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The 2009 Budget in a nutshell by Walkers estate fiscal and tax planning specialist, Andrew Duncan.
1. You have no doubt been bombarded with pamphlets, figures, statistics, analyses and the like relating to the Budget. I recently attended the Deloittes Budget Seminar, which included Brian Kantor and Keith Engel from National Treasury and a fascinating interplay between them. The Budget differs from previous Budgets in that the Tax Act, which has been chopped and changed every year over the last ten years or so has not been much tinkered with.
2. The Budget reflects an avowed attempt by Government to spend on Capital Projects, thus creating a stimulus to the economy, and on the reverse side of the coin to reduce Income Tax. However extending the Tax Brackets probably really only caters for inflation.
3. Treasury is determined that its spend order to Government Departments is carried out under strict supervision by Treasury so that not only is the money spent, but properly spent i.e. Treasury and Government know that delivery is critical, not only for reduction of poverty, but in the long run, to create an appropriate investment platform for outside investors. High interest rates may attract external Capital, but it is a flighty type of Capital as against investment in a country because of sound infrastructure and good returns. In fact with this as a given, exchange rate fluctuation becomes irrelevant. It was this balancing act that Treasury had to pull off. The criticism from Brian Kantor was that Treasury were too conservative in their approach and at the very least should have created greater tax cuts and other stimuli. The failure to substantially decrease interest rates was a very serious one which would deepen the financial crisis.
4. There are two interesting Estate Duty amendments, firstly the R3.5 million deduction (Section 4A) available to spouses is being combined, so that to the extent the first dying spouse does not utilise the deduction, it is then available to be added to the surviving spouse's deduction. This is in order to provide flexibility and avoid what Treasury refer to as the "costly and complex trust mechanisms". I believe that there are still sound reasons for using the full deduction via the creation of a Trust in the estate of the first dying. Secondly, the commonly used one-year Usufructuary Scheme, will be "closed down".
The effect of the scheme was that Wills provided for usufructuary rights to last for a period of one year and then to be inherited by the end usufructuary, but with the Estate Duty valuation only being based on a period of one year rather than on the life expectancy of the true usufructuary.
5. The Stamp Duty Act will be abolished with effect from 1st April and thus applies to all new leases entered into thereafter. From a CGT point of view, the Primary Residence deduction has increased from R1.5 to R2 million, which is a welcome move.
6. There is not a word on Exchange Control in any manner or form. Perhaps our credit crunch problems overshadowed any need to ease the restrictions further. In my view, again, a sad omission.
7. Finally I think that in the long run Estate Duty is probably on the way out in that it represents only 0.1% of the Budgeted income. Hardly an amount worth the complicated legislation that presently exists! It's much easier to collect Income Tax and VAT, which together constitutes something like 84% of the Budget!
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