Budget 2021: Individuals and savings

Finance Minister Tito Mboweni delivered his third annual budget address on 24 February 2021. Below we highlight some of the significant proposals, which will likely be contained in the Draft Taxation Laws Amendment Bill to be published for public comment in June or July 2021.

Applying tax on withdrawals of retirement interest when an individual ceases to be a tax resident

When an individual ceases to be a South African tax resident, retirement funds are not always subject to withdrawal tax in terms of the Act. At issue is the tax treatment of retirement interest when an individual ceases to be a South African tax resident but retains his/her investment in a South African retirement fund and only withdraws from the retirement fund when he/she dies or retires from employment.

When the individual ceases to be a South African tax resident, the retirement fund interest will form part of the assets that are subject to retirement withdrawal tax. The individual will be deemed to have withdrawn from the fund on the day before he/she ceases to be a South African tax resident.

Curbing abuse in the employment tax incentive

The employment tax incentive (ETI) is aimed at reducing the cost of hiring youth between the ages of 18 and 29 years old. It allows employers to reduce their pay-as-you-earn (PAYE) tax payments to the South African Revenue Service (SARS) for the first two years in which they employ qualifying employees with a monthly remuneration of less than R6 500, subject to certain limitations. Some taxpayers have devised certain schemes using training institutions to claim the ETI for students. To counter this abuse, it is proposed that the definition of an “employee” be changed in the Employment Tax Incentive Act (2013) to specify that work must be performed in terms of an employment contract that adheres to record-keeping provisions in accordance with the Basic Conditions of Employment Act (1997). These amendments will take effect from 1 March 2021.

Reviewing tax provisions for travel and working from home

In light of the large-scale migration to working at home over the past year, the National Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers, and compatibility with environmental objectives. In recognition of the potential effect on salary structuring, this will be a multi-year project, starting with consultations during 2021/22.

Tax‐deductible donations

The information required by law in the receipts issued for tax‐deductible donations is limited and entities issuing the receipts are not required to provide third‐party data on the donations to SARS on a systematic basis. SARS has detected that receipts are being issued by entities that are not approved to do so. To ensure that only valid donations are claimed and to enhance SARS’ ability to pre‐populate individuals’ returns, it is proposed that the information required in the receipts and third-party reporting be extended in future to cover the receipts issued.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE)