There were three important announcements in the National Budget this year that could have an impact on your financial plan and should be discussed with your financial adviser:

Capital Gains Tax increase

The inclusion rate for Capital Gains Tax was increased from 33.3% to 40% for natural persons  as from 1 March 2016 while the exclusion amount was increased to R40 000 per annum.

What this means is that 40% of any capital gain over R40 000 will be included in your tax return and taxed at your marginal tax rate. Individuals in the highest tax bracket of 41% will pay an effective tax rate of 16.4%. If someone, for example, has a marginal tax rate of 30%, their effective capital gains tax will be 12%.

This increase in capital gains makes tax effective planning around your longer-term investments even more important as well as increasing the attractiveness of Tax-Free Savings Accounts and retirement funds such as retirement annuities.

The increase in the inclusion rate for CGT purposes means that within an endowment wrapper should CGT be triggered, the effective rate is now 12%. This compares favourably to the maximum rate of 16.4% for individuals who fall within the 41% tax bracket.

Trusts under the spotlight again

Over the last five years National Treasury has been reducing the attractiveness of trusts as tax havens and this year is no exception with the announcement that the use of trusts to evade estate duty and donations tax will be reviewed.

Currently trusts may be used to shift assets out of an individual’s estate, thereby pegging the value of the asset for estate duty purposes, while at the same time retaining the use of the assets.  It is proposed that assets transferred to a trust on loan account (i.e. not actually paid for by the trust) should be included in the founder’s estate for estate duty purposes.

Further any interest free loans made to a trust should be subject to donations tax.  While we will have to wait and see what the legislation actually says on these two matters to understand the mechanics and impact, what is immediately apparent is that it is going to become more costly to move wealth into a trust.
Capital gains tax on trusts was increased to an effective rate of 32.5% making the disposal of assets within a trust very tax inefficient. If you currently have assets in a trust or are considering setting up a trust ensure you receive proper advice that takes future legislative changes into account.

Opportunity to declare offshore assets

With the introduction of FATCA (Foreign Account Tax Compliance Act) and global standard for the automatic exchange of information between countries’ tax authorities, it is unlikely that undisclosed foreign assets will remain as such for long, resulting in serious consequences for the taxpayer. Furthermore financial advisers are under a fiduciary and legal responsibility to inform the authorities about any undeclared assets held by their clients.

It is in light of this that the Minister of Finance in his Budget Speech announced that a Special Voluntary Disclosure Programme (VDP), a ‘third amnesty’, would be introduced to allow South Africans with undeclared offshore assets to sort out their tax and exchange control affairs.

The Special VDP has a limited window of application, being from the 1st of October 2016 to the 31st of March 2017.

Tax implications: Tax will only have to be paid on income earned from 1 March 2012, in respect of unauthorised assets. This means that a taxpayer only needs to go back 5 years insofar as reporting is concerned, and provides certainty to the taxpayer.

The penalty: A levy of 5% or 10% will apply depending on whether you leave the assets offshore or repatriate them to South Africa. The lower levy of 5% will apply if you repatriate the assets, the 10% levy will apply if you use the R10 million p.a investment allowance to keep the assets offshore.

Coming clean after the amnesty: After the limited window application period, the taxpayer may voluntarily approach the Financial Surveillance Unit to disclose unauthorised assets, and the Financial Surveillance Unity may, at their discretion, impose levies of between 10 and 40%. In the event that assets are not disclosed through the VDP or voluntarily, the taxpayer will face the full force of the law.

What will happen to your Own your life Rewards

If you are a member of the Own your life Rewards programme you should by now have received notification that we are winding down the programme which will be discontinued in a year’s time on 31 March 2017.

For more information on this, please contact your financial adviser or visit www.ownyourliferewards.co.za.

Retirement fund members are understandably confused as to what changes have actually been brought about with regards to retirement reform. Here we provide a simple breakdown of what you need to know.

Geraldine Macpherson looks at the legal implications of your marriage contract.

Liberty had to make the tough decision to end the Own your Life Rewards programme. This is how it will affect our members.

If the thought of saving money automatically translates into a feeling of deprivation – think again! Here are five no-fuss ways to maintain your lifestyle and save money.

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