Budget 2024: Opportunities for financial planning and advice

By: Francois du Toit, CFP®, PROpulsion

The Budget for 2024/25 was a sobering reflection of the economic challenges facing South Africa. It aimed to balance fiscal consolidation, debt reduction, revenue mobilisation and social spending, while also addressing some of the long-standing structural issues in the financial sector.

Budget overview

There’s no broad relief for taxpayers this year, as the government seeks to raise an additional R15bn in tax revenue, mostly through direct taxes. The personal income tax brackets were not adjusted for inflation, resulting in fiscal drag and higher effective tax rates for most taxpayers. There were also no changes to the fuel levy, dividends withholding tax, estate duty, donations tax, medical tax credits, foreign employment exemption or the tax-free savings annual contribution limit. Furthermore, the solar incentive was not extended.

Retirement reform

The budget confirmed the new two-pot system for retirement fund withdrawals, starting from 1 September 2024. This system lets you access part of your retirement fund savings before you retire, within certain limits and tax consequences. The system affects funds saved from 1 September 2024 onwards, and only the ‘savings component’ of the fund. The withdrawals that are allowed are taxed at marginal tax rates. Seed capital of R30 000 (or 10% of the fund value, whichever is less) will be provided for the savings component. This will be transferred from the existing fund value on 1 September 2024. The remaining part of the fund, called the retirement component, is kept until retirement. Government is forecasting that it will collect R5bn in taxes from withdrawals made from the savings component in 2024/25 tax year.

Reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA)

The budget announced a plan to use some of the money the Reserve Bank has made from foreign exchange transactions. This money is kept in a special account called the GFECRA. The last time the government and the Reserve Bank shared this money was almost 20 years ago. Now they have agreed to split R150bn over three years, starting from 2024/25. This money will help the government borrow less and pay less interest on its debt.

Crypto-assets policy

The government plans to regulate the crypto-assets market. A position paper on crypto assets was published in June 2021, proposing a regulatory framework and timelines. In November 2023, the FSCA declared crypto assets to be a financial product, requiring FSPs to be licensed by them in this regard. It also said that stablecoins, crypto assets linked to other currencies or assets, will be regulated by 2024. The IFWG will suggest policies based on international standards. The government may also require reporting of crypto-asset transactions above R49 999.

Tokenisation

The IFWG is studying the implications of tokenisation, which involves the conversion of assets, such as securities and payments, into digital tokens on a blockchain and plans to publish two papers on the topic by December 2024. The papers will provide guidance on the rules and policies.

Digital payments

The National Treasury and the Reserve Bank have partnered with Switzerland and FinMark Trust to launch an inclusive payments digitalisation programme to run from 2024 to 2027. It’ll involve four digital payments pilot projects with different financial service providers.

Unclaimed assets

The FSCA is working on a framework to deal with unclaimed financial assets, which are assets that belong to owners who cannot be found or contacted. The framework will be based on the feedback from a discussion paper that the FSCA published in 2022, and will include guidelines for identifying, monitoring, managing and reporting unclaimed assets, as well as finding the rightful owners.

Opportunities

Despite the challenges and constraints, there are always opportunities for financial planning and advice. Some areas to explore with your clients are:

Tax-efficient planning: The fiscal drag and the higher tax burden on taxpayers create a need for tax-efficient planning, especially for high-income earners. Help your clients to optimise their tax deductions, such as retirement fund contributions, medical expenses and donations, and to utilise their tax exemptions, such as interest income, capital gains and foreign dividends. Also advise clients on the tax implications of different investment vehicles, such as unit trusts, exchange-traded funds, endowments and trusts, and help them to choose the most suitable ones.

Analyse IT34 assessments for opportunities: Analyse your clients’ IT34 assessments for opportunities to improve their tax position, such as claiming additional deductions, correcting errors or objecting to incorrect assessments. The IT34 assessments can also identify sources of income, expenses and assets, enabling you to provide holistic financial advice based on their financial situation.

More flexibility for retirement planning: The new two-pot system for retirement fund withdrawals offers more flexibility for retirement planning. You can help clients understand the benefits and risks of the new system. You can also assist clients with the tax planning and the investment strategy for their retirement fund savings.

Review trusts and structures: The anti-avoidance rules for low-interest or interest-free loans to trusts have been tweaked, effective 1 January 2024. The changes affect the calculation of the deemed interest and the donations tax on such loans, especially when they are denominated in foreign currency. Review your clients’ trusts and structures, and advise them on the impact of the changes on their tax liability and estate planning. Assist clients to restructure their trusts and structures.

Be careful not to make saving or not paying tax the primary goal of any planning. Rather focus on the required outcomes the client is looking for and then plan as tax efficiently as possible.

About Francois du Toit: Du Toit founded PROpulsion, a thriving community for financial planners and advisers focused on helping them belong, grow and thrive. He hosts the PROpulsion LIVE podcast (every Friday at 8am live on YouTube), sharing his two and a half decades of experience and engaging with guests to inspire and inform.  Visit www.propulsion.co.za for more information.

Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za