Hey Pravin, thanks for nothing

2011-02-26 08:55

Julia is a 35-year-old professional who has two children.

She has worked and studied hard to develop her career and she earns R25 000 a


“This budget did not impress me. I paid for my education and I work

really hard, yet each year I seem to have less to pay my bills with. Everything

just seems to get more expensive,” says Julia.

Unlike Jabulani, who will see a real decrease in the tax that he

must pay, Julia will actually be worse off.

Although Finance Minister Pravin

Gordhan announced R8.1bn in tax relief, the bulk of it goes to people earning

less than R150 000 a year. Anyone earning R300 000 a year or more will actually

pay more tax after their salaries are adjusted for inflation. One of the main

reasons for tax relief is so that when people’s salaries rise by inflation, they

are not penalised when they move into a higher tax bracket, resulting in higher

taxes. This is known as bracket creep.

This year Julia will see a tax reduction of 3%; next month,

however, once she receives her inflation-related salary increase of 5%, she will

find that she is actually paying more tax. That means her take-home salary will

not be able to buy the same basket of goods as last year.

“My transport costs are going up all the time, due to higher petrol

prices, and now they are adding more tax to petrol. And how am I supposed to pay

for these new toll roads?”

Julia drives 60km to work and back every day. From next month her

tank of petrol will cost her R29 more as a result of additional taxes and the

petrol price hike.

That means that her petrol bill, just to get to work and back, will

rise by R100. As she uses a portion of the Gauteng freeway to get to work, she

will lose a further R330 in toll fees.

Julia’s tax break on her medical scheme contributions was

increased, but by only 7% – to R2?320 for a family of four. Her medical scheme

premiums increased by 10%, however, so she will be out of pocket.

In March 2012 the tax deduction of medical contributions will

convert into a tax credit. In other words, employees will receive a tax credit

rather than a tax deduction. This allows for an equal benefit to all taxpayers,

regardless of ­income.
Details are not available yet.

Although Julia’s budget is getting tighter ­every month, there was

some good news on the savings side: “Apparently I can save more in my pension

fund, tax-free. I think I need to find out more about that, because I cashed in

my pension when I changed jobs and I am regretting that now. I need to start

saving more and I am really glad I can use the taxman to do that.”

From March 2012 all employees will be ­allowed to deduct up to

22.5% of their taxable income as a contribution to retirement funds, up to a

maximum of R200 000. Julia was contributing 7.5% to her company pension fund and

the company was contributing 7.5%.

She is going to sit down with her financial adviser to see how it

will benefit her to save more.

“I have also been told that government is ­considering not allowing

people to withdraw their pensions when they change jobs, unless they are facing


“I have mixed feelings about that. I like to know that my money is

available to me, but I have also realised that because I cashed in my previous

pension when I was 30 years old, I now have to save much more for my


In terms of her investments, Julia needs to speak to her adviser

about some of the changes to tax on interest, dividend tax and capital gains tax

– and also how it would affect her children should she pass away.

The amount of interest a taxpayer can earn before he or she has to

pay tax has been ­increased to R22 800. This means that Julia’s emergency

savings of R100 000 will not attract any tax at current interest rates.

You will be able to earn interest on a lump-sum amount of R350 000

before you need to worry about paying tax.

If Julia sells any of her investments, she will not have to pay

capital gains tax on the first R20 000 of the capital gain, and in terms of

estate planning for her children, on her death there will be no capital gains on

the first R200 000.

A 10% dividend tax will be introduced in April 2012 whereby

companies will have to withhold 10% of the dividend and pay the tax on your


Investment managers do not believe it will make a difference to the

dividends individuals receive, as currently companies have to pay 10% secondary

tax on companies (STC) which will fall away and be replaced by the dividend


“I was pleased to hear that government is considering a saving

incentive for people saving for their children’s education. With the costs of

schooling rising faster than my salary, it would be a great help.”

Julia’s 66-year-old mother wants to retire and she is about to sell

her small business.

“Apparently this budget has given her a bit of a tax break,” says


A person selling a business on retirement will receive a capital

gains exemption of R900 000.

Because Julia’s mother is aged over 65, she will pay no tax on the

first R90 000 of income she receives each year and will also pay no tax on the

first R33 000 of interest earned by her money market account.

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