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Cape Town - Proposed tax changes have been designed to support the government's policies, said the National Treasury on Thursday.
Among the envisaged changes in the tax laws amendment bill is an increase in the turnover tax exemption threshold for microbusinesses. The bill also contains measures to build on SA's role as a regional gateway and includes new and tougher anti-avoidance measures.
Rates and threshold changes involving the Income Tax and Value-Added Tax Acts include:
- Living annuities: the bills contain a proposal to open up the provision of living annuities in order to promote competition, and not restrict policy holders to costly policies.
- Medical tax credits: the bills give effect to the 2011 budget proposal to convert expenditures associated with medical aid contributions into tax credits.
- Long-term insurance: in 2011, changes were made to the taxation of long-term insurance to prevent executives from using key person plans as a means of avoiding fringe benefit tax. These changes, however, highlighted the need to revise the whole system as applied to policy holders and beneficiaries.
- Anti-avoidance measures: the bills contain a number of new anti-avoidance measures, including the hiatus of Section 45 and ordinary tax treatment of dividends from third-party backed shares. In addition, these bills treat dividend cessions as ordinary revenue (as well as dividends in respect of long-held shares when matched by offsetting short positions).
Like third-party backed shares, dividends in these cases should not be entitled to tax-free treatment because the holder lacks any meaningful economic interest in the underlying shares giving rise to the dividends. As a consequence, the imposition of securities transfer tax on the cession of dividends is withdrawn.
- Completion of the dividends tax. Foreign dividends will effectively become subject to the same 10% level of tax. The value extraction tax will be dropped in favour of a facts and circumstances approach to deemed dividends.
- Incentives: government is revising a number of pre-existing tax incentives.
- Government Islamic bonds: a tax framework will be enacted that will allow for the government to issue Islamic bonds.
- Regional gateway initiatives: the bills largely expand on the gateway to Africa initiatives started in 2010. They remove the potential for double taxation by South African multinationals operating abroad through a variety measures.
- Offshore cell companies: In recent years, it was announced that cell companies would be the target of anti-avoidance legislation. The bills achieve this result by treating each cell of an offshore cell company as a separate company for purposes of the controlled foreign company regime.
The net result of this segregated treatment is to ensure that controlled foreign company status is measured on a cell-by-cell basis, thereby triggering a greater likelihood of controlled foreign company treatment.
- Notional input credits in respect of fixed residential property: the proposed rules eliminate the current transfer duty limitation when VAT vendors acquire second-hand fixed property from non-VAT vendors.
- Temporary relief for developers engaged in short-term rentals of residential fixed property.
Among the envisaged changes in the tax laws amendment bill is an increase in the turnover tax exemption threshold for microbusinesses. The bill also contains measures to build on SA's role as a regional gateway and includes new and tougher anti-avoidance measures.
Rates and threshold changes involving the Income Tax and Value-Added Tax Acts include:
- Living annuities: the bills contain a proposal to open up the provision of living annuities in order to promote competition, and not restrict policy holders to costly policies.
- Medical tax credits: the bills give effect to the 2011 budget proposal to convert expenditures associated with medical aid contributions into tax credits.
- Long-term insurance: in 2011, changes were made to the taxation of long-term insurance to prevent executives from using key person plans as a means of avoiding fringe benefit tax. These changes, however, highlighted the need to revise the whole system as applied to policy holders and beneficiaries.
- Anti-avoidance measures: the bills contain a number of new anti-avoidance measures, including the hiatus of Section 45 and ordinary tax treatment of dividends from third-party backed shares. In addition, these bills treat dividend cessions as ordinary revenue (as well as dividends in respect of long-held shares when matched by offsetting short positions).
Like third-party backed shares, dividends in these cases should not be entitled to tax-free treatment because the holder lacks any meaningful economic interest in the underlying shares giving rise to the dividends. As a consequence, the imposition of securities transfer tax on the cession of dividends is withdrawn.
- Completion of the dividends tax. Foreign dividends will effectively become subject to the same 10% level of tax. The value extraction tax will be dropped in favour of a facts and circumstances approach to deemed dividends.
- Incentives: government is revising a number of pre-existing tax incentives.
- Government Islamic bonds: a tax framework will be enacted that will allow for the government to issue Islamic bonds.
- Regional gateway initiatives: the bills largely expand on the gateway to Africa initiatives started in 2010. They remove the potential for double taxation by South African multinationals operating abroad through a variety measures.
- Offshore cell companies: In recent years, it was announced that cell companies would be the target of anti-avoidance legislation. The bills achieve this result by treating each cell of an offshore cell company as a separate company for purposes of the controlled foreign company regime.
The net result of this segregated treatment is to ensure that controlled foreign company status is measured on a cell-by-cell basis, thereby triggering a greater likelihood of controlled foreign company treatment.
- Notional input credits in respect of fixed residential property: the proposed rules eliminate the current transfer duty limitation when VAT vendors acquire second-hand fixed property from non-VAT vendors.
- Temporary relief for developers engaged in short-term rentals of residential fixed property.
