Tax Tuesday: Budget 2020

This was one of the most taxpayer-friendly budgets delivered in ages. It seems as if government—especially if you consider the rules around exchange control—are saying, “Please trust us enough to keep your money in South Africa, but if you don’t, you are free to move it offshore if you please.”

Here’s a list of the most important Budget 2020 highlights:

- Tax revenue projected at R1,425.4bn
- R370.5m consolidated budget deficit
- No increase in VAT, capital gains tax (CGT) inclusion rates or CGT annual exclusion rates
- A new capital flow management system. For exchange control, this means that all foreign-currency transactions will be allowed automatically, other than for specifically pre-identified transaction types. This is a significant change from an automatically negative exchange control system to an automatically positive exchange control system.
- Government will consider extending the 30 June 2021 sunset clause for Virtual Capital Companies (VCC) (Section 12J of the Income Tax Act). It will also introduce measures to alleviate unintended tax consequences arising currently from legitimate closure of such companies.
- Legislation to be introduced to curb tax schemes involving capitalisation of debt owed by trust-owning companies to escape provisions of section 7C. Section 7C of the Income Tax Act was introduced in 2017 to curb interest-free funding of trust structures to house high-growth assets (a common estate duty planning mechanism).
- Abuse of the recently introduced income tax incentive to provide for bursary programmes has been identified and will be addressed through legislative intervention effective 1 March 2020.
- Financial emigration for South African Reserve Bank (SARB) purposes to be phased out by 1 March 2021.
- Annual foreign investment applications by individuals in excess of R10m to be subjected to more stringent verification.
- Estimate tax assessments to be issued where returns are outstanding and where relevant material requested by SARS is withheld.
- Legislation to be introduced to deny refunds of any tax until a taxpayer is fully compliant and returns of all taxes submitted.
- The much-publicised foreign remuneration exemption applicable to South African residents working abroad to be increased from R1m to R1.25m effective 1 March 2020.

Below is a table comparing what was and what’s new:

	Was	Now
VAT	15%	15%
Top Marginal personal income tax rate	45%	45%
Top income tax threshold @ 45%	R1,500,000	R1,577,301
Tax exemption for SA residents working abroad	R1,000,000	R1,250,000
Primary Rebate	R14 067	R14,958
CGT Annual Exclusion	R40,000	R40,000
Dividends Tax	20%	20%
Transfer Duty Threshold	R900,000	R1,000,000
TFSA Annual Limit	R33,000	R36,000

Tax Brackets and Rebates for the 2021 tax year (1 March 2020 – 28 February 2021)

Taxable income (R)	Rates of tax (R)
1 – 205 900	18% of taxable income
205 901 – 321 600	37 062 + 26% of taxable income above 205 900
321 601 – 445 100	67 144 + 31% of taxable income above 321 600
445 101 – 584 200	105 429 + 36% of taxable income above 445 100
584 201 – 744 800	155 505 + 39% of taxable income above 584 200
744 801 – 1 577 300	218 139 + 41% of taxable income above 744 800
1 577 301 and above	559 464 + 45% of taxable income above 1 577 300

Tax Rebates

Tax Rebate
	2021
Primary	R14 958
Secondary (65 and older)	R8 199
Tertiary (75 and older)	R2 736

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday. Don’t miss it!