The budget and you
Some are calling it the Robin Hood budget after Finance Minister Pravin Gordhan ended years of speculation and increased the top personal income tax rate to 45% for those with a taxable income of more than R1.5 million a year. But there is so much more to
NAME: Thandi Bulelwa JOB: Director EARNS: R2 million a year LIFESTYLE: Goes on holiday twice a year. Drives a Jaguar XF. FINANCES: Invests money in South Africa and abroad. She has a share portfolio locally as well as a trust fund, but has not declared her offshore holdings. She wants to sell her R3 million holiday home in Hermanus, Western Cape MEDICAL AID: Top medical aid package ENJOYS: Drinking Cosmopolitan cocktails
HOW THE BUDGET AFFECTS THANDI
INCOME TAX: Thandi will be affected by the change in the maximum marginal rate of tax for individuals, which has increased from 41% to 45%. She will pay R20 000 more tax this year.
FUEL TAX: If Thandi regularly drives her car, she will be affected by the fuel levy increase of 39c per litre, including the 9c per litre Road Accident Fund portion, from April 5.
Auditing firm PwC says: “In addition, it has been proposed that fuel be standard-rated for VAT purposes [currently, it is zero-rated], resulting in VAT of 14% being included in Thandi’s fuel bill. This latter proposal will be the subject of public consultation and will likely only come into effect, at the earliest, in the 2019 financial year.”
INVESTMENT TAX: Due to the higher tax rate, she will pay more when she wants to sell her holiday home.
“The increase in the maximum marginal tax rate to 45% means she will pay more capital gains tax when she sells the property,” says PwC. Her trust fund will also be subject to the higher tax rate. Thandi will also pay more tax on the dividends earned from her share portfolio as dividend tax increased to 20%. Thandi should consider using tax-effective investment products such as retirement annuities and tax-free savings accounts (TFSAs).
VOLUNTARY DISCLOSURE PROGRAMME: Thandi must disclose her offshore income and assets under the Special Voluntary Disclosure Programme, which will no longer apply after September 1.
Mohammed Nassuirio, executive financial planner at Nedbank Wealth, warns: “Failure to do could result in criminal charges being laid and hefty penalties being applied.” MEDICAL CONTRIBUTIONS: Thandi will enjoy some relief here. PwC says: “The current credit for principal members and their first dependant has increased from R286 to R303. The medical aid tax credit for each additional dependant has increased from R192 to R204.”
SIN TAX: Thandi will pay more for her Cosmopolitans as the tax on Vodka increased from R52.07 per bottle to R56.50. NAME: Harry Smith JOB: Travelling sales rep EARNS: R300 000 a year and he will receive a 6% salary increase next month LIFESTYLE: He’s budget conscious and drives a 10-year-old Corsa FINANCIAL GOALS: He wants to buy a flat to the value of R800 000. He has a pension that he contributes 10% of his salary to every month. He contributes R1 000 a month to unit trusts. MEDICAL AID: Hospital plan ENJOYS: Smoking, drinking wine
HOW THE BUDGET AFFECTS HARRY
INCOME TAX: As the budget did not adjust the income tax brackets to accommodate for inflation, Harry will pay nearly R5 000 more in taxes this year, despite his salary increase only being in line with inflation. His new take-home pay will only increase by about R1 000 a month – not enough to offset the increase in the cost of living.
TRAVEL RELIEF: Depending on how Harry is compensated by his employer for business travel, the budget proposals may help.
PwC says: “Harry can now be reimbursed up to R3.55 [previously R3.29] per business kilometre travelled without there being any tax implications, provided he does not receive any other form of travel compensation, and to the extent that he does not claim for more than 12 000km [previously 8 000km] during the tax year.”
LOWER PROPERTY TAX: There’s more good news for him as a first-time home buyer.
Nassuirio says: “The tax law on transfer duties offers relief to a prospective property owner in that there are no transfer duties payable on the first R900 000, so it is a great incentive to own your own property as opposed to paying rent.”
HIGHER TFSA LIMITS: Regarding his unit trusts, if his investment is wrapped in a tax-free savings account, any interest, dividends or capital gains earned on this investment will be tax-free.
PwC says: “Harry can now contribute up to R33 000 a year [previously R30 000] in respect of a tax-free savings account.”
He can also increase his retirement contributions to reduce his income tax.
MEDICAL BENEFITS: Although Harry has a hospital plan, he will, like Thandi, benefit from the increase in the medical aid tax credits applicable to primary members and each dependant.
SIN TAX: Smoking and drinking wine will cost Harry more as excise taxes on both have increased. He will pay R8.76 in tax on his case of beer and R14.30 of tax for a pack of cigarettes. NAME: Thuli Ngcobo LIVES IN: Soweto, Johannesburg JOB: Nanny EARNS: R60 000 a year LIFESTYLE: Supports her daughter, who wants to attend Wits. Takes a taxi to work. Has a husband who’s unemployed and disabled
FINANCIAL GOALS: Saves R100 a month in a savings account at a bank. She has loans to repay, so she can’t help her daughter with university fees MEDICAL AID: No medical scheme or hospital plan ENJOYS: Drinking local beer
HOW THE BUDGET AFFECTS THULI
NO INCOME TAX: As Thuli’s income is below the tax threshold, she will not be directly affected by the changes in the tax rates.
FUEL TAXES: Although Thuli does not own a car, she will still be affected by the increase in the price of petrol and the fuel levy, albeit indirectly, because the taxi owner could increase fares.
GRANT BENEFIT: Because her husband is disabled and not working, he may qualify for a disability grant, which will increase by R90 a month to R1 600 a month. SAVINGS: PwC advises Thuli to save more efficiently. “She could investigate the benefits of investing in a TFSA, where the maximum annual limit has increased from R30 000 to R33 000.”
STUDENT GRANTS: Finance Minister Pravin Gordhan has announced that government will be allocating more funds to universities as well as the National Student Financial Aid Scheme, which means that Thuli’s daughter may be able to apply for financial assistance for her studies from the scheme.
Nassuirio says: “The reprieve is that if joint household income per annum comes to R600 000 or less, her daughter would qualify for no fee increases on her tuition.”
FUTURE HEALTH BENEFITS: While Thuli has no medical aid or hospital plan, government is moving towards the next phase of the implementation of the National Health Insurance (NHI) scheme.
Gordhan said it would include the establishment of the NHI fund and the service package will be progressively expanded. This could eventually mean an improvement in health services for Thuli.
NO EXTRA SIN TAX: Unlike Thandi and Harry, Thuli will not be paying more for her tipple of choice.
PwC says: “There has been no increase announced in respect of excise duties on local beer.”
However, she will still pay R7.82 for every litre of traditional African beer.