In the 2016 Budget recently delivered by Minister of Finance, Pravin Gordhan, it was announced that our current taxes on wealth are under review by the Davis Committee.
This is according to Simone Immelman, Director in Cliffe Dekker Hofmeyr's Real Estate Practice, who says although the calculation of transfer duty in respect of transactions with a property value under R10 million has not been affected, a further tax bracket has been implemented in respect of the transfer duty rate on the portion of the property value above R10 million, which will increase from 11% to 13%.
With effect from 1 March 2016, transfer duty will therefore be payable at the following rates on transactions that are not subject to VAT:
Value of Property
R0 - R750 000
R750 001 - R1.25 million
3% of the value above R750 000
R1 250 001 - R1.75 million
R15 000 + 6% of the value above R1 250 000
R1 750 001 - R2.25 million
R45 000 + 8% of the value above R1 750 000
R2 250 001 - R10 million
R85 000 + 11% of the value exceeding R2 250 000
R10 000 001 and above
R937 500 + 13% of the value exceeding R10 million
Immelman says transfer duty payable in respect of property transactions where the underlying agreements were concluded on or after 1 March 2016 will therefore be subject to the new transfer duty provisions, and will be calculated as per the above table.
Agreements concluded prior to 1 March 2016 will still be subject to the calculation of transfer duty based on the previous tax dispensation, notwithstanding that the date of fulfilment of suspensive conditions in terms of such agreements, or the registration of the transfers of the properties under those agreements may occur after 1 March 2016, she says.
“The Minister stated that higher capital gains inclusion rates and measures to strengthen the estate duty and donations tax are also proposed,” says Immelman.
Government has proposed that the capital gains tax (CGT) inclusion rate for individuals be raised from 33.3% to 40% from March 1 this year.
The rate for companies will rise from 66.6% to 80%.
“This will raise the maximum effective capital gains tax rate for individuals from 13.7% to 16.4%, and for companies from 18.6% to 22.4%,” the Budget Review indicated.
The annual amount above which capital gains become taxable for individuals will increase from R30 000 to R40 000, while the effective rate applicable to trusts will rise from 27.3% to 32.8%.
South Africa’s wealth taxes are currently under review by the Davis Tax Committee, who has been tasked with a comprehensive review of the country’s tax system in 2013.
National Treasury estimates that the CGT and transfer duty rate changes will raise R2 billion of the R18 billion additional gross revenue it aims to collect through tax hikes in the coming year.
Gordhan also proposed that measures should be introduced to strengthen estate duty and donations tax mechanisms, as some taxpayers use trusts to avoid paying estate duty and donations tax.
“For example, if the founder of a trust sells his or her assets to the trust, and grants the trust an interest-free loan as payment, donations tax is not triggered and the assets are not included in his or her estate at death. To limit taxpayers’ ability to transfer wealth without being taxed, government proposes to ensure that the assets transferred through a loan to a trust are included in the estate of the founder at death, and to categorise interest-free loans to trusts as donations.
“Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits will also be considered,” the Budget Review indicated.