How the Budget affects you & your company
13/02/2009

Finance Minister Trevor Manuel delivered the Budget speech on 11 February 2009. Here we note some of the tax issues that may affect businesses and individuals.

Corporate Measures

In 2008, South Africa began to move from a secondary tax regime on companies to a dividend withholding tax regime. The process will be completed in 2009. Individual taxpayers’ dividends will be taxed at 10% while retirement funds, public benefit organisations and companies will be exempt. Foreign persons will be eligible for tax treaty benefits.

The VAT threshold is increased from R300 000 to R1 million. It is also proposed that only businesses with an annual taxable supply turnover over R50 000 should register for VAT, as from 1 March 2010.

Several administrative reforms are in progress at the South African Revenue Service and biometric measures will be introduced to verify applicants’ identity for VAT registration purposes. This should combat fraud and reduce the need for supporting documents.

Provision will be made for bona fide small business owners, unlike shareholders owning multiple companies, placing their separate businesses in purchased shelf companies, to get access to small business corporation relief. This is currently not possible.

The new Companies Act, which will be enacted early in 2010, is under review to determine its impact on income tax. Tax changes will be initiated in 2009/2010 to bring income tax measures for companies and close corporations in line with the Companies Act.

The inconsistency in tax relief for companies registered under Section 21 of the Companies Act, 1973 and those that converted from a profit-based company to a Section 21 company will be removed. A for-profit company converting to a Section 21 company will be eligible for tax relief and will not be excluded on the basis of its conversion.

Certain public benefit organisations enjoy exemption and/or deductible donations while those providing support services to other benefit organisations are excluded.

Estate Planning

The Budget gives spouses an alternative measure to the trust mechanism normally used in estate planning. It will be a simplified, cost-effective method where a spouse will be entitled to use the unused portion of the estate duty rebate of a deceased spouse for their own estate planning purposes.