YOUR TRUST & 2022 BUDGET SPEECH
The Minister of Finance, Enoch Godwangana, recently delivered his maiden budget speech, which was balanced and appeared to be well received across the board – the key focus being the stabilisation and recovery of the South African economy post the ravages of lockdown under COVID-19.
The impact of the budget on the landscape of inter vivos trusts was negligible, with the status quo in relation to trusts remaining as follows:
- Flat income tax rate of 45%
- Effective Capital Gains Tax rate of 36%
- Annual donations tax allowance for individuals remains at R 100 000
There is good news for trusts that hold shares in corporate entities in that the Company tax rate will reduce from 28% to 27% for the year ending 28 February 2023. Less tax to be paid means greater profit margins, which is in turn good for both expansion and increased dividend yield.
Due to COVID and the lock-down regulations, many businesses across South Africa have been struggling to keep afloat and as a result have made significant losses over the past two years. Whilst one cannot help sympathise with these businesses and the families they support, the adverse consequences of COVID-19 have however presented re-structuring opportunities which in the past may have been too expensive to initiate. Individuals may now be able to restructure the ownership of their business interests into trusts on the basis that the costs (traditionally Capital Gains Tax, Section 7C and Share Transfer Tax) of such a restructuring may be far more palatable given the decrease in the market value of the business. These kinds of opportunities do not present themselves often and should be given serious consideration, if the circumstances permit.
The efforts of SARS under the leadership of Edward Kieswetter were applauded during the budget speech and it would appear that he is making notable strides in firmly addressing and collecting from those who have taken a shining to the dark arts of tax evasion. SARS is functioning well again and it is no secret that they will also be targeting non-compliant tax payers to assist in bolstering tax revenue through admin penalties and the like – 2022 is certainly the year to ensure that you and your related entities are tax compliant.
Wishing you all an incredibly prosperous 2022, already in full swing.
The Lighthouse Team
Contributor: Judd Reid