Budget expectations for individuals

While February might be celebrated as the month of love by many, for us tax enthusiasts, it’s all about the Budget! Those of us immersed in tax affairs can attest that the onset of February is always marked by eager anticipation for what Enoch (well, currently Enoch) will unveil. The latter half of the month is then consumed by dissecting the Budget Speech and determining whether it met our expectations or left us wanting more.

As mentioned by my colleague Lance Collop in last week’s Newsletter, this is certainly the most exciting month of the year for the tax nerds in South Africa.
So, what can individuals look forward to, or alternatively, dread to hear from our Minister of Finance on 21 February 2024?

The general consensus is that, in light of 2024 being an election year, the government will try to stay on the good side of voters and is therefore unlikely to increase taxes or, heaven forbid, introduce new taxes.

With taxpayers already having to kiss their medical aid tax credits goodbye as of 1 March 2024, no further bad news on the taxing front would be welcomed by individuals.

However, the normal tax bracket creep is very likely, meaning that the tax brackets for individuals will likely be increased by the latest inflation rates.

After last year’s announcement of the one-year tax incentive on rooftop solar installations, taxpayers are hoping that this incentive is extended for a longer period and expanded to include not only the actual solar panels, but also the entire storage and energy system.

During his State of the Nation Address, President Cyril Ramaphosa proudly declared, “Through tax incentives and financial support, we have more than doubled the amount of rooftop solar capacity installed across the country in just the past year,” greatly bolstering our energy network. Despite his assurance that “the worst is behind us” regarding load shedding, it would be regrettable if the government failed to capitalise on this proven method of conserving electricity (and potentially safeguarding our planet for future generations).

The highly anticipated two-pot system on retirement funds is where individuals will only be allowed to withdraw one third of their retirement savings over their lifetime while the remaining two thirds is placed in an annuity to be benefitted from in the long-run.

There was some back and forth between National Treasury and the Standing Committee of Finance on the implementation date of the two-pot system, the outcome of which was a compromise to set the plan in motion on 1 September 2024. Hopefully Enoch will not fiddle with this implementation date again, so that retirees can start planning ahead.

Especially since South Africa’s recent grey-listing, increased focus has been placed on trusts, both in relation to its reporting obligations and taxes.

Last year’s amendment to stop the conduit principle from applying to income distributed to non-resident natural person beneficiaries of South African trusts, has caused some practical difficulties for South African trusts, as well as more tax in the pocket of the fiscus.

One cannot help but wonder how trusts will be targeted this year.

Exchange control is often an element that is missed when discussing the budget. Practitioners have been hoping since 2021 for clarity on the relaxation of the “loop” rules which was announced on 4 January 2021, but then practically tripped by the Authorised Dealers. Clarity from Exchange Control on the treatment of loop structures would greatly assist advisors and our clients with the planning of offshore structures.

The Fiscus has three ways in which to make its money, higher taxes, spending cuts or increased borrowing. From the forecast it does not look like it will make a dent in its financial deficit with tax increases, so that leaves us with spending cuts (unlikely…) and unfortunately increased borrowing. But let’s see…