2021 Budget – Key notes on tax developments

Don’t understand the latest tax developments in the 2021 Budget? Our friends and partners at Exceed Finance help to explain.

UIF Contribution

The contribution ceiling will return to be in line with the benefit ceiling and set at R17 711.58 per month from 1 March 2021.

Reviewing tax provisions for travel and working from home

In light of the large‐scale migration to working at home over the past year, the National Treasury will review current travel and home office allowances to investigate their efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives. In recognition of the potential effect on salary structuring, this will be a multi‐year project, starting with consultations during 2021/22.

Tax incentives (VCC)

The sunset date for the venture capital company (VCC) incentive, which was initiated in 2009 to encourage retail investments in smaller businesses, will not be extended beyond 30 June 2021. A National Treasury assessment determined that the incentive did not sufficiently achieve its objectives of developing small businesses, generating economic activity and creating jobs.

Corporate income tax

The 2020 Budget Review stated that government intends to restructure the corporate income tax system in a revenue‐neutral manner. This requires broadening the tax base through limiting assessed losses and interest expense deductions to ensure the proposals are affordable. Since February 2020, many businesses have either closed down or are in financial distress as a result of pandemic‐related restrictions on economic activity. Government has therefore postponed the introduction of these two measures until 2022.

VAT treatment of temporary letting of residential immovable property

Property developers are entitled to deduct input tax on the VAT costs incurred to build residential property for sale. However, where the developer is unable to sell the residential property and temporarily leases it out until a buyer is found, the developer is required to make an output tax adjustment based on the open market value of the property when the property is let for the first time. An announcement was made in the 2010 Budget Review to investigate and determine an equitable value and rate of claw‐back for developers as the current treatment is disproportionate to the exempt temporary rental income. However, no subsequent changes were made to the VAT Act. It was proposed that the VAT Act be amended to resolve this matter.

Administrative non‐compliance penalties for non‐submission of six‐monthly employees’ tax returns

SARS may impose a penalty for the non‐submission of the six‐monthly employees’ tax returns by employers. The penalty is calculated as a percentage of the employees’ tax for the period covered by the return. Where the employees’ tax for the period is not known to SARS, due to the non‐submission of monthly or six‐monthly returns, the penalty can only be imposed retrospectively. This undermines the purpose and deterrent effect of the non‐compliance penalty. It was proposed that SARS be enabled to raise the penalty on an alternative basis in such cases, for example through an estimate of the employees’ tax with an adjustment once the actual employees’ tax is known.

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