The tax year end for individuals at the end of February is almost upon us. Tax planning, as the name suggests, generally requires taxpayers to organize their affairs before the end of the tax year for them to comply with the prevailing legislation. With this in mind it is important to understand how prevailing tax law is amended, what changes have actually been made as well as those that are scheduled to be made in the next year or two.
The Law Amendment Process
The Minister of Finance delivers his budget speech for the forthcoming tax year in February of each year (27 February 2013 in the case of the tax year ending on 28 February 2014). In this speech a number of changes to the tax law are announced as well as a number of proposed amendments. Subsequent to this speech the proposals are discussed and debated with interested parties and as a consequence of these discussions the Minister then tables the amendments to the tax law. Of the proposals raised in the 2014 budget speech certain proposals are still being discussed and may alter tax law in future years, however certain proposals have now been incorporated into tax law in terms of the Taxation Laws Amendment Bill of 2013 which was published on 24 October 2013.
We will highlight these changes in several articles over the next few weeks. In this article we will review two proposals that were included in the Taxation Laws Amendment Bill viz.
– Bursaries or Scholarships to Employees and Employee Relatives and
– Rollover Treatment for excess Deductible Donations.
Bursaries or Scholarships to Employees and Employee Relatives
An income tax exemption already exists for what is considered to be a “bona fide” bursary or scholarship that is granted by an employer to an employee or a relative of that employee. Different rules apply depending on whether the bursary or scholarship has been awarded to the employee or the relative.
To be considered bona fide and for the exemption to apply in the case of employee bursaries or scholarships, the employee must undertake to reimburse the employer if the employee fails to complete his or her studies for reasons other than death, ill-health or injury.
If a bursary or scholarship is awarded to a relative of the employee, the exemption will apply only if the employee’s remuneration does not exceed R250 000 (increased from the previous limit of R100 000) during the year of assessment and the amount of the bursary or scholarship does not exceed R10 000 in the case of qualifications up to and including matric or grade 12 (previously R10 000 was allowed for all qualifications) or R30 000 in respect of any further education (a new, improved, dispensation).
The effective date for these changes is 1 March 2013 so they apply to the prevailing tax legislation for the current tax year (ending on 28 February 2014).
Rollover Treatment for Excess Deductible Donations
The Government encourages taxpayers to make donations to certain organisations (e.g. public benefit organisations, government, quasi-government and biodiversity projects) by allowing a tax deduction. These deductible donations are generally limited to 10 per cent of the taxable income of the donor for the year of assessment in which the donation occurs. The excess donation is permanently lost.
This approach was not ideal as the 10% limitation has an unduly harsh impact in the case of large donations, especially if one or more large assets are involved. In recognition of this situation Government has already passed an amendment by allowing for the spreading of expenditure over a 10 year period if land is effectively donated to Government for conservation purposes (i.e. for use as a national park or nature reserve).
In order to avoid taxpayers having to structure their large donations, the once-off 10% limitation will be removed. Donations in excess of 10 per cent will no longer be fully lost and the excess will be rolled over and allowed as a deductible deduction in the subsequent tax year (subject to the 10 per cent rule). If any excess remains, the excess can be further rolled over again.
The proposed amendment is effective as from 1 March 2014 and will be applicable in respect of donations paid or transferred during tax years commencing on or after 1 March 2014.
