Staying on top of South Africa’s ever-evolving tax landscape is a must for any organisation, whether in the private or public sector. The changes aren’t just about compliance; they’re about finding new opportunities and avoiding pitfalls. As we step into 2025, several key tax legislation amendments are set to take effect, and understanding them is crucial for strategic business planning.
From new rules on retirement funds to adjustments for businesses, these changes reflect the government’s efforts to broaden the tax base, close loopholes, and modernise the tax system. This isn’t a guide filled with technical jargon. Instead, think of it as a conversation with a smart friend who just happens to know a lot about South African tax law. Let’s dive into what you need to know to make sure your business stays ahead of the curve.
Key Tax Legislation Changes to Watch
The 2025 Budget Review and subsequent draft tax bills have introduced several significant changes that will affect companies and individuals. Here are some of the most impactful ones.
The Two-Pot Retirement System
The introduction of the “two-pot” retirement system, effective from 1 September 2024, is one of the most talked-about tax changes. This system divides retirement savings into two components: a “savings pot” from which you can make a once-a-year withdrawal, and a “retirement pot” that is preserved until retirement. While it’s designed to give people some flexibility, the tax implications for both employers and employees are important to understand. For organisations, this means ensuring your payroll and HR systems are equipped to handle the new withdrawal processes and tax calculations. It’s a significant administrative shift that requires careful attention to detail to ensure compliance and avoid penalties.
Ring-fencing of Assessed Losses
For businesses, especially those with diverse income streams or non-commercial activities, the proposed changes to the ring-fencing of assessed losses are a big deal. Currently, a taxpayer can offset losses from one trade against income from another, but this is subject to certain rules. The new proposals aim to lower the income threshold for these ring-fencing rules, making it more difficult to use losses from non-commercial trades to reduce overall tax liability.
This is particularly relevant for directors or executives who might have a side business or a hobby that generates losses, like farming or a creative pursuit. The new regulations mean that if that activity isn’t a bona fide business with a reasonable prospect of profit, you might not be able to use those losses to reduce your personal income tax. This is a critical point for strategic tax planning and requires a careful review of all business activities to ensure they are tax-effective and compliant with the new rules.
Foreign Retirement Benefits and Tax on Dividends
Another notable change is the proposed tax treatment of foreign retirement benefits. An exemption is set to be removed, meaning that all foreign retirement benefits received by South African residents will be taxed. This aligns with South Africa’s residence-based tax system and is a crucial consideration for anyone who has worked abroad and is now a tax resident in South Africa.
Additionally, there are new rules around the re-characterisation of dividends into income, particularly concerning preference shares. The aim is to prevent companies from structuring dividends just before a share redemption to avoid tax, a practice that has been a known loophole. These changes will impact how many private equity deals and other shareholder structures are arranged, and it’s vital to adapt to them to avoid an unexpected tax bill.
A Snapshot of Key 2025 Tax Changes
To give you a clearer picture, here is a breakdown of the key tax legislation changes and what they mean for you.
Proposed Tax Change | What It Means for You | Impact |
Two-Pot Retirement System | Allows for annual access to a portion of retirement savings. | Requires HR and payroll system updates. Employees may need guidance on managing withdrawals and tax implications. |
Assessed Loss Ring-fencing | Lowering the threshold for ring-fencing rules. | Makes it harder for individuals to offset losses from non-commercial trades against other income. Requires a review of side businesses. |
Foreign Retirement Benefits | All foreign retirement benefits received by SA residents are now subject to tax. | Individuals who have worked abroad will need to plan for tax liability on foreign pensions and lump sums. Double taxation agreements become more important. |
Dividends on Preference Shares | Dividends declared before share redemption will be treated as taxable income. | Businesses and shareholders must re-evaluate certain funding and shareholder agreements to remain tax efficient. |
These amendments, along with others such as the VAT Modernisation Project and changes to the diesel refund system, show a clear push by SARS to tighten tax administration and ensure fairness across the board. For public-sector organisations, these changes can affect compliance and financial reporting, especially when it comes to managing grants, public funds, and adhering to new administrative procedures. For private companies, a strategic review of financial structures and business models is necessary to ensure they remain tax-efficient and compliant.
The Centacc Difference: Beyond the Numbers
Understanding these tax legislation changes for 2025 is just the first step. The real challenge is translating that knowledge into a strategic advantage for your organisation. This is where a modern accounting partner comes in. At Centacc, accounting is a powerful tool for growth, not just a box-ticking exercise. We go beyond basic bookkeeping to provide tailored solutions and strategic insights that drive tangible results.
Our team is dedicated to helping both private and public-sector clients navigate complex tax landscapes. We don’t just tell you about the changes; we work with you to customise a plan that meets your unique needs. Whether it’s updating your payroll to handle the new retirement rules, reviewing your business activities to manage assessed losses, or restructuring your financial instruments to remain tax-efficient, we are here to guide you.
Ready to Navigate the New Tax Landscape?
Don’t let these changes catch you off guard. Empower your organisation with a strategic partner that provides clarity and a proactive approach. Contact Centacc today to discover how our customised accounting and business services can help you stay ahead and achieve optimal financial results.