The South African Reserve Bank raises the repo rate to 4%. The many impacts to consider.

The South African Reserve Bank (SARB) governor Lesetja Kganyago has announced a 25 basis points increase in the repo rate on Thursday, 27 January 2022. This takes the key rate at which it lends to commercial banks, to 4%.

For homeowners with bonds, the interest rate hike means paying more on monthly bond repayments but there are other impacts to bear in mind.

This increase of 0.25% sees the Repo Rate increase to 4.00%, which then also increases the prime lending rate of the commercial banks to 7.50%. 

The SARS official rate of interest, as defined in section 1(1) of the Income Tax Act 58 of 1962 (the Act), therefore also changes.

This means that where a loan is granted to an employee by his or her employer and no interest is charged by the employer, or where the interest charged by the employer is less than the official rate of interest, the difference between the amount which would have been payable if the loan was granted at the official rate and the amount actually paid by the employee, is taxed as a fringe benefit.

The SARS official rate of interest is the Repo Rate, plus 100 basis points (1%). This rate will therefore be adjusted to 5.00%. 

Other impacts to consider

  • Payroll Systems:
    • Loan parameters/rules will need to be updated to cater for this change.
    • Employees will need to be informed of the potential increase. (i.e. in cases where their net pay will reduce as a result of an increase in fringe benefit tax!)
  • Exclusions:
    • Bona Fide Study Loans – as long as the employee continues to meet the criteria as prescribed by the employer.
    • Casual Loans – a single loan or multiple loans with an aggregate value of up to R 3 000 in the tax year.
    • A loan provided to the employee for the purposes of purchasing a home or land previously owned by the employer, up to a maximum loan value of R 450 000, and where the employee meets the annual remuneration criteria. There are a few other important items to take note of in this scenario.
  • Individuals:
    • Higher cost of credit – monthly installments will increase on bonds, cars repayments, and other loans.
    • Potentially slightly better returns on savings and pensions etc.     

We will discuss interest rate changes, the many other rates and limit changes including a detailed review of the Budget Speech in our upcoming Payroll Managers Tax Year-End Hybrid Seminar. The seminar is scheduled to take place on 10 March 2022. Click here to reserve your seat.