The National Treasury published the 2022 Budget Review on Wednesday 23 February 2022. Amongst others this document sets out the tax proposals for the year ahead. This article briefly highlights some of these proposals and announcements that affect corporate taxpayers.
Reduction in the corporate tax rate
The corporate tax rate is reduced to 27% for years of assessment ending on or after 31 March 2023. Practically this means that the reduced rate applies for years of assessment that begin on or after 1 April 2022. Some taxpayer may already enjoy its effect in 2022 when they make provisional tax payments.
The reduction is however not necessarily good news for all corporate taxpayers. The reduced rate coincides with two base broadening provisions that come into effect at the same time as the rate reduction. These are:
- The limitation of assessed losses carried forward to 80% of a taxpayer’s taxable income (except if the loss is less than R1 million). This means that a taxpayer who carries forward an assessed loss will be liable to pay tax on 20% of its taxable income, even if its assessed losses exceed the taxable income for a year.
- The broadening of the limitation of the deduction of interest paid to persons with whom a taxpayer is in a controlling relationship. The scope of the limitation is broadened (both the arrangements to which it applies and the amounts considered to be interest). The rate at which the limit is determined is also reduced to 30% of the taxpayer’s adjusted taxable income.
The timing of the rate reduction and with it, the base-broadening amendments coming into effect, may come as a surprise to some taxpayers who find themselves in assessed loss positions. The effective date provisions for these amendments may have created a perception that their implementation would be delayed further into the future.
Revision of the definition of contributed tax capital (CTC)
During the 2021 legislative cycle, the National Treasury proposed amendments to the definition of contributed tax capital (CTC). These amendments were put on hold to be further reviewed in the 2022 cycle due to concerns regarding their impact of share buy-back transactions.
The 2021 proposal entailed that amounts can only be transferred to a shareholder from CTC if all the shareholders who held shares of the particular class participated equally in the CTC transferred. Some transactions, like share buy-backs, do generally not involve all shareholders. They also pose little risk of abuse. The effect of the 2021 proposal would have been that the full share buy-back price was a dividend for tax purposes. Taxpayers who plan to do share repurchases or redemptions in the next year or two may want to keep a close eye on this proposal.
Review of allowances
Various allowances on capital assets come to an end during the current year and will not be renewed. These include allowances in respect of rolling stock, airport and port assets, films and low-cost housing funded through interest-free loans. The incentive for research and development expenditure will be extended until 31 December 2023 while it is reviewed. The National Treasury indicates that it will review depreciation and investment allowances during 2022/23 and publish a discussion document. This may affect many taxpayers and is something to look out for during the course of the next year.