The budget and you

2014-03-02 14:00

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This year Minister Gordhan announced personal tax relief of R9.25?billion. Most of this relief went to individuals earning less than R120?000 a year while for higher earners it was mostly an inflation adjustment.

Maya Fisher-French and Neesa Moodley-Isaacs look at how this year’s budget could theoretically affect three readers.

The younger earner

Jabulani is 23 years old and earns R5?700 a month, or R68?400 a year. His mother is unemployed and he has two younger sisters who are under 18.

Along with other low-income earners, Jabulani will benefit the most from the tax relief announced by government as he moves below the tax threshold, which increased to R70?700 for those younger than 65.

But it is not all good news. He spends on entertainment and his wallet will be significantly lighter as he absorbs the increase in sin taxes.

Tax changes that affect Jabulani

The good

» As a result of the tax thresholds moving up, Jabulani’s income now falls below the new threshold and he no longer pays income tax.

»?His mother and two younger sisters will benefit from the 7.4% increase in expenditure on social grants (see Page 11). The child support grant for the two girls has increased from R295 to R310 in April and then again to R320 in October.

»?Jabulani’s mum will benefit from the increase in the old age grant, which increased from R1?285 to R1?370 for persons over the age of 75. The means test threshold for the old age grant will also be raised as part of government’s move towards phasing it out entirely.

The bad

»?The increase of 20c/litre in fuel taxes from April?2 could push up the cost of taxi and bus fares, making Jabulani’s daily commute more expensive.

The ugly

»?His smoking habit of five packs a week will now cost him R3.40 more per week (R13.60 more a month), which represents an increase of 6.2%. The tax on a litre of malt beer is up 8%, while that on a cider or alcoholic fruit beverage is up 8.1%.

The professional earner

Julia is a 45-year-old professional with two children. She has worked and studied hard to develop her career, and earns R35?000 a month.

While Julia earns a good salary, as a single mum it is becoming increasingly difficult for her to make ends meet each year as education, groceries, petrol and electricity costs keep rising.

Unlike Jabulani, she will see little tax relief in this budget as the bulk of the tax relief went to individuals earning less than R120?000 a year.

Tax changes that affect Julia

The good

»?For her family of three, Julia will receive an increase in her medical aid contribution tax credit – from R646 to R686.

»?If she changes jobs, she could now withdraw R25?000 from her retirement fund tax-free (although that is never advisable).

»?Julia will pay no tax on the first R23?800 of interest earned on her cash investments. She could, for example, invest R330?000 into the RSA Retail Savings Bond, earning 7% a year tax-free.

»?Julia will benefit from the proposed introduction of a tax-preferred savings vehicle, which government plans to introduce later this year.

The bad

»?It will cost Julia an extra R10 to fill up her car from April 2 because of increases in the fuel levy and Road Accident Fund. In total, Julia will pay R166 to government each time she fills up. This is before she pays her e-tolls.

The ugly

»?Julia’s bottle of chardonnay will cost her R2.15 extra and a bottle of spirits will cost her an extra R4.80.

The pension earners

Joseph has just turned 75 and has a disability. His wife, Joyce, is 64 and about to retire.

Tax changes that affect the couple

The good

»?Because Joseph has just turned 75, he benefits from the increased tax threshold of R123?350 for people 75 years and older. That means he pays no tax on his first R123?350 of income.

»?The increase in the interest-exemption threshold means the first R34?500 of interest that Joseph earns each year will not be taxed. This means he can invest R500?000 into the RSA Retail Savings Bond, earning 7% interest a year tax-free.

»?Joseph’s disability grant has increased to R1?350.

»?When Joyce retires, she will be able to withdraw a larger tax-free lump sum of up to R500?000, up from the previous limit of R315?000.

The bad

»?The weekly excursions to stock up on groceries will now cost them more as the increase in the fuel levy impacts their travelling expenses, as well as the prices of general goods.

The ugly

»?Joseph will pay an extra R4.80 for his bottle of whisky and his pipe tobacco will now cost him 2.5% more in tax. If he wants to indulge in a cigar, it will cost him 9% more, with an increase in tax from R56.76 per 23g to R61.87.

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