South African Budget 2017 - Personal income tax

Tax rates

A new top personal income tax bracket of 45% for taxable incomes above R1.5 million per year has been introduced.

The primary, secondary and tertiary rebates and all the taxable income brackets will be increased by 1% from 1 March 2017. The new tax brackets are illustrated below:

Foreign employment income tax exemption for South African residents

The exemption on foreign employment income derived by a resident who works in a foreign country for more than 183 days will be amended so that foreign employment income will only be exempt from tax in South Africa if the employment income is subject to tax in the foreign country.

Trust and tax anti-avoidance measures

Section 7C of the Income Tax Act was introduced in 2016 as an anti-avoidance measure against the use of low-interest or interest-free loans to trusts. Currently, section 7C of the Income Tax Act applies to any loan, advance or credit that is provided to a trust by a connected person who is –

• a natural person; or

• a connected person in relation to a natural person.

It is proposed that the scope of this anti-avoidance measure be extended to cover avoidance schemes where the loan is advanced to companies owned by a trust. The anti-avoidance rule will not apply to trusts that are not used for estate planning, for example, employee share scheme trusts and some trading trusts.

Share incentive schemes

Section 8C of the Income Tax Act has been tweaked almost every year since its introduction. In 2016, new rules were introduced to regulate dividends paid to employees who participate in share-based incentive schemes.  However, these rules did not elegantly tie into the capital gains tax provisions arising from the vesting or disposal of a restricted equity instrument.  The interaction between these regimes will be clarified. 

Employer-provided bursaries

In relation to bursaries, the following increases to the thresholds are proposed –

• income eligibility threshold for employees from R400 000 to R600 000;

• the monetary limits for bursaries from R15 000 to R20 000 for education below NQF level 7; and

• the monetary limits for bursaries from R40 000 to R60 000 for qualifications at NQF level 7 and above.

Medical tax credit

The medical tax credit will be increased–

• for the first two beneficiaries from R286 to R303 per month; and

• for the remaining beneficiaries from R192 to R204 per month.

Tax-free savings accounts

The tax-free savings accounts annual allowance of R30 000 will be increased to R33 000.