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Budget 2017 – The Highlights and Lowlights

Preamble: Our economic growth rate is lagging the rest of the world significantly, and this does not have a quick fix. Global economic growth this and next year is expected to be in the 3.0% to 3.5% region. Ours is only expected to hit 1.5% (Currently 0.5%). Tax collections were way down last year – missing the mark by R30bn. Why? The golden goose of tax collection – us individuals – have not been getting real salary increases, low or no bonuses and of course being retrenched. Imports are down because there is ‘subdued demand’ (aka we aren’t buying them because we can’t afford to.) Pravin’s assumptions are that commodity prices and the stable Rand will lead the growth – we all know that can go to hell very quickly.

Taxes:  I have downloaded the very useful digital ‘pocket guide’ to the new taxes, if you want one, send me an email (dawn.ridler@mweb.co.za) and I will send you one. Alternatively, follow the link at the bottom to get the full speech or transcript.

Income tax: There has been some small accommodation for ‘bracket creep’ or ‘fiscal drag’ (where you go into another tax bracket because of salary increases. By not keeping this in line with inflation you end up with less money in your pocket – Nasty.) One ugly shock (that I did warn you of) is that the top marginal rate is now 45%, if you earn more than R1.5m pa. Hitting the wealthiest hard is a theme throughout this budget. This, of course, has a ripple effect on tax on interest, rental income from property portfolios and Capital Gains Tax for the high earners. All the detailed breakdowns can be found in the pocket guide so I won’t repeat them here. The tax thresholds (below which you pay no tax) has increased but is below inflation (silent tax increase).

Transfer duty (property): The threshold has been increased to R900k. Below this level no transfer duty will be paid. This is the ‘sweet spot’ for rental portfolios. Little change in the rest, the top level is still 13% for houses over R10m

Donations tax allowance: Still only R100,000 pa.

Capital gains: The annual allowance is R40,000, on death it is R300,000. No changes to estate duty.

Dividend withholding tax up to 20%. This will impact on your shares, and investments with unit trusts. Retirement funds have this withholding tax rebated back, making them even more favourable.

Medical tax credit: R303pm (main member, R204 for additional dependents), but we have been warned that this may be ‘diverted’ into the NHI, if and when that actually happens ( the price tax runs into tens of billions of Rand – it is just unaffordable for the foreseeable future.

Interest allowance: Staying the same R23,800. The rest is taxed at your marginal rate. (Interest is not taxed in retirement funds – another reason to use them to be tax efficient.) Annual tax-free savings amount has been increased to R33,000.

Fuel Tax: Up another 50c.

Sugar and Carbon tax – later in the year ( If ever? They have some powerful lobbyists and vested interests). In case you don’t know the proposal: 2.1 cents per gram of sugar content above 4 grams per 100 millilitre. I litre of Coke has 100g sugar a litre, 10g per 100ml. In other words in a litre of Coke the price increase would be R1.26. Nice!

Recommendations: Use retirement funds for investment, the investment is not taxed within the fund – no CGT, tax on interest and rebated dividend tax. In addition to that you can get a rebate up to your marginal rate, capped at R350,000 pa. Have a look at the effect of an increase in your remuneration on your take home salary (importantly – adjusted for inflation). Perhaps take more leave instead? In the long term, poor health is one of the biggest risks to your wealth and if you have to pay for medical aid as well as NHI contributions it could consume a huge chunk of your fixed income later in life.

If you want the webcast of the speech or more detailed documents go HERE

Warm regards

Dawn Ridler,
BSc Hons, MBA, Founder, Kerenga – Wealth Ecology
Oracle Broker Services, Licensed FSP 28418
Cell      :  079 372 5171; Fax :   (+27) 86 235 6777; Skype : dawn.ridler
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