The budget came out at the end of February this year and this year was an especially hard one for Finance Minister Pravin Gordhan South Africa has been devalued by the global credit rating agencies and with our GDP sitting at 1.9%, Gordhan cannot be seen as being too lenient yet with it being an election year, he cannot be too strict either. Talk about being stuck between a rock and a hard place!
Government predicted they would under collect on taxes, which would have put further pressure on the budget, but they over collected by R4 billion, giving Gordhan a little leeway in setting the budget. He had few surprises in the budget and as in the past, all tax bands increased and the primary, secondary and tertiary rebates increased.
What has come into effect from 1 March 2014 is the medical tax credit system. In the past medical expenses were a deduction, but now it will be a rebate system. The rebate system is based on a set of calculations, in which families calculate the rebate applicable to their family, depending if the primary member is younger or older than 65 or if anyone in the family has a disability. The calculated credit is deducted from the person’s taxable income.
In the past those over 65 or those who had a family member who was disabled could deduct all medical expenses, but on the new tax credit system, it will be calculated as a credit to be deducted from taxable income. Time will tell if those individuals will be better or worse off on the new medical tax credit system.
A pleasant surprise for those retiring was that the tax free lump sum has increased from R315 000 to R500 000, from 1 March this year. Furthermore, from 1 March 2015, all contributions to retirement funding are deductible up to 27.5% of taxable income. The current deductibles will fall away i.e. of 7.5% to pension funds or the retirement annuity deduction of 15% of non-retirement funding income; or R3500 less current pension fund contributions; or R1750 – whichever is the greatest. This is great news as all retirement funding income will be added together, allowing individuals to save up to 27.5% of taxable income to a maximum of R350 000 per annum.
It’s definitely worthwhile to increase your retirement savings! The premium is tax-deductible, the growth in the investment is tax deductible and tax is only paid at retirement when your taxable income is less and you have a secondary rebate if you are over 65 and tertiary rebate if you are over 75.
powered by