How Much Tax Will You Pay After the Budget Speech and Implications of Section 7C for Trusts?


The majority of the budget address speculations were about whether Finance Minister Pravin Gordhan would raise VAT, introduce a brand new'supertax' on wealthy people or become'braaied' himself.
Though VAT was not raised, Gordhan surprised many by implementing the'supertax' bracket. The new personal income tax of 45 percent for people with an yearly income over R1.5m may be killing the goose that laid the golden egg. Should you make R150 000 a month you'll need to pay another R921 per month or two R11 052 each year over to SARS.
Another significant tax increase is that the gas and Road Accident Fund levy of 39c/L combined. Let us presume you push 600km a week and your typical gas consumption is 10km per litre - that the extra tax collects to about R1 170 each year.
SARS will audit more South African American citizens and businesses to be able to make sure government maximises sales collection. The question nevertheless remains for how long Pravin Gordhan will continue being the Finance Minister and that will succeed him?
To prevent unnecessary taxes as a result of growth of dividend taxation (15 percent to 20 percent ), restructuring will likely be required. The effective rate of taxation connected to some dividend increases by 38.8percent to 42.4 percent. Salary structures could be adjusted to decrease the tax consequences. By way of instance, taxpayers are better to draw an yearly salary of around R1.5 million rather than earning dividends. We advise that interest or low free debit loans ought to be cleared using a dividend at the conclusion of Feb 2017 because it will become more costly to get this done in the long run and businesses may also want to clear reservations now in the lower rate. It's crucial to finalize this until your company's fiscal year end.
Income Tax Act, Section 7C will impact hopes broadly. Interest-free loans progressed to a trust is going to cause a deemed donation in a speed equivalent to the SARS official pace of interest - now at 8 percent. Taxpayers will be responsible for donations tax of 20 percent. We suggest that interest-free loans originating from historical distributions to beneficiaries will likely be deducted from the terms of Section 7C. But, different disclosures of loans originating from distributions are crucial.
Example of further taxation for trusts:
A trust using financing accounts of R10 million charging interest lower than the official rate (for instance an rate of interest of 3 percent ) will lead to a deemed contribution of R500 000 ((R10 million x (8%-3%)). With contributions tax of 20 percent, added taxes of R100 000 per annum can be anticipated.
Tax preparation meetings will be asked to deal with individual taxation restructuring.