Exciting changes for retirement funds from T2017

New rules, legislated by the Taxation Laws Amendment Bill of 2015, which are designed to harmonise the tax treatment and annuitisation requirements for all types of retirement funds (ie pension, provident and retirement annuity funds), will take effect on 1 March 2016.

Retirement Funding Tax Deduction

In summary, from 1 March 2016, all individual tax payers who contribute towards a retirement fund will qualify for a tax deduction up to 27.5% of the greater of gross remuneration or taxable income. This rate applies to the aggregate of contributions made to an individual’s pension, provident and retirement annuity funds. Presently, different contribution caps and deduction bases apply to the three types of funds.
The annual tax deduction cap is R350 000 (including the cost of risk benefits). Individuals who contribute more in any one year can carry forward any unclaimed amount and deduct these from tax in subsequent years, subject to the deduction limits in those years.
Only the employee may claim contributions (both in respect of the employer and the employee contributions). The employee’s PAYE deduction must be adjusted to reflect these contributions. If the employer makes the contribution, this must be neutralised by way of a fringe benefits tax charge levied on the employee.

Changes around Estate Duty

It is important to note that any contributions to a retirement fund that do not receive a deduction will be included in the dutiable part of one’s estate for estate duty purposes. This will come into effect on 1 January 2016 and apply in respect of the estate of the person who dies on or after that date.
However, this will only apply to contributions made after 1 March 2015, i.e., no contributions made before this date are dutiable.

Provident Funds

In addition, all new contributions to provident funds after 1 March 2016 by those younger than 55 years, will be subject to the two-thirds annuitisation requirement. Provident fund members who are 55 or older on 1 March 2016 are exempt from these provisions, as are retirement balances below R247 500 (previously R75 000).

Pay Outs to Ex Pats

National Treasury is changing the definition of “retirement annuity fund” to allow expatriates to withdraw a lump sum from their RA’s if:

  • They are no longer a tax resident and leave SA, or
  • If they leave SA at the end of their work visa.