South African taxpayers will be paying more taxes on their personal incomes to help the government raise revenue. The bottom line is that for individual taxpayers the message is mixed – there will be relief for low- to middle-income earners, but an increased income tax burden for the middle-to high-income earners.

Healthcare

“Medical scheme contribution tax credits have also been increased marginally and while this is a form of some tax relief, it needs to be considered in the context of what potential increases in fringe benefit taxation on employer contributions to medical schemes means for tax payers. The 2015 budget confirmed that the medical scheme contribution tax credit increased with R13, from R257 to R270 per month for the first two beneficiaries and R9 from R172 to R181 per month in respect of each additional beneficiary,” explains Gavin Griffin, Business Unit Head of Aon Hewitt’s Employee Benefits Solutions division.

“The budget also referenced that health spending will reach R178billion in 2017/2018. What is still a concern is the fact that the State’s total healthcare spend vs outcome is still higher than that of world health organisation spend and outcome figures, which in my opinion does not deliver the same Return On Investment (ROI) that you would expect,” says Gavin.

“No comment was made on the funding of the proposed National Health Insurance (NHI) project, other than a mention about a discussion paper on financing options that ‘will be released shortly by the National Treasury to accompany the NHI white paper’,” he adds.

Medical Expense Deductions

Up until the end of the current tax year (2014), taxpayers were entitled to a deduction for qualifying medical expenses - other than medical fund contributions – that were not recovered from the medical scheme. The deduction was determined using a specific formula in the Income Tax Act.

“However, from 1 March 2014, this deduction has been replaced by a credit, which is more favourable to taxpayers who are 65 years and older and taxpayers below age 65 who are disabled or who has a dependent with a disability,” says Gavin.

Retirement

Leslie Primo from Aon Hewitt’s Retirement Funding division says the announcements that were made at the 2015 budget discussion relating to the retirement fund industry are very scant. But in a Taxation Laws Amendment Act (TLAA) The Taxation Laws Amendment Act, 2014 Bill was passed into law on 22 January 2015 and the following tax changes announced in the TLAA will be effective from 1 March 2015:

Tax-Free-Savings and Investment Accounts (TFSAs)

“The Minister confirmed that with effect from 1 March 2015, the new tax-free-savings and investment accounts (TFSAs) will be available to the South African market, allowing individuals to invest in tax-exempt savings accounts,” says Leslie.  “These accounts will have an initial contribution limit of R30 000 per annum, to be increased regularly in line with inflation, and a lifetime contribution limit of R500 000.”

“The TFSA will allow investments in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds. Eligible service providers will include banks, asset managers, life insurers and brokerages,” says Leslie.

“The investment returns on these savings will not be subject to income or dividends tax,” he adds. “Individuals will be allowed to open multiple tax free savings accounts and can withdraw funds from the tax free savings accounts, although these withdrawals could affect the individual's lifetime limit,” Leslie cautions.

“If individuals make contributions into their TFSA which are over the annual or lifetime contribution limit in any year, additional income tax of 40% on the excess contributions must be paid by the individual to SARS,” explains Leslie.

Retirement Benefit Accrual Date

With effect from 1 March 2015, the date at which lump sum benefits are made payable to a member will no longer be dependent on a fund's normal retirement age. “Lump sum retirement benefits will accrue for tax purposes on the date that a member elects to receive his or her lump sum retirement benefit. Funds will need to apply to SARS for a tax directive on the retirement benefit at the date the member makes his or her election. The lump sum benefit communicated to SARS must match the amount in the fund at the date of the member's chosen date of retirement,” explains Leslie.

Disability and Life Policies

National Treasury has set out to align the tax position of all disability and life policies and these will now be taxed in the same way. “From 1 March 2015, an employee will no longer be able to claim a deduction on the premiums paid to both lump sum (group life) and income replacement disability policies, but the benefits will be paid out to the employee tax-free,” explains Leslie.

“If the policy is in the name of the employer (i.e. employer owned) and the premiums are paid by the employer in terms of the policy, the premiums will be taxed as a fringe benefit in the hands of the employee. However, the benefits will be paid out to the employee tax-free,” he adds.

Significant progress has been made in relation to retirement reforms and consultations with NEDLAC will continue in this regard.  “The Minister announced that the first draft of default regulations on retirement reforms will be issued shortly for public comment.  He further reiterated that these reforms have one central objective, namely to maximise the long-term benefits to retirement fund members to enable them to retire comfortably,” concludes Leslie.