The recently tabled Tax Laws Amendment Bill confirms that most of the previously proposed changes to tax legislation governing retirement funds will come into effect from 1 March 2016.
Some key points:
- The maximum tax deduction for retirement fund contributions will be 27.5% of taxable income with an overall cap of R350 000 per annum.
- Contributions to Provident Funds were intended to be included in the above but following representations from labour federations, this has been postponed pending further discussions which are expected to be concluded by 2017. In the meantime, a limited tax deduction of 10% of remuneration will come into effect.
- Currently a retirement fund of R75 000 or less may be taken in cash at retirement without having to purchase an annuity. This has been increased to R250 000.
- The estate duty avoidance loop hole as regards retirement annuities has been closed. Retirement annuities themselves are not subject to tax including estate duty on death. Therefore individuals could invest in RAs any amount they wished and the resulting fund would be free of estate duty. The new legislation, effective 1 January, restricts this benefit to contributions which were tax deductible and the accumulated funds thereof. Any non-deductible contributions and accumulated funds thereof will form part of a member’s estate.
- Currently only persons emigrating from South Africa are allowed to cash in their RAs and export the after tax proceeds in terms of exchange controls. Now, expatriates who work in SA and leave the country once their contracts, work permits or visas expire, may also take any RA benefits in cash – first subject to tax.
We will update you on any developments regarding the treatment of Provident Funds in future news letters.