Budget Speech 2016 – Highlights


The information below relates to certain amendments as well as some proposed amendments including:

  • Tax treatment of Trusts
  • Income Tax rates, Capital Gains Tax, Transfer Duty and Tax-free investments
  • International trends and information sharing
 budget speech
Over the last couple of years proposals were made relating to the tax treatment of Trusts. Most recently during the 2016 National Budget Speech reference was made to the tax treatment of Trusts and more specifically certain measures were proposed to prevent tax avoidance through Trusts. It is believed that some taxpayers make use of Trusts to avoid Estate Duty and Donations Tax. To curtail this practice, it was suggested that assets transferred to a Trust, through a loan, are to be included in the estate of the Founder at death. In addition, it was proposed that interest-free loans to Trusts are to be treated as donations and reference was made to further measures to limit the use of discretionary Trusts for income splitting purposes. It is also important to note that these proposals were released ahead of an expected second report on Estate Duty from the Davis Tax Committee (which was appointed in 2013 to review South Africa’s tax policy), which means that additional proposals may be released by the Committee later this year.
Does this mean that Trusts as we know it has come to a sudden demise? Has the world of Trust administration transformed into a highly complex field?
Absolutely not! A definite yes!
The core objective of Trusts has always been centred around the principles of asset protection and wealth preservation, with an important focus on smooth asset transition from one generation to the next. The purpose and use of Trusts have never intentionally been rooted in any form of tax avoidance. However, this has been the case for some time now and the proposals made in the Budget Speech further emphasise that it has become a highly specialised field, requiring a deep understanding of the relevant legislation and its impact.
The need for expertise to help you navigate the changesThe abovementioned proposals are only recommendations at this stage and our team of Specialists will actively participate in the public commentary process when the draft legislation is published for comment later this year (before any of the proposals become law). Our Fiduciary Specialist team understands the complexity of Trust Law and will closely monitor the impact that this may have if implemented and keep you informed.
Income tax ratesThe personal income tax bracket adjustments for March 2016 to February 2017 are as follows:
Taxable income (R) Rates of tax (R)
0 – 188 000 18% of each R1
188 001 – 293 600 33 840 + 26% of the amount above 188 000
293 601 – 406 400 61 296 + 31% of the amount above 293 600
406 401 – 550 100 96 264 + 36% of the amount above 406 400
550 101 – 701 300 147 996 + 39% of the amount above 550 100
701 301 & above 206 964 701 300 + 41% of the amount above
The corporate and personal income tax and VAT rates remain unchanged.
Capital Gains TaxThe inclusion rates for Individuals, Trusts and Companies have been increased:
Taxpayer 2015/2016 2016/2017
Individuals 33.3% 40%
Special Trusts 33.3% 40%
Trusts 66.6% 80%
Companies 66.6% 80%
The consequence of the above amendment is that the effective tax rate on capital gains will increase to:
From 13.65% to 16.4%
for Individuals/Special Trusts
From 27.3% to 32.8%
for Trusts
From 18.6% to 22.4%
for Companies
The annual exclusion for Individuals and Special Trusts value has increased while the specific exclusions remain unchanged:
Description 2015/2016 2016/2017
Annual exclusion for Individuals and Special Trusts R 30 000 R 40 000
Exclusion on death R 300 000 R 300 000
Exclusion on disposal of primary residence (capital gain) R 2 000 000 R 2 000 000
These rates are effective for years of assessment commencing on or after 1 March 2016.Transfer DutyTransfer Duty remained the same except for an additional bracket that has been proposed in respect of property transactions exceeding R10 000 000.
Property value (R) Rates of tax (R)
0 – 750 000 0% of property value
750 001 – 1 250 000 3% of property value above 750 000
1 250 001 – 1 750 000 15 000 + 6% of property value above 1 250 000
1 750 001 – 2 250 000 45 000 + 8% of property value above 1 750 000
2 250 001 – 10 000 000 85 000 + 11% of property value above 2 250 000
10 000 001 and above 937 500 + 13% of property value above 10 000 000
The new rate will be effective for property acquired on or after 1 March 2016.Tax-free investmentsTax-free investments were introduced from 1 March 2015 to encourage individuals to save. The impact of the current situation will be reviewed to clarify the purpose of this investment in relation to the application of Estate Duty. Government intends closing an unintended loophole which allows proceeds from tax-free investments to be transferred to the nominated beneficiary without being subjected to Estate Duty.
Transfer pricing, Base Erosion and Profit Sharing (BEPS)In order to protect the South African tax base, Government confirmed its commitment to act aggressively against the evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal money flows.Special voluntary disclosure

In order to curb potential worldwide tax avoidance, the Organization for Economic Cooperation and Development (OECD) global standard for automatic exchange of financial information is coming into effect between countries known as the “early adopters”, from 2017. Tax authorities in the relevant countries will be exchanging financial information. Individuals and firms that hold assets and income offshore, which have not been disclosed to the South African Revenue Service (SARS), will be identified by this system.

In response to requests by affected parties who wish to regularise their affairs, National Treasury, SARS and the Reserve Bank are proposing to relax the voluntary disclosure rules for six months, from 1 October 2016. This will allow non-compliant individuals and firms to disclose assets held and income earned offshore.