How proposed amendments to tax laws will affect you
May 15, 2010

By Laura du Preez

Proposals in the draft Taxation Laws Amendment Bills released by National Treasury this week give a bit and take a bit when it comes to taxes that are likely to affect you. The proposed changes include the following:

  • Company cars: To ensure travel allowances and company-provided vehicles are treated in a similar way for tax purposes, Treasury plans to increase the percentage used to calculate the value of the taxable fringe benefit you enjoy if your employer provides you with a vehicle.

    The percentage of the value of the vehicle used to determine your fringe benefit each month will be increased from 2.5 percent to four percent and Pay As You Earn (PAYE) tax will be deducted from 80 percent of this fringe benefit or 3.2 percent of the value of your vehicle.

    Previously, the fringe benefit was calculated at four percent of the value of the vehicle for second vehicles only, as the assumption was the first company- provided vehicle would be used for business purposes but subsequent vehicles would not.

    Treasury has also proposed changing the way in which the value of the vehicle must be determined. For example, it says, the value will in future include the costs of a maintenance plan and VAT.

    If this proposal is accepted, it would be effective from March 1 next year.

    As from March 1 this year, if you receive a travel allowance, you can claim only for actual business mileage travelled and recorded in a log book. The deemed mileage system of the past is no more.

    Employers are also required to deduct PAYE at your marginal rate from 80 percent of your travel allowance. If your business mileage amounts to more or less than 20 percent of the allowance, your tax is adjusted on assessment.

  • Interest exemptions: The amount of interest you can earn without paying tax if you are under the age of 65 is being increased to R22 300. If you are over 65, you will this year be able to earn R32 000 in interest earnings tax free.

    Treasury says the aim of the exemption is to encourage savings, but increasingly it is being used to reduce the tax on existing arrangements such as family loans. It has therefore proposed that the interest exemption be applicable only to interest earned from certain defined investment instruments. These are:

    * Interest-bearing products listed on the JSE (such as corporate bonds);
    * Interest paid by any one of the three spheres of government;
    * Interest paid by a bank;
    * Interest paid by a registered friendly society;
    * Interest paid by a medical scheme;
    * Collective investment (money market) schemes; and
    * Interest from dealer or brokerage accounts.

    The effective date of this would be January 1, 2010.

  • Islamic investments: The tax system does not currently cater for Islamic or sharia-compliant financial products.

    Treasury has proposed that products structured according to the Islamic finance models of mudaraba, murabaha and diminishing musharaka be placed on an equal tax footing with conventional financial products.

    One benefit of the proposal, Treasury says, is that investors in these products will be able to enjoy the R22 300/R32 000 interest exemption.

  • Voluntary disclosure programme: To encourage you to own up to the South African Revenue Service (SARS) if you aren't up to date with your taxes, a voluntary disclosure programme is being proposed. This will begin on November 1 and run until October 31 next year.

    Additional tax, penalties and interest on outstanding tax will be waived for qualifying defaulters who come forward. They will also avoid criminal prosecution.

  • Property companies: Last year, the government introduced a new window period during which you could, subject to various conditions, transfer property in a company or trust into your own name without paying capital gains tax and transfer duty.

    The draft tax bills propose that the window relief period for "residence entities" be extended by a year to the end of 2012. There are also proposed amendments to the terms to ensure the entity from which the property is being transferred is terminated and to extend relief to cases where the residence has been used by relatives of the owners or where a residential property company has been transferred to new shareholders.

    The Treasury and SARS are scheduled to brief Parliament's Finance Committee on the draft legislation this week. Public comments on the bill can be submitted until June 11.
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