The evolution of personal income tax

Gareth Stokes, FAnews Online Editor

While trawling through our inbox we stumbled across a PriceWaterhouseCoopers (PWC) Tax Alert, dated 12 June 2009. The document shares some of the changes proposed in two Draft 2009 Taxation Laws Amendment Bills recently presented to Parliament’s Standing Committee on Finance. It’s been a while since we reported on matters close to the heart of our beloved South African Revenue Services (SARS) so we though it appropriate to share some of proposals with you today.

PWC is at pains to remind readers that the items discussed aren’t final amendments, but the window for written representations from the public closes tomorrow (26 June), and we wouldn’t be surprised if most of the changes get the nod.

It’s all about administration

Many of the proposals deal with administrative issues. SARS is already softening its stance with regard to recent ruling on the submission of second provisional tax payments. They want to create a simpler method for smaller taxpayers to calculate the second payment without incurring penalties. “The exact details of the calculation mechanism and which category of taxpayer will benefit from this relief will be determined by the SARS Commissioner,” says PWC.

There are a number of entries dealing with tax refunds and settlement. Treasury wants to clarify that settlements are only made after the income tax assessments. As far as we know SARS already interprets this requirement correctly. A proposal that might worry individual taxpayers who are late / inaccurate when completing their assessments is the move by the SARS Commissioner to “institute a system of daily compounding of interest for certain types of unpaid taxes.” SARS already levies a range of punitive penalties and interest charges where taxpayers neglect their tax duties! There are also moves to bolster SARS’ position where taxpayers object to assessments of their tax liability. It seems the procedure remains “pay now, object later.” SARS will, under the new proposals, be liable for interest payments to taxpayers if an objection is upheld.

Individual taxpayers aren’t the only stakeholder under the spotlight. From the 2010/2011 tax year SARS may require employers to submit their employees’ tax reconciliations on a more frequent basis. The 2009 Taxation Laws Amendments Bills propose minor changes to certain categories in the employee/employer space too. Travel allowances – long the bane of the average personal tax payer – are the first item on the list. National Treasury wants the “deemed kilometre” rule to be deleted. PWC reminds us the rule “currently allows business travellers to simply record the overall annual total km travelled and then deem the first 18 000km to be ‘private.’ If you are one of thousands of South Africans who prefer this ‘minimum fuss method’ you’re going to be disappointed.

What human resource managers needs to know

From 1 March 2010 (the 2010/2011 tax year) you will have to keep accurate logbook records of all business kilometres travelled. This will be the only record of business mileage acceptable to SARS – no exceptions! At the same time Treasury proposes increasing the “remuneration” category of travel allowances from 60% to 80%. What this means is the few employees who still bother with the travel allowance ‘perk’ will see a slight increase in their monthly tax deduction. Of course if the travel allowance is genuine things will square up when you complete your annual personal income tax return.

We were quite interested in proposed changes under the medical expenditure category, especially in light of the huge changes that will have to be made for government to implement a national healthcare insurance. The main change is that “employer contributions to medical funds will be fully taxed as fringe benefits,” says PWC. The tax deduction will pass to the individual. Treasury has applied itself to the area of retirement funds, particularly the tax rates applicable to “withdrawals, payouts to minor beneficiaries, certain government pension benefits accrued before 1998 and fund surpluses paid to employers.” Detailed information in this regard was not supplied. SARS will also simplify rules dealing with learnership allowances (s12 H).

To end the newsletter we’ll include a couple of proposals which will no doubt be welcomed by individual taxpayers. One of these is to lift the CGT exclusion on principal residences for sales “where the proceeds do not exceed R2m.” Another involves the R3.5m estate duty abatement, which could soon be “transferred” to surviving spouses who inherit the entire deceased spouse’s estate. In other words, the abatement on the second spouse’s death would be R7m. And that – dear reader – confirms the turn of phrase: “Nothing is certain but death and taxes.”

Editor’s thoughts: While mulling over the “nothing is certain but death and taxes” line it occurred to us the average citizen probably spends more time worrying about the latter. Individuals and small business owners have to apply their minds to tax matters throughout the year. And we almost always conclude that we’re paying too much for the services we get back in return. If you could change one aspect of the personal tax environment what would it be? Add your comments below, or send them to gareth@fanews.co.za