February in South Africa is important, not only because our admirers get to declare their undying love for us on the 14th, but also because the Finance Minister stands up in parliament and tells us how he plans to spend the money he has collected from us in the form of taxes. He also tells us how he intends amending the various taxes that we have to pay him. Us South Africans tend to get taxed quite heavily although we are not always aware of just what taxes we are expected to pay.
C – Capital Gains Tax
Us South Africans tend to get taxed quite heavily although we are not always aware of just what taxes we are expected to pay.
Capital Gains Tax (CGT) was introduced in South Africa in October 2001 and applies whenever an individual disposes of an asset. This disposal may be in the form of a sale, a transfer, a donation, etc. and is known as a CGT event. Death is an important CGT event in that one is assumed to have disposed of all their assets the day before they died. An important thing to remember with CGT is that with the passing of time one’s potential CGT liability increases quite significantly, and it’s critical that this is properly managed.
R – Retirement Funds Tax
Retirement Funds Tax (RFT) becomes payable when one withdraws a lump sum from a pension fund, a provident fund, a preservation fund, or a retirement annuity. Withdrawal may be due to one changing jobs and accessing the cash in their pension, one retiring and taking up to one third of their money from a pension fund (or all their money from a provident fund), or divorce where the spouse withdraws their entitlement. RFT can often be the single biggest destroyer of retirement capital for the uninformed and is a major risk for members of provident funds. The services of a certified financial adviser are crucial in helping one navigate the area of retirement and tax.
E – Estate Duty
Estate Duty (ED) is levied in terms of the Estate Duty Act of 1955 and is payable upon the death of the tax payer. ED is levied on the dutiable amount of the Estate at a rate of 20%. A rebate of R3.5 million applies and there are a host of exclusions that a tax payer can make use of to mitigate the final amount that is paid.
D – Donations Tax
A donation is a gratuitous disposal of an asset (such as cash, property, etc) and can be used to minimise the amount of assets in a large estate. Coincidentally donations tax is levied at a rate of 20% of the value of the asset donated, above R100 000. Donations between spouses however are exempt from donations tax.
I – Income Tax
This is the tax that most employed citizens are familiar with. Income Tax is calculated in terms of the Income Tax Act and is calculated via the annual return process. This is the process whereby income earners declare all incomes earned, less exemptions and deductions, to SARS in order to determine the amount of Income Tax that should have been paid over the tax year. This is deducted from taxes already paid and the tax payer is due a refund or needs to pay in additional tax.
T – Transfer Duty
Transfer Duty (TD) is payable upon acquiring a property with a value exceeding R600 000. This is a transaction based tax and is levied on every qualifying transaction. The calculation of TD is governed by the Transfer Duty Act of 1949. TD is also payable where such a property is disposed of by means of donation or bequest. A sliding scale applies which increases as the value of the property increases.
S – Securities Transfer Tax
Securities Transfer Tax (STT) replaced Stamp Duty and Uncertificated Securities Tax which were payable on the transfer of listed and unlisted shares. STT is charged at a rate of 0.25% and is payable in respect of the transfer of any security issued by an SA Company, CC, and JSE listed company.
What is clear from the different taxes above is that one’s income level and investment habits will play a large part in determining which of the taxes one is likely to incur. Not all taxes are as prevalent as say Income Tax or Estate Duty. Some people can go through life without ever paying Transfer Duty, Securities Transfer Tax or Donations Tax. However, it makes sense to engage the services of a qualified tax practitioner and/or certified financial adviser to assist one from a tax planning perspective. There is a significant amount of complexity that goes with each of the taxes mentioned above, making such a relationship a very important one.