Financial and Tax Wisdoms

How will the Budget Speech and the Income Tax amendments impact on Adjustments were made to the income tax brackets and rebates, providing relief to individuals. A third rebate was added for individuals who are 75 years and older, giving additional relief to them.

Individuals and special trusts

0 - 150 000    18% of taxable income
150 001 - 235 000  27 000  + 25% of taxable income above 150 000
235 001 - 325 000  48 250  + 30% of taxable income above 235 000
325 001 - 455 000  75 250 + 35% of taxable income above 325 000
455 001 - 580 000  120 750 + 38% of taxable income above 455 000
580 001 and above  168 250 + 40% of taxable income above 580 000

Tax Rebates

Primary  R10 755
Secondary - Persons 65 and older R 6 012
Tertiary - Persons 75 and older R 2 000

Tax Thresholds

Person under 65 R 59 750
Persons from 65 to 74 R 93 150
Persons 75 and older R104 261

The taxation of personal service providers on the payroll remain unchanged, with PSP companies being taxed at 33% and PSP trusts being taxed at 40%.

Medical aid cap amounts
The cap amounts which must be used when calculating the medical aid tax deductible value on the payroll has increased to R720 for main member and first dependant and R440 for each additional dependant. This gives individuals a slightly greater medical aid benefit on the payroll, lowering the balance of remuneration value on which tax must be calculated.

Travel allowances and travel reimbursements
The table used to calculate the rate per kilometre when determining a travel allowance and the rate per kilometre at which kilometres may be reimbursed has changed. These changes will result in a higher rate per kilometre value for motor cars to the advantage of individuals using their private vehicles for business purposes and also individuals covering all private fuel expenses when making use of company cars.

Employers are advised to recalculate the value of travel allowances based on the estimated kilometres for the new tax year and using the new kilometre rates.

The determined rate per kilometre used for the reimbursement of business kilometres should not be greater than R3.05 (was R2.92) or the rate as derived from the table.

Value of vehicle (incl VAT) Fixed cost Fuel cost Maintenance cost
(Rands) (Rand per annum) (Cents per kilometre) (Cents per kilometre)

0 – 60 000 19 492 64.6 26.4
60 001 – 120 000 38 726 68.0 29.2
120 001 – 180 000 52 594 71.3 31.9
180 001 – 240 000 66 440 77.7 35.0
240 001 – 300 000 79 185 87.0 44.7
300 001 – 360 000 91 873 93.9 54.2
360 001 – 420 000 105 809 100.9 65.8
420 001 – 480 000 119 683 113.1 67.6
480 000+ 119 683 113.1 67.6

Company cars
The amendments to paragraph 7 of the 7th schedule to the Income Tax Act resulted in substantial changes to the calculation of the use of motor vehicle fringe benefit. All employers will have to revalue the use of motor vehicle fringe benefit values in March 2011. Par (cB) was added to the definition of remuneration, affecting the taxation of the use of motor vehicle fringe benefit.

The determined car value now includes VAT. The value of any maintenance plan must also be included, if the car was subject to a maintenance plan when the employer bought, leased or obtained the right to use the car. Depreciation of the determined value is still allowed at 15% for each completed year between the date the employer first obtained the right to use the car and the date the employee first obtained the right to use the car.

The fringe benefit value is now calculated as 3.5% of the determined value. If the determined value includes a maintenance plan, then the fringe benefit value is calculated as 3.25% of the determined value.

The taxable value of the fringe benefit is now 80% (was 100%). If the employee uses the car at least 80% for business, then the taxable value of the fringe benefit may be reduced to 20%. If employers opt to apply the 20% taxation option, it is advisable to have proper administrative procedures in place to ensure that the use of the motor vehicle is strictly monitored, as the risk should not be taken to apply the 20% taxation option if the employer is not assured that the vehicle is used at least 80% for business.

In the past employees received relief on the payroll for payment of private fuel and all maintenance expenses. This relief is no longer available in the payroll and must now be claimed by the employee on assessment. Claims on assessment include the reduction of the fringe benefit value based on the ratio of private kilometres to total kilometres travelled, costs relating to license, insurance and maintenance if the full cost is carried by the employee and the reduction of the fringe benefit value if the full cost of private fuel is carried. It is required for the employee to keep a logbook in order to make these claims on assessment, as all the claims are based on ratios of private and business kilometres.

Travel allowances
Amendments were made to paragraph (cA) of the definition of remuneration in the 4th schedule to the Income Tax Act.

The taxable value of the travel allowance is still 80%. If the employee uses the car at least 80% for business, then the taxable value of the travel allowance may be reduced to 20%. If employers opt to apply the 20% taxation option, it is advisable to have proper administrative procedures in place to ensure that the use of the employee’s motor vehicle is strictly monitored, as the risk should not be taken to apply the 20% taxation option if the employer is not assured that the vehicle is used at least 80% for business.

Official rate of interest – Low interest loan calculation
The official rate of interest, as defined in paragraph 1 of the 7th schedule to the Income Tax Act, is the interest rate to be used when determining the benefits in respect of interest on loans. This percentage used to be a value which was gazetted from time to time. From March 2011, the percentage to use when determining the benefit is the repurchase rate (currently 5.5%) plus 1%.

R30 000 employer lumpsum benefit
Section 10(1)(x) of the Income Tax Act provided for employees to receive a cumulative R30 000 tax free benefit on lump sums paid in respect of termination of service. This section of the act has now been deleted, and these termination lump sums will be treated in the same way as fund lump sums.

Employer owned insurance policies
Changes have been made to the taxation of employer owned insurance policies. This may result in the taxation of these company contributions (such as deferred compensation schemes and income replacement policies) on the payroll. Please refer to the letters sent out by your insurance firm, clarifying the changes related to your specific contributions.

Subsistence allowance
The deemed subsistence amounts have increased from March 2011 to:
• R88 per day for incidental expenses only and
• R286 per day for meals and incidentals.

Karen Schmikl, Legislation Manager at VIP Payroll, gives you some insight on the affect that the budget speech and Income Tax Act amendments have on your payroll from March 2011.