National Treasury is standing firm on its proposal to reduce the ringfencing threshold from the top marginal tax rate of 45% to the 39% rate. This change applies to the ringfencing of assessed losses, specifically targeting “suspect trades” listed in the ITA.
Section 20A of the ITA ring-fences assessed losses from certain trades, so those losses may be set off only against future income from the same trade, where two conditions are met:
- the taxpayer is taxed at the top marginal rate, which applies to individuals with a taxable income of more than R1.817 million for the 2026 year of assessment; and
- the trade has produced assessed losses in at least three of the preceding five years or is one of nine specified “suspect” trades. These trades include sporting activities, dealing in collectibles, performing or creative arts, gambling, farming (unless full-time), and renting out residential accommodation, vehicles, aircraft, or boats (unless at least 80% use is by unrelated parties).
The proposal is to lower the taxable-income threshold so that ring-fencing applies to more taxpayers engaged in “suspect trades” and consistently claiming such losses, thereby reducing avoidance by those slightly below the top rate.
On 4 November, Treasury officials briefed the National Assembly’s Standing Committee on Finance on the department’s responses to comments received on the draft Bills and regulations that give effect to the tax proposals announced in the 2025 Budget.
Commentators said the proposal will stifle the growth of middle-income earners and curtail savings. Treasury told the committee that “this narrative” is not aligned with the government’s policy objective.
It said the aim of the proposal is to treat taxpayers equitably, ensuring no one is unfairly burdened with tax liabilities or given undue preference. Taxpayers are utilizing assessed losses from “suspect” or “hobby-like” trades – for example, buying and selling cryptocurrency – to reduce their taxable income substantially.
To ensure genuine businesses are not unfairly penalised, Treasury noted that the existing safeguards remain in the Act. Taxpayers can still offset losses against future income, but these losses should be aligned to the trade where the taxpayer is generating or receiving such future income.
Treasury said the reduction in the threshold for ringfencing assessed losses from the 45% to the 39% marginal tax rate is intended to curtail “aggressive tax-planning exercises”.
The proposed amendment will come into operation on 1 March 2026 and apply to the years of assessment commencing on or after that date.
In response, Keitumetse Sesana, the acting deputy chief executive of the South African Institute of Taxation, told the committee that the threshold should not be reduced. Middle-income earners are already stretched because the tax brackets have not been adjusted for inflation for some time.
Paul Gering of PKF reiterated the accounting firm’s call for a carve-out for the buy-to-rent property sector.
