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2016 BUDGET NEWS - Putting Strain On The Property Market

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2016 BUDGET NEWS - Putting Strain On The Property Market

Minister of Finance, Mr Pravin Gordhan, delivered the National Treasury’s budget for 2016/2017 yesterday afternoon.

According to Shaun Rademeyer (CEO of Betterlife) there were disappointments in the detail for the residential property market, which essentially relies on consumers having sufficient discretionary income to buy new homes as well as more confidence that the country is “going in the right direction”.

These include the increases in Capital Gains Tax and the Transfer Duty on luxury properties costing more than R10 million, as well as the limited fiscal drag relief that has been applied to personal income tax.

On top of that, the increase in the fuel levy, the introduction of a new tax on tyres and higher levies on various commodities are bound to increase food costs further at a time when they are already high due to the drought, and many households are battling to deal with higher interest rates on existing debts.”

This will of course limit the ability of those households to qualify for home loans and buy their own homes in the coming months, and we expect a slowdown in first-time buying as a result – unless and until the economy starts to turn around as Mr Gordhan has envisaged, and employment numbers start to rise.

The most significant announcements:

- Budget deficit is reduced to 3.2% of GDP, down from 3.9% achieved in 2015/16 tax year. The deficit will further decrease in the following two tax years to 2.8% and 2.4% respectively;

- Government debt to rise by 11% to R2 trillion or 45.7% of GDP. Total debt will stabilise at 46% over the next two tax years;

- No increase in personal income tax or VAT;

- Increased focus to centralize procurement to limit corruption;

- Increased Treasury oversight of State-owned enterprises (SOCs) and the investigation of the sale of minority equity stakes to private investors.

 

The most notable changes effecting the property market - effective from 1 March 2016 - are as follows:

 

• The inclusion rate in respect of Capital Gains Tax for individuals and special trusts increased from 33.3% to 40%, and for other taxpayers from 66.6% to 80%.

The maximum effective rates increased as follows:

o Individuals/special trusts from 13.65% to 16.4%.
o Companies from 18.65% to 22.4%
o Trusts from 27.31 to 32.8%.

 

• Transfer duty remains unchanged except for an increase from 11% to 13% in respect of property prices exceeding R10 million - applicable from 1 March 2016

0 - 750 000 0%
750 001 - R1.25 M 3%
1 250 001 - R1.75M R15 000 plus 6% of the value above R1 250 000
1 750 001-R2.25M R45 000 plus 8% of the value above R1 750 000
R2250 001 - R10M R85 000 plus 11% of the value above R2 250 000
Over R10M - R937 500 plus 13% of the value exceeding R10M

 

Adjustments to capital gains tax and transfer duty is expected to raise R2 billion.

• Interest-free loans to trusts are to be treated as donations.
• Assets transferred through a loan to a trust are to be included in the estate of the founder at death.

 

Income Tax Proposals - Personal Tax - Individuals:

• Lowest tax rate of 18% applicable on taxable income up to R188 000 (R181 900)

• Maximum marginal rate unchanged at 41% on taxable income above R701 300 (unchanged)

• Rebate under 65 years of age – R13 500 (R13 257)
65 years and older – R20 907 (R20 664)
75 years and older – R23 373 (R23 130)

• Interest exemption under 65 years of age – R23 800 (unchanged)
65 years and older – R34 500 (unchanged)

• Tax threshold R75 000 (R73 650)
65 years and older – R116 150 (R114 800)
75 years and older – R129 850 (R128 500)

• Medical fund contributions qualify for medical tax credits per year of R3 432 (R3 240) per person for the first two members and R2 304 (R2 172) per person for each additional member.

• Tax brackets in respect of lump sum benefits on retirement are unchanged.

 

Source:  Shaun Rademeyer / Betterlife Home Loans

Author Shaun Rademeyer - BetterLife Home Loans
Published 25 Feb 2016 / Views -
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