INCOME TAX AMENDMENTS 2023/2024

by | Mar 1, 2023

Last week, Minister of Finance Enoch Godongwana, delivered the second Budget speech of his term, setting out the government’s tax and spending plans for the year ahead. Two tax measures were announced to encourage businesses and individuals to invest in renewable energy and increase electricity generation, the first being targeted at business and the second at individuals.

From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables. There will be no thresholds on the size of the projects that qualify, and the incentive will be available for two years to stimulate investment in the short term.

Individuals who install rooftop solar panels from 1 March 2023 will be able to claim a rebate of 25% of the cost of the solar panels, up to a maximum of R15 000. The rebate is a reduction of the actual tax liability in the 2023/24 tax year, which makes it more valuable than a deduction. This incentive will be available for one year and is only available in respect of “new and unused solar panels”, i.e., it does not include inverters, batteries and costs of installation.

INDIVIDUALS

Personal Income Tax and CGT

Individuals earning more than R1.817 million of taxable income per year will be taxed at 45%, with the top effective rate of CGT remaining at 18%. This gives an average tax rate of 35.5%. The first R40 000 of exempt capital gains also remains unchanged.

The personal income tax brackets and the primary, secondary and tertiary rebates will be increased by 4.9%.

2023/2024

Taxable income (R) ​Rates of tax (R)

1 – 237 100                       18% of taxable income

237 101 – 370 500             42 678 + 26% of taxable income above 237 100

370 501 – 512 800             77 362 + 31% of taxable income above 370 500

512 801 – 673 000             121 475 + 36% of taxable income above 512 800

673 001 – 857 900             179 147 + 39% of taxable income above 673 000

857 901 – 1 817 000           251 258 + 41% of taxable income above 857 900

1 817 001 and above         644 489 + 45% of taxable income above 1 817 000

Rooftop Solar Tax Incentive

To further alleviate the energy crisis, government has proposed a rooftop solar incentive for individuals to invest in solar PV to supplement electricity supply. This incentive is only available for one year to encourage investment as soon as possible.

In terms of this incentive, individuals will be able to receive a tax rebate to the value of 25% of the cost of any new and unused solar PV panels up to a maximum of R15 000 per individual, which translates into a maximum capital cost of R60 000, provided that the solar panels are purchased and installed at a private residence, and a certificate of compliance for the installation has been issued 1 March 2023 to 29 February 2024. As mentioned above, as this is a rebate it results in a tax reduction of up to R15 000.

Two-pot retirement system

Following extensive public consultation, several legislative amendments to the retirement system have been affected. The intention of these legislative changes is to enable pre-retirement access to a portion of one’s retirement assets, while preserving the remainder for retirement.

It is worth noting that despite government’s intention to promote retirement savings, there exists a foreign investment limit of 45% for institutional investors, such as retirement funds. Accordingly, individuals investing into a South African retirement fund will have their foreign asset exposure capped at 45%. This limitation is one of the main reasons why high-income earners are investing foreign pension products directly, where there are no limits on foreign asset exposure.

Withdrawal increases to retirement fund lump sum benefits or severance benefits

2023/24

Taxable Income (R)         Rate of tax (R)

0 – 550 000                        0% of taxable income

550 001 – 770 000           18% of taxable income above 550 000

770 001 – 1 155 000        39 600 + 27% of taxable income above 770 000

1 155 001 and above      143 550 + 36% of taxable income above 1 155 000

Apportioning the tax-free investment contribution limitation and limiting the
retirement funds contributions deduction

In the normal course, an individual’s year of assessment starts on 1 March and ends on 28 February of the following year. However, when an individual ceases to be a tax resident, that individual’s year of assessment is deemed to have ended on the day immediately before the day on which that individual ceased to be resident, and a new year of assessment is deemed to start on the day on which that individual ceased to be a tax resident. This results in the creation of two years of assessment during a single twelve-month tax period.

Consequently, individuals who ceased to be a tax resident were in a position to claim certain annual exemptions (such as the annual interest exemption) and certain annual exclusions (such as the capital gains tax annual exclusion) twice in a single twelve-month tax period (i.e., once in the “year of assessment” from 1 March to the date before their cessation of tax residence and again in the “year of assessment” starting on the date of their cessation of tax residence to 28 February).

While the annual interest exemption and capital gains tax exclusion were amended in 2022 to ensure that the annual interest exemption was appropriately apportioned and the capital gains tax annual exclusion was limited in such circumstances, certain other provisions of the Income Tax Act were not similarly amended.

It is proposed that changes be made to apportion the tax-free investment contribution limitation and to apportion the annual limit on the deduction of the retirement funds contributions in situations where two years of assessment are created in a single twelve-month tax period following an individual ceasing to be a tax resident.

Transfers between retirement funds by members who are 55 years or older

Currently, there are still instances in which a person who had reached normal retirement age but has not yet opted to retire from a retirement fund is subject to an involuntary transfer to another retirement fund and this transfer is taxable.

It is proposed that members of retirement funds who have reached the normal retirement age stipulated in the rules of the fund but have not yet opted to retire will be able to transfer their retirement interest to a more restrictive retirement fund without incurring a tax liability. The value of this retirement interest and the future growth will remain ringfenced in the retirement fund until the member elects to retire.

CORPORATE TAX 

Corporate tax rate 

In 2022, the corporate tax rate was reduced to 27% for companies with years of assessment ending on or after 31 March 2023.

The commencement date for the reduced corporate rate coincided with assessed loss limitation rules in terms of which corporate taxpayers will only be allowed to claim assessed losses against 80% of their income, as well as the interest limitation rules.

For more information on the abovementioned changes, please feel free to direct your query to Kirsten at kirsten@resolutewealth.co.za