Minister Godongwana’s tax proposals signal a shift in focus by government. Rather than introducing shocking new tax rates (2025 with three budget proposals was only but last year), the changes refine technical areas of legislation, close planning gaps and aim to encourage regulated savings. Generally personal income brackets were adjusted for inflation.
The implications on specific changes discussed below are both practical and strategic, particularly where cross-border planning, spousal transfers, and investment structuring are involved. The key legislation affected includes both the Income Tax Act and the Tax Administration Act (as amended). Interestingly intra-spousal transactions have enjoyed a bit of a spotlight in this year’s budget speech.
Ceasing tax residency and spousal donations
Currently donations between spouses are exempt from donations tax in terms of section 56 of the Income Tax Act.
Treasury has identified instances where families have structured “staggered residency cessations” to reduce their overall tax exposure, that means where one spouse ceases South African tax residency with the remaining (resident) spouse donating their assets to the non-resident spouse prior to ceasing tax residency. This “staggered” approach means SARS is out of pocket in two instances, that being donations tax (albeit legally), but then also due to so-called “exit tax” being avoided under section 9H of the Income Tax Act when the second spouse ceases tax residency.
The proposal, immediately effective (from 25th February 2026), curbs the spousal donations exemption where the recipient spouse remains a South African tax resident and intend donating assets to the non-resident spouse, meaning that the resident spouse will either be liable for donations tax or exit tax when ceasing tax residency.
Collective Investment Schemes (“CIS’s”)
Following public consultation, National Treasury has proposed a more certain and favourable tax approach for CIS’s and retail hedge funds. The proposal is that all returns generated by regular CIS’s and retail investment hedge funds be taxed as capital. Since capital gains are typically taxed more favourably than income, this provides certainty and encourages long-term savings through regulated vehicles and subject to diversification requirements.
Qualified investment hedge funds will be excluded from this regime and are expected to fall under a separate tax framework to be proposed later.
Thresholds reviewed
Tax-free savings, donations and capital gains tax exemption thresholds were reviewed (amongst other line items) and were adjusted as follows with effect from 1 March 2026:
- Tax-free savings: from R36,000 to R46,000 per annum
- Individuals – donations exemption: from R100,000 to R150,000 per annum
- Corporates – donations tax exemption: from R10,000 to R20,000 per annum
- CGT exclusion at death: from R300,000 to R440,000
- CGT exclusion on disposal of primary residence: from R2,000,000 to R3,000,000.
Tax administrative fairness:
When a taxpayer disputes an assessment and requests suspension of payment in terms of section 164 of the Tax Administration Act (as amended), the obligation to pay the disputed tax liability is temporarily suspended and their tax status remain as “tax compliant.”
In terms of section 215 of the Tax Administration Act, when requesting remission of penalties, although payment is automatically suspended, the compliance status protection was not explicitly provided for. The proposed amendment aligns this anomaly, ensuring that taxpayers are treated as compliant while awaiting decisions on penalty remission requests. In addition, the grace period after SARS rejects a suspension or remission request will be standardised to ten (10) business days.
For clients involved in tax audits and/or disputes, this change reduces the potential tax risk arising from tax compliance status issues.
In closing
This year’s message is one of an increasing focus to ensure compliance and proper record-keeping to support your tax returns. There is a changing of the guard at SARS and we have to salute the digital infrastructure and capabilities build by the current Commissioner, Mr Edward Kieswetter. Now is a good time to review your current balance sheet and planning.
For any specific queries relating to the above, please contact Marteen Michau (marteen@fidelisvox.co.za) – we are standing by to assist.
