Taxation Laws Amendment Bill, 2009: Explanatory Memorandum

124 Pages·2009·0.54 MB·English

REPUBLIC OF SOUTH AFRICA

EXPLANATORY MEMORANDUM

ON THE

TAXATION LAWS AMENDMENT BILL, 2009

(SUBMITTED TO THE STANDING COMMITTEE ON FINANCE
10 SEPTEMBER 2009)

[W.P. –- ‘09]
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TABLE OF CONTENTS

EXPLANATION OF MAIN AMENDMENTS
1.  INCOME TAX: RATES AND THRESHOLDS (Appendix I) ............................................. 1 
2.  INCOME TAX: INDIVIDUALS AND EMPLOYMENT ..................................................... 10 
2.1.  TRAVEL (CAR) ALLOWANCES: REPEAL OF DEEMED KILOMETRE
METHOD ............................................................................................................. 10 
2.2.  UNIFICATION OF EMPLOYMENT-RELATED MEDICAL SCHEME
CONTRIBUTIONS ............................................................................................... 13 
2.3.  RETIREMENT LUMP SUM BENEFIT CALCULATIONS ................................... 14 
2.4.  MINOR BENEFICIARY FUNDS .......................................................................... 15 
2.5.  REMEDIAL RECOGNITION OF PRE-1998 BENEFITS FOR PUBLIC
SERVANTS ......................................................................................................... 17 
2.6.  TREATMENT OF UNREALISED GAINS ON DEATH ........................................ 18 
2.7.  LEARNERSHIP ALLOWANCE SIMPLIFICATION ............................................. 19 
2.8.  EMPLOYER-PROVIDED POST-RETIREMENT MEDICAL SCHEME
COVERAGE ........................................................................................................ 23 
2.9.  DEDUCTIBILITY OF EMPLOYER CONTRIBUTIONS TO RETIREMENT
ANNUITY FUNDS ............................................................................................... 24 
2.10.  PAYOUTS OF EMPLOYER PENSION SURPLUSES ....................................... 25 
3.  INCOME TAX: BUSINESS .............................................................................................. 26 
3.1.  EXEMPTION FOR CERTIFIED EMISSION REDUCTIONS .............................. 26 
3.2.  SPECIAL ALLOWANCE FOR ENERGY EFFICIENCY SAVINGS .................... 29 
3.3.  DIVIDENDS TAX: GENERAL PRINCIPLES ..................................................... 31 
3.4.  DIVIDENDS TAX: WITHHOLDING ..................................................................... 40 
3.5.  DIVIDENDS TAX: PRE-SALE DIVIDENDS/DIVIDENDS STRIPPING .............. 47 
3.6.  DIVIDENDS TAX: VALUE EXTRACTION TAX ................................................. 49 
3.7.  COLLECTIVE INVESTMENT SCHEMES IN SECURITIES: CONDUIT
PRINCIPLES IN RESPECT OF ORDINARY DISTRIBUTIONS ........................ 56 
3.8.  TELECOMMUNICATIONS LICENSE CONVERSION ....................................... 58 
3.9.  INTERNATIONAL SUBMARINE TELECOMMUNICATIONS CABLES ............. 60 
3.10.  IMPROVEMENTS ON LEASED GOVERNMENT LAND ................................... 62 
3.11.  DEPRECIATION ON IMPROVEMENTS ............................................................ 63 
3.12.  ADJUSTING RING-FENCING OF LOSSES FOR LEASING ............................. 64 
3.13.  CROSS-ISSUE AVOIDANCE – REMEDYING UNINTENDED ANOMALY ....... 65 
3.14.  TRANSFER OF A PRIMARY RESIDENCE FROM A COMPANY OR TRUST . 67 
3.15.  SHELF COMPANY START UPS AND SMALL BUSINESS RELIEF ................. 68 
3.16.  OIL AND GAS INCENTIVES AND ANCILLARY TRADES ................................ 69 
3.17.  VENTURE CAPITAL COMPANY REFINEMENTS ............................................ 71 
4.  INCOME TAX: INTERNATIONAL .................................................................................. 73 
4.1.  CONVERSION OF THE CONTROLLED FOREIGN COMPANY (CFC) RULING
EXEMPTIONS ..................................................................................................... 73 
4.2.  DIVIDENDS TAX: FOREIGN PORTFOLIO DIVIDENDS ................................... 78 
4.3.  REPEAL OF FOREIGN LOOP EXEMPTION ..................................................... 79 
4.4.  DEDUCTIONS RELATING TO OFFSHORE SHORT-TERM INSURANCE
RESERVES ......................................................................................................... 81 
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5.  INCOME TAX: SPECIALISED ENTITIES AND CIRCUMSTANCES ............................ 82 
5.1.  AGRICULTURAL TRUSTS ................................................................................. 82 
5.2.  FSB CONSUMER EDUCATION FOUNDATION ............................................... 83 
5.3.  TAX RELIEF FOR PUBLIC BENEFIT ORGANISATIONS AND
RECREATIONAL CLUBS: RETROSPECTIVE APPROVAL ............................. 85 
5.4.  TRANSITIONAL PERIOD FOR REVISED TAXATION OF CLUBS................... 86 
5.5.  DE MINIMIS THRESHOLDS FOR BODIES CORPORATE, SHARE BLOCK
COMPANIES AND HOME OWNERS ASSOCIATIONS .................................... 87 
5.6.  CONVERTED SECTION 21 COMPANIES ........................................................ 87 
5.7.  FILM CASH SUBSIDIES ..................................................................................... 88 
6.  OTHER TAXES ................................................................................................................ 89 
6.1.  ESTATE DUTY: PORTABLE SPOUSAL DEDUCTION ..................................... 89 
6.2.  TRANSFER DUTY: INDIRECT TAX TREATMENT OF SHARE BLOCK
COMPANIES ....................................................................................................... 90 
6.3.  VALUE-ADDED-TAX: IMPACT OF VALUE-ADDED TAX ON RE-
ORGANISATIONS .............................................................................................. 92 
7.  SPECIAL MEASURES RELATING TO THE SHARING OF GENERAL FUEL LEVY
REVENUE ....................................................................................................................... 95 

CLAUSE BY CLAUSE EXPLANATION ........................................................... 97 

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1. 1 INCOME TAX: RATES AND THRESHOLDS (Appendix I)
Table I: Current rates for individuals and special trusts:
Taxable Income Rate of Tax
Not exceeding R122 000 18 per cent of taxable income
Exceeding R122 000 but not exceeding R195 000 R21 960 plus 25 per cent of the amount by which
the taxable income exceeds R122 000
Exceeding R195 000 but not exceeding R270 000 R40 210 plus 30 per cent of the amount by which
the taxable income exceeds R195 000
Exceeding R270 000 but not exceeding R380 000 R62 710 plus 35 per cent of the amount by which
the taxable income exceeds R270 000
Exceeding R380 000 but not exceeding R490 000 R101 210 plus 38 per cent of the amount by which
the taxable income exceeds R380 000
Exceeds R490 000 R143 010 plus 40 per cent of the amount by which
the taxable income exceeds R490 000

Table II: Proposed rates for individuals and special trusts:
Taxable income Rate of tax
Not exceeding R132 000 18 per cent of the taxable income
Exceeding R132 000 but not exceeding R210 000 R23 760 plus 25 per cent of amount by which
taxable income exceeds R132 000
Exceeding R210 000 but not exceeding R290 000 R43 260 plus 30 per cent of amount by which
taxable income exceeds R210 000
Exceeding R290 000 but not exceeding R410 000 R67 260 plus 35 per cent of amount by which
taxable income exceeds R290 000
Exceeding R410 000 but not exceeding R525 000 R109 260 plus 38 per cent of amount by which
taxable income exceeds R410 000
Exceeds R525 000 R152 960 plus 40 per cent of amount by which
taxable income exceeds R525 000

Table III: Current rate for trusts (no change proposed):
Taxable Income Rate of Tax
All taxable income 40 per cent of the taxable income

Table IV: Current rate for companies (no change proposed):
Taxable Income Rate of Tax
All taxable income 28 per cent of the taxable income

Table V: Current rates for small business corporations:
Taxable Income Rate of Tax
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Not exceeding R46 000 0 per cent of taxable income
Exceeding R46 000 but not exceeding R300 000 10 per cent of the amount by which the taxable
income exceeds R46 000
Exceeding R300 000 R25 400 plus 28 per cent of the amount by which
the taxable income exceeds R300 000

Table VI: Proposed rates for small business corporations:
Taxable Income Rate of Tax
Not exceeding R54 200 0 per cent of taxable income
Exceeding R54 200 but not exceeding R300 000 10 per cent of the amount by which the taxable
income exceeds R54 200
Exceeding R300 000 R24 580 plus 28 per cent of the amount by which
the taxable income exceeds R300 000

Table VII: Current rates for registered micro businesses (no change proposed):
Taxable turnover Rate of tax
Not exceeding R100 000 0 per cent of taxable turnover
Exceeding R100 000 but not exceeding R300 000 R1 per cent of amount by which taxable turnover
exceeds R100 000
Exceeding R300 000 but not exceeding R500 000 R2 000 plus 3 per cent of amount by which taxable
turnover exceeds R300 000
Exceeding R500 000 but not exceeding R750 000 R8 000 plus 5 per cent of amount by which taxable
turnover exceeds R500 000
Exceeds R750 000 R20 500 plus 7 per cent of amount by which
taxable turnover exceeds R750 000

Table VIII: Current rates for gold mining companies (no change proposed):
Taxable Income Rate of Tax
On gold mining taxable income See formula in paragraph 4(b) of Appendix I
On non gold mining taxable income 28 per cent of the taxable income
On non gold mining taxable income if exempt from 35 per cent of the taxable income
STC
On recovery of capital expenditure Greater of average rate or 28 per cent of the
taxable income

Table IX: Current rate for PBO company and trusts (no change proposed):

Taxable Income Rate of Tax
All taxable income 28 per cent of the taxable income

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Table X: Current rate for employment companies (no change proposed)
Taxable Income Rate of Tax
All taxable income 33 per cent of taxable income

Table XI: Current rate for company personal service providers (no change proposed)
Taxable Income Rate of Tax
All taxable income 33 per cent of taxable income

Table XII: Current rates for long-term insurance companies (no change proposed)
Taxable Income Rate of Tax
Taxable income of individual policyholder fund 30 per cent of taxable income
Taxable income of company policyholder fund 28 per cent of taxable income
Taxable income of corporate fund 28 per cent of taxable income

Table XIII: Current rate for non-resident companies (no change proposed):
Taxable Income Rate of Tax
All taxable income from South African source 33 per cent of taxable income
Table XIV: Proposed rates for retirement lump sum withdrawal benefits
Taxable income from benefits Rate of tax
Not exceeding R22 500 0 per cent of taxable income
Exceeding R22 500 but not exceeding R600 000 18 per cent of taxable income exceeding R22 500
Exceeding R600 000 but not exceeding R900 000 R103 950 plus 27 per cent of taxable income
exceeding R600 000
Exceeding R900 000 R184 950 plus 36 per cent of taxable income
exceeding R900 000

Table XV: Proposed rates for retirement lump sum benefits
Taxable income from benefits Rate of tax
Not exceeding R300 000 0 per cent of taxable income
Exceeding R300 000 but not exceeding R600 000 R0 plus 18 per cent of taxable income exceeding
R300 000
Exceeding R600 000 but not exceeding R900 000 R54 000 plus 27 per cent of taxable income
exceeding R600 000
Exceeding R900 000 R135 000 plus 36 per cent of taxable income
exceeding R900 000
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Table XVI: Current rebates
Description Amount
Primary rebate R8 280
Secondary rebate R5 040

Table XVII: Proposed rebates
Description Amount
Primary rebate R9 756
Secondary rebate R5 400

Income Tax: Monetary thresholds subject to periodic legislative change:
Table XVIII: General savings thresholds
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Broad-based employee share schemes
Maximum exemption for shares received by an Definition of “qualifying equity R50 000
employee in terms of a broad-based employee share share” in section 8B(3)
plan
Maximum deduction for shares issued by an The proviso to section 11(lA) R10 000
employer in terms of a broad-based employee share
plan
Exemption for interest and certain dividends
Exemption for foreign dividends and interest from a Section 10(1)(i)(xv)(aa) R3 500
source outside the Republic which are not otherwise
exempt
In respect of persons 65 years or older, exemption for Section 10(1)(i)(xv)(bb)(A) R30 000
interest from a source within the Republic which are
not otherwise exempt
In respect of persons younger than 65 years, Section 10(1)(i)(xv)(bb)(B) R21 000
exemption for interest from a source within the
Republic which are not otherwise exempt
Annual donations tax exemption
Exemption for donations made by entities Section 56(2)(a) and the proviso R10 000
thereto
Exemption for donations made by individuals Section 56(2)(b) R100 000
Capital gains exclusions
Annual exclusion for individuals and special trusts Paragraph 5(1) of Eighth Schedule R17 500
Exclusion on death Paragraph 5(2) of Eighth Schedule R120 000
Exclusion in respect of disposal of primary residence Paragraph 45(1)(a) of Eighth R1,5 million
(based on amount of capital gain or loss on disposal) Schedule
Exclusion in respect of disposal of primary residence Paragraph 45(1)(b) of Eighth R2 million
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Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
(based on amount of proceeds on disposal) Schedule
Maximum market value of all assets allowed within Definition of “small business” in R5 million
definition of small business on disposal when person paragraph 57(1) of Eighth
over 55 Schedule
Exclusion amount on disposal of small business Paragraph 57(3) of Eighth R750 000
when person over 55 Schedule

Table XIX: Retirement savings thresholds
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Deductible retirement fund contributions
Pension fund monetary ceiling for contributions Proviso to section 11(k)(i) R1 750
Pension fund monetary ceiling for arrear contributions Paragraph (aa) of proviso to R1 800
section 11(k)(ii)
Retirement annuity fund monetary ceiling for Section 11(n)(aa)(B) R3 500
contributions (if also a member of a pension fund)
Retirement annuity fund monetary ceiling for Section 11(n)(aa)(C) R1 750
contributions (if not a member of a pension fund)
Retirement annuity fund monetary ceiling for arrear Section 11(n)(bb) R1 800
contributions
Permissible lump sum withdrawals upon retirement
Pension fund monetary amount for permissible lump Paragraph (ii)(dd) of proviso to R50 000
sum withdrawals paragraph (c) of definition of
“pension fund” in section 1
Retirement annuity fund monetary amount for Paragraph (b)(ii) of proviso to R50 000
permissible lump sum withdrawals definition of “retirement annuity
fund” in section 1
Table XXI: Deductible business expenses for individuals
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Car allowance
Ceiling on vehicle cost Section 8(1)(b)(iiiA)(bb)(A) R400 000
Ceiling on debt relating to vehicle cost Section 8(1)(b)(iiiA)(bb)(B) R400 000

Table XXII: Employment-related fringe benefits
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Exempt scholarships and bursaries
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Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Annual ceiling for employees Paragraph (ii)(aa) of proviso to R100 000
section 10(1)(q)
Annual ceiling for employee relatives Paragraph (ii)(bb) of proviso to R10 000
section 10(1)(q)
Exempt termination benefits Section 10(1)(x) R30 000
Medical scheme contributions
Monthly ceiling for schemes with one beneficiary Section 18(2)(c)(i)(aa) and R625
paragraph 12A(1)(a) of Seventh
Schedule
Monthly ceiling for schemes with two beneficiaries Section 18(2)(c)(i)(bb) and R1 250
paragraph 12A(1)(b) of Seventh
Schedule
Additional monthly ceiling for each additional Section 18(2)(c)(i)(cc) and R380
Beneficiary paragraph 12A(1)(c) of Seventh
Schedule
Awards for bravery and long service Paragraphs (a) and (b) of further R5 000
proviso to paragraph 5(2) of
Seventh Schedule
Employee accommodation Paragraph 9(3)(a)(ii) of Seventh R54 200
Schedule
Accommodation for expatriate employees Paragraph 9(7B)(ii) of Seventh R25 000
Schedule
Exemption for de minimis employee loans Paragraph 11(4)(a) of Seventh R3 000
Schedule
Additional employer deductions for Learnerships
Monetary ceiling of additional deduction for the Section 12H(i) R30 000
employer when utilising a learnership agreement with
an employee
Monetary ceiling of additional deduction for the Section 12H(2) and (3) R30 000
employer in the case of an employee completing a
learnership agreement
Monetary ceiling of additional deduction for the Section 12H(4) R20 000
employer involving a learnership agreement with an
employee with a disability

Table XXIII: Depreciation
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Small-scale intellectual property Paragraph (aa) of proviso to R5 000
section 11(gC)
Urban Development Zone incentive Section 13quat(10A) R5 million

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Table XXIV: Miscellaneous
Description Reference to Monetary
(The contents of this column are solely for Income Tax Act, 1962 amount
convenience and shall be of no force or effect)
Low-cost housing
Maximum cost of residential unit where that Paragraph (a) of definition of “low- R250 000
residential unit is an apartment in a building cost residential unit” in section 1
Maximum cost of residential unit where that Paragraph (b) of definition of “low- R200 000
residential unit is a building cost residential unit” in section 1

Industrial policy projects
Maximum additional investment allowance in the Section 12I(3)(a) R900 million
case of greenfield projects with preferred status
Maximum additional investment allowance in the Section 12I(3)(a) R550 million
case of other greenfield projects
Maximum additional investment allowance in the Section 12I(3)(b) R550 million
case of brownfield projects with preferred status
Maximum additional investment allowance in the Section 12I(3)(b) R350 million
case of other brownfield projects
Maximum additional training allowance (per Section 12I(5)(a) R36 000
employee)
Maximum additional training allowance in the case of Section 12I(5)(b)(i) R30 million
industrial policy projects with preferred status
Maximum additional training allowance in the case of Section 12I(5)(b)(ii) R20 million
other industrial policy projects
Minimum cost of manufacturing assets for greenfield Section 12I(7)(a)(i)(aa) R200 million
projects
Amounts to be taken into account in determining Section 12I(7)(a)(i)(bb)(A) R30 million
whether an industrial project constitutes a brownfield
Section 12I(7)(a)(i)(bb)(B) R200 million
project
Venture capital companies
Annual deduction limit (natural persons) Section 12J(3)(a) R750 000
Lifetime deduction limit (natural persons) Section 12J(3)(a) R2.25 million
36 months minimum investment (in respect of the Section 12J(6A)(a)(i) R150 million
acquisition of qualifying shares in a junior mining
company)
36 months minimum investment (in respect of the Section 12J(6A)(a)(ii) R30 million
acquisition of qualifying shares in companies other
than junior mining companies)
After 36 months least 80 per cent of the expenditure Section 12J(6A)(b)(i) R100 million
incurred by a venture capital company in respect of
qualifying shares in a junior mining company assets
with a book value not exceeding the amount indicated
immediately after issue
After 36 months, at least 80 per cent of the Section 12J(6A)(b)(ii) R10 million
expenditure incurred by a venture capital company in
respect of qualifying shares in company, other than a
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