For most people money comes like a turtle and goes like a rabbit. And our Minister of Finance pulled a rabbit or two out of his hat when he delivered the Annual Budget Speech on 25 February 2015.
Mr. Nene and his cabinet had one clear message – when it comes to your money and your spending: “Responsible choices are required.”
So, what are the main tax changes and how will it affect the average person on the street?
Let’s look at Johnny. Johnny has taxable earnings of R 500 000 per annum. He owns a car with a 60 liter tank and fills it up once a week. He smokes one pack of cigarettes per day and during the course of the weekend, he likes to drink a bottle of whiskey. He is considering buying a property worth R 750 000. He also wants to sell some of the assets he owns. He contributes to a medical aid and has an Income Protection Policy. He has not really thought about saving for retirement and has no plan in place.
Now let’s zoom in on his situation from a tax point of view:
1.) Johnny will be taxed at 36% on his taxable earnings of R 500 000. All the tax rates in the brackets have increase with 1%, except for the lowest tax rate (which remains 18%). Last year he would have been taxed at 35% and therefore Johnny will now pay an additional R 778 per year in tax.
The brackets have been increased to allow for inflation and the rebates have also increased. So, if you are not like Johnny, and you only earn R 180,000 per annum, you will actually save R 913 per year in tax. See the tables below:
TAX REBATES
| Amount deductible from the tax payable | 2015 | 2016 |
| Persons under 65 | R 12 726 | R 13 257 |
| Persons 65 and under 75 | R 19 836 | R 20 664 |
| Person 75 and over | R 22 203 | R 23 130 |
PREVIOUS TAX RATES
| Taxable Income in Rand | 2015 |
| R 0 – R 174 550 | 18% of each R 1 |
| R 174 551 – R 272 700 | R 31 419 + 25% of the amount over R 174 550 |
| R 272 701 – R 377 450 | R 55 957 + 30% of the amount over R 272 700 |
| R 377 451 – R 528 000 | R 87 382 + 35% of the amount over R 377 450 |
| R 528 001 – R 673 100 | R 140 074 + 38% of the amount over R 528 000 |
| R 673 101 + | R 195 212 + 40% of the amount over R 673 000 |
CURRENT TAX RATES
| Taxable Income in Rand | 2016 |
| R 0 – R 181 900 | 18% of each R 1 |
| R 181 901 – R 284 100 | R 32 742 + 26% of the amount over R 181 900 |
| R 284 101 – R 393 200 | R 59 314 + 31% of the amount over R 284 100 |
| R 393 201 – R 550 100 | R 93 135 + 36% of the amount over R 393 200 |
| R 550 101 – R 701 300 | R 149 619 + 39% of the amount over R 550 100 |
| R 701 301 + | R 208 587 + 41% of the amount over R 701 300 |
2.) For Johnny to fill up his 60 liter tank will cost him an additional R 48.30. As of 1 April 2015 the fuel levy will increase with 80.5 cents, meaning he will now pay R 2.55 in taxes per liter of fuel.
3.) For every pack of cigarettes Johnny buys, he pays an additional 82 cents in sin tax. The whiskey (750ml bottle) he enjoys over the weekend, will cost him R 3.77 extra.
4.) For Johnny buying a property worth R 750 000, there will be no transfer duty payable. But if you are looking at property that’s a bit more expensive, you will pay more transfer duty, because the top-end of the scale has increased from 8% to 11%. See the tables below:
On Immovable Property : 2015 rates
| Property Value | Rates of tax |
| R 0 – R 600 000 | Nil |
| R 600 001 – R 1 000 000 | 3% on the value above R 600 000 |
| R 1 000 001 – R 1 500 000 | R 12 000 + 5% on the value above R 1 000 000 |
| R 1 500 001 + | R 37 000 + 8% on the value above R 1 500 000 |
On Immovable Property : 2016 rates
| Property Value | Rates of tax |
| R 0 – R 750 000 | Nil |
| R 750 001 – R 1 250 000 | 3% on the value above R 750 000 |
| R 1 250 001 – R 1 750 000 | R 15 000 + 6% on the value above R 1 250 000 |
| R 1 750 001 – R 2 250 000 | R 45 000 + 8% on the value above R 1 750 000 |
| R 2 250 001 + | R 85 000 + 11% on the value above R 2 250 000 |
5.) Remember, a ripple effect of the increased marginal tax rates is that people will be paying more Capital Gains Tax if they sell assets. Since Johnny’s marginal rate increased from 35% to 36%, he will be paying a bit more capital gains tax when selling some of his assets. The annual exemption of R 30,000 has been left unchanged.
6.) Johnny’s medical tax credit has increased from R 257 to R 270 per month. See the table below:
| Medical amounts deductible from tax payable | 2015 | 2016 |
| Main member | R 257 | R 270 |
| Main member with one dependent | R 514 | R 540 |
| Main member with two dependents | R 686 | R 721 |
7.) The premiums Johnny paid towards the Income Protection Policy will no longer be tax-deductible, but the monthly income that he will receive at claim stage, will be tax-free.
8.) The Old Age Grants for people over the age of 60 have increased with 4.4% – from R 1350 to R 1410. It is quite clear that one cannot depend on the Government to look after you after retirement. There is the gripping new introduction of the Tax-free Saving Account. Johnny should urgently consider this new product and start saving towards retirement.
When it comes to the fuel levy, the expected introduction of the electricity levy, the increased marginal tax rates and various other changes, it is obvious that your disposal income is under pressure. You need to make responsible choices when it comes to your financial planning. You need to limit your spending and maximize your savings to accumulate capital.
Does it feel like you are chasing 15 rabbits? Get in touch!
