It’s that time of the year again where we sit down and listen to the way our taxes will be spent over the course of the next fiscal year. So what did the budget speech uncover and how does it affect your financial planning?

Tax Proposals

Government seemed to be mindful of the need to moderate the impact of tax increases on households in the present economic climate. The tax changes that affect financial planning include an increase in the effective capital gains tax rates for individuals and companies.

Estate duty and donations tax remains unchanged; however the minister alluded to changes in the future, including a reform of health insurance in the form of a National Health Insurance Scheme.

Unexpected tax introductions included:

  • a tyre levy; and
  • a tax on sugar-sweetened beverages.

Let’s take a closer look at the changes as well as the corresponding opportunities that this year’s budget speech provides you with:


In respect of Capital Gains Tax, a higher inclusion rate was implemented:

  • Individuals and special trusts from 33.3% to 40%;
  • Companies and closed corporations 66.6% to 80%; and
  • Ordinary trusts from 66.6% to 80%.

Resulting in the effective rates now being:

  • Individuals and special trusts from 13.6% to 16.4%;
  • Companies and closed corporations 18.6% to 22.4%; and
  • Ordinary trusts from 27,3% to 32,8%.

On the plus side, the annual exclusion for a Capital Gain or a Capital Loss for individuals and special trusts has increased from R30 000 to R40 000 per annum.


From a planning perspective individuals and trusts stand to benefit from the preferential tax rates when investing in a vehicle such as an endowment policy allocated to Liberty Life’s Individual Policyholder Fund. In terms of the Five Fund approach, the income tax rate in the Individual Policyholder Fund remains at 30% (as opposed to the highest individual marginal tax rate of 41%) and the effective CGT rate is now at 12% (as opposed to the highest effective CGT rate of 16.4% for individuals and 32.8% for trusts).

Remember that from an estate planning perspective, we need to be mindful of the CGT impact on a deceased estate and ensure that the required risk benefits are in place to protect the estate against this impact.


Once again trusts have been put under the spotlight. In order to ensure neither estate duty nor donations tax is avoided when setting up a trust, any assets transferred through a loan to a trust are to be included in the estate of the founder at death and interest free loans to a trust are to be treated as donations.


In this regard, in the case of individuals who have trusts, we need to be mindful of the effect that the transfer of an asset to a trust might have on the estate of the founder.


Individuals with assets offshore have been warned to disclose same and are being offered a 6 month grace period beginning from 1 October 2016. In addition to this change Foreign Dividends that are received by individuals from foreign companies (shareholding of less than 10% in the foreign company), will be taxable at a maximum effective rate of 15%. No deductions will be allowed for expenditure to reduce Foreign Dividends.


From a financial planning perspective, if individuals are ordinarily resident in South Africa, they are liable to pay tax on their worldwide income. This tax liability extends to estate duty on their worldwide estate, so individuals are encouraged to make use of the grace period and ensure that proper estate planning and disclosure is done.


The Revenue Laws Amendment Bill 2016 introduced today gives effect to the decision by Cabinet last week to postpone the annuitisation requirement for provident fund members for two years to allow for further consultation with key stakeholders. In addition, the ability to transfer benefits tax –free from pension funds to provident funds will also be postponed for two years.

Other aspects of the retirement reform changes however will continue to be implemented from 1 March 2016. These included the increased deductibility of pension, provident and retirement annuity contributions to 27.5% of the greater of remuneration or taxable income capped at R350,000. The increase in the commutation amount from R75,000 to R247,500 will also be increased with effect from 1 March 2016.


You are in a unique position to be informed about these retirement reform changes. There is no need for panic and to resign from your job. Preserve your retirement funds and don’t put your livelihood at risk.

To sum it up in the words of Minister Pravin Gordhan: “We are resilient. We are committed. We are resourceful.”

Should you have any concerns about the the Budget in terms of how it affects your financial planning, or if you wish to discuss appropriate and timely changes to your financial planning, simply contact us for expert, professional advice.

Here are a few handy downloads for your perusal:


Adapted from an article by, and credit given to, the Liberty Life Legal Marketing Team