-avoidance measures to counter the mischief in question.
Allow the use of pension interest to acquire annuities
Previously, a person was limited in terms of the annuities they could acquire upon retirement. The TLAA increases the flexibility of a retiring member by expanding the types of annuities a member can purchase in retirement.
For example, the full value of the participant’s pension interest after conversion can be used to purchase a combination of life and guaranteed annuities. Under current legislation, the share of pension interest used to purchase each type of annuity must exceed R165,000.
The effective date of this amendment is March 1, 2022.
Removal of proposed exit tax on pension interest
The TLAB contained a proposal to tax pension interest on individuals upon ceasing their South African tax residency.
The proposal was widely opposed by industry stakeholders and the Expat Petition Group and after hearing submissions in Parliament it was announced that the proposal would be withdrawn. The decision to abandon the proposal (for now) is confirmed by the promulgation of the TLAA.
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