2012 Budget tax implications for investors
Johannesburg, 13 March 2012
By Marteen Michau
The Finance Ministry’s 2012 Budget Speech was well structured, fair, efficient, transparent, certain and uncomplicated, but will undoubtedly bring ramifications for high net worth investors. This is according to Marteen Michau, head of Sanlam Private Investments’ (SPI) Fiduciary and Tax division, who presented at the SPI Quarterly Investment Briefing this morning.
According to Michau, a flurry of analysis concludes that overall the Budget was well-structured towards its stated goals of sustainable social reform. “But as the dust begins to settle, we’ve taken a closer look at the salient implications for investors, particularly high net worth individuals,” she said.
The most notable change for investors has been that of the Dividend Withholding Tax. However Michau believes that a significant development in this regard is the leveling of playing fields in terms of tax payable on dividends earned abroad, compared to dividends earned on domestic investments. “Previously, dividends earned abroad were treated as earnings and taxed at the investor’s marginal tax rate, while dividends earned on domestic investments went untaxed,” she explains.
The new legislation introduces a dividends tax on local dividends. This tax has been set at 15 percent, while a question remains over the formula used to calculate income tax payable on foreign dividends, where an effective 10 percent tax may be levied in terms of current legislation. “This is anomalous, and the intention seems to be to impose the same tax levels across both local and foreign dividends,” says Michau.
“Either way, the tax hurdle limiting the relative attractiveness of foreign equity investments has been removed, and we expect to see a significant flow of capital abroad as investors diversify to take advantage of some excellent global investment opportunities.”
Michau also discusses the ‘small but significant’ tax reforms that were put forward in the 2012 Budget that will mostly impact high net worth individuals. Amongst these are excise duties, where a seven percent ad valorem excise duty will, from October, apply to items such as private airplanes and helicopters less than five tones, as well as 10 percent for boats exceeding 10 metres.
Tax exemptions also fall under tax reforms. “Certain exemptions, such as R3 700 on foreign dividends/interest, or the local equivalent of R33 000 or R22 800 (depending on the age of the investor), will be phased out as proposed tax-preferred saving vehicles are introduced,” said Michau. “For instance, individuals will be able to invest up to R30 000 a year with a R500 000 lifetime limit in certain investment vehicles on which no dividend tax or CGT will be applicable.”
Capital Gains Tax (CGT) also forms part of tax reform, where CGT for individuals and special trusts increased from an effective maximum of 10% percent to a maximum 13.33%; in the case of corporates from 14% to 18,66%; and in the case of ordinary trusts from 20% to 26,66%. “In the context of CGT levied in other countries, the additional 3,33 percent payable domestically by individuals is not, we believe, significant enough to cause us to change investment strategies.”
Content within this section: