Other budget proposals – Part 2

2008-03-06 00:00

Other budget proposals – Part 2

In last week’s article, I discussed certain proposals that were mentioned in the 2008/9 Budget speech. In this week’s article, other pertinent proposals will also be discussed.

One of the major proposals in the 2008/9 Budget is the increase in the annual VAT turnover threshold from R300 000 to R1 million.

The proposal will certainly alleviate unnecessary administrative burden on qualifying businesses. However, the SA Revenue Service (SARS) has advised vendors to adhere to the VAT deregistration process and ensure that any VAT arising as a result of the deregistration process be accounted for.

In terms of current legislation, Public Benefit Organisations (PBOs) are required to conduct 85% or more of their activities in South Africa. It has been proposed that this requirement be scrapped. Multilateral humanitarian organisations offering developmental assistance in South Africa are exempt from income tax.

Any donations made in terms of section 18A will not be deductible for income tax purposes as the organisation must be registered in South Africa. It has been proposed that where it is impractical for such organisations to register in South Africa, a legislative exception will be considered.

In an effort to promote the activities of PBOs who provide bursaries and loans to underprivileged students, it has been proposed that the provision of student loans by PBOs be included in the list of public benefit activities.

A further proposal is that the maximum monthly household income of people who benefit from the PBO housing scheme be increased from R3 500 to R7 000 per month.

During 2007, legislation was introduced to address the free accommodation provided to foreign skilled expatriates. It has been proposed that the legislation be relaxed to allow employers to provide accommodation tax free to employees who are away from their usual place of residence for a maximum of two years.

However, this tax-free treatment will be subject to a limit, the equivalent of 25% of the employee’s salary or R25 000 per month, whichever is lower.

The use of laptops and cellular phones is essential for employees in their line of employment. In certain instances, the use of laptops and cellular phones may also be used for private purposes given that these assets are used at home with the employees.

It has been proposed that such private usage is merely incidental and will not give rise to fringe benefits tax.

Sectional title bodies, share block companies and other local home associations pool funds for community needs. In terms of current legislation, any levies raised by such bodies from their members are exempt from income tax, but all other sources of income are taxable.

In an effort to alleviate the administrative and compliance burden, it is proposed that all non-levy investment income be exempt up to R50 000 per organisation.

In terms of current legislation, qualifying small business corporations who are engaged in non-manufacturing businesses are permitted to write off equipment over a three-year period at a rate of 50%:30%:20%.

It appears that this regime is less favourable than the general depreciation regime (such as 100% write-off for small assets). It is therefore proposed that small business corporations should be eligible for the general depreciation regime if required.

According to section 23H of the Income Tax Act No. 58 of 1962, as amended, deductions for payments relating to goods and services must be spread over the economic life of these items. The spreading prevents artificial upfront payments.

Currently, a threshold of R50 000 exists for administrative and compliance purposes.

It has been proposed that the threshold increase to R80 000, which is in line with inflation.

Nolan Daniels

Tax Compliance Manager

083 776 2271

nolan.daniels@kpmg.co.za

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