Every year, the Minister of Finance adjusts the aspects affecting the taxable liability of both persons and businesses.
According to the Financial Planning Institute the below are some of the highlights from the 2014/2015 National Budget Speech, pertaining to individuals specifically:
Retirement fund withdrawals
The retirement funds lump sum withdrawal tables tax-free portion has increased marginally to R25 000. The retirement funds lump sum benefits and severance benefits table tax-free portion has increased to R500 000.
The medial aid tax credit has been increased from R 242 to R 257 per month for the member and first dependant and from R 162 to R 172 for subsequent dependants.
Income Protection Policies
These are no longer tax deductible.
The budget speech (Tax)
Although the abovementioned examples (highlights) only relate to personal taxes, the taxable implications involved in day to day transactions should be as carefully considered as the implications for capital (larger or once off/rare) transactions are.
Generally speaking, business owners tend to carefully consider the larger/rare transactions and the taxable implications of those. Unfortunately, however, the day to day transactions – even those they enter into for personal gain such as taking out an income protection policy on the premise that it ring fences personal risk and further is also tax-deductible – are rarely considered.
Similarly, when structuring our personal affairs we should consider these implications, even if they do not directly influence our businesses. This for the simple reason that; overburdening our personal finances as a result of overpaying in taxes or mistakenly thinking that something is tax-deductible while it is in fact not, may result in an indirect or “knock on” effect burden on our businesses.
Importantly, however, business strategic planning and estate planning (including the implication of personal taxes) should not only be engaged to save on taxable liability in a lawful manner. The purpose should be much greater.
Estate planning involves the consideration of personal wealth management strategies, the implication of death taxes (e.g. estate duty) and setting up / updating a will.
These personal wealth management strategies further includes aspects involving updating your personal insurance (such as life insurance, retirement planning and income protection), further ring fencing risk by marrying with an antenuptial contract and using trusts where suitable.
Further to this, and in my view, sound estate planning is an absolutely inseparable from business continuity planning or succession planning strategies.
Estate planning ensures that the business owner’s heirs (dependents) are well looked after and in that way preserves his/her legacy.
From the business’ side, business continuity planning often overlaps with the business owner’s estate planning, specifically where this is done in order to ensure that the business survives the passing of its key role player. In that way, a legacy is protected from both the business and personal perspective.
Ring fencing risk
Although the above-mentioned aspects inevitably constitute a limitation of or ring fencing risk, this should not deter the focus from the obvious. Businesses must comply with certain regulations, it should be structured optimally and its survival should be strategically secured when the inevitable, death and taxes, occur.
For that reason, business owners should focus closely on the aspects of the annual budget speech.
They should furthermore ensure that personal estate planning and business continuity planning align together with other risk aversion strategies so as to protect both themselves and their businesses.
That way, businesses are able to grow safely. By way of explanatory and concluding comparison, the business would be protected in the same way sea swimmers are by shark nets. So that they are free to swim as much as they want – safely.