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As you all know by know Philip Viviers is one of the Experts on Property Investor Network and we just wanted to give you his summary view the 2008 Budget as he wrote it:
1. The interest exemption for under 65 year old individuals are up from R18,000 to R19,000. For over 65’s it is up from R26,000 to R27,500. This should really come in handy if you have plenty of natural persons as beneficiaries of your trust.
2. Each individual also now enjoy a tax free benefit on the first R46,000 they earn. Previously it was R43,000.
3. Although the tax rates have remained unchanged, changes to the tax brackets provide a reduction in the individual tax burden at all income levels. For example the monthly tax saving for individuals in the top tax bracket is approximately R388 (see the tax guide for more).
4. One of the biggest changes is a so-called elective tax or presumptive tax. This tax is based on turnover proposed for businesses with a turnover of up to R1 million per year. The proposed tax rates increase progressively, based on turnover, from 0% on the first R100 000 to 7.5% on turnover above R 750 000 (see the tax guide for more). The maximum tax payable under this system would be R 44 500 on a turnover of R1 million. A qualifying business will have to elect this tax and then must stay in this tax for at least 3 years. Should you then migrate out of this tax, you will not be able to migrate back to this tax for at least 5 years. Personal services rendered under “employment-like conditions” and professional services will be excluded from the presumptive tax system. This is a tax that possibly could have a huge tax benefit if elected correctly. Should you elect this tax, without fully understanding the effects of this tax and conditions change in your business, this tax could also be very destructive. Professional advice on this new tax is required from qualified tax advisors.
5. The second of the biggest changes is the change in the VAT threshold. Previously compulsory registration for VAT was if you had a turnover of higher than R300,000 per year. It is now increased to R1,000,000 turnover per year. This could have a huge effect on a person/company/trust that rendered any personal services (eg accountants, attorneys, consultants, engineers etc). The problem previously experienced was that if you rendered these services, you basically had no input VAT claims, which means 14% of your income is gone due to VAT and there was nothing you could do. You also had that administrative burden of 2 monthly VAT returns. Now if your turnover is below R1,000,000 per year you don’t have to register for VAT, which means you could save 14% immediately and less administrative burden of VAT returns. Lets look at an example. If you earned R950,000 in consultation fees previously, R166,666 would go to the Receiver. From 2008/2009 this R166,666 could be yours.
6. Company’s tax is down from 29% to 28%. That is a positive move to stimulate the economy and attract foreign investors.
7. Another positive is that Minister Manuel encouraged the much needed supply of foreign skilled labour by allowing expatriates two years of tax exemption in respect of residential accommodation provided by the employer to the extent that this exemption will not exceed the lower of R 25 000 per month or 25% of a persons remuneration per month.
8. A tax on electricity consumption has been proposed. The rate will be 2 cents per kilowatt. This was expected with all the negativity around ESKOM. Is this fair? You be the judge.
9. Exchange control: Individuals are granted a single allowance of R500 000 per year for the purposes of travel, gifts, donations and maintenance. This is in addition to the existing R2 million individual investment allowance.
10. Constitutionality of SARS and burden of proof: Various tax acts currently provide that a taxpayer is presumed to evade an assessment or taxation intentionally if that taxpayer makes a false statement or entry. Such presumption prevails until the taxpayer provides proof to the contrary. The constitutionality of the presumption is in question and will be reviewed.
Summary:
This is a relative good and positive budget seeing that South Africa is in a recession phase due to all the interest rate increases, weakening of the Rand, electricity problems, oil and petrol price increases and the lower growth in properties (or even a negative growth). Luckily we are not the only country in a recession phase. The world’s largest economy, USA, is also moving into a recession. Lets face it. There will always be recession and growth cycles. So what does the future hold for us during a recession - GROWTH. It is a given. We just don’t know when. But if you are a real wealth creator and focus on long term goals and investments, no fluctuations in the economy will influence your wealth, as the recessions and growth will even each other out, and you will experience real growth. It is like the seasons of the year. After Winter, Spring will come. THAT IS A GIVEN!
That’s my short view at this stage. In my opinion there are some huge tax benefits to take advantage of, if you know how to implement and structure this AND if you seek the correct advice from the correct professionals. Please see the Quick Tax Guide for more.
Disclaimer: - as always be smart - Readers are advised to consult with relevant professionals before taking any formal action.
Happy Investing!
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