The Taxation Laws Amendment Bill 2016 was published on 8 July. The bill gives effect to some of the tax proposals announced in the 2016 Budget Speech and Review. Here we highlight a few key elements:
Retirement Fund contribution against “passive income”
Deductions of contributions to all retirement funds should be allowed to be set off against passive income but excluding taxable capital gains.
Remuneration v taxable income
Individual taxpayers will be entitled to deduct all contributions made to retirement funds – including pension, provident and retirement annuities and including those contributions made by an employer on their behalf.
Such deductions will be subject to the lesser of 27.5% of remuneration and taxable income (excluding retirement fund , severance benefit lump sums and taxable capital gains) subject to an overall cap of R350 000 per annum.
Remuneration includes any amount of income which is paid by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument pension, superannuation allowance, retiring allowance or stipend , whether in cash or otherwise. This includes: annuity income, lump sums due to employment or termination of services and any fringe benefit received.
Taxable income is defined as : Gross income (excluding retirement fund lump sums and severance benefits but including all income from from trade and passive investment income LESS Exempt income LESS All deductions allowed against gross income prior to this deduction.
Employer contributions
All contributions to a retirement fund made by an employer on behalf of an employee will be included in the gross income of the employee as a fringe benefit and therefore taxable in the hands of the employee. The employer enjoys a tax deduction for any contributions made to retirement funds on behalf of the employee.
Rollover of excess retirement fund contributions before 1 March 2016
Excess contributions to both Retirement Annuity and pension funds (previously only RAs) made before 1 March 2016 may be allowed to be rolled over and deducted in subsequent tax years.
Rules relating to interest free (or interest below market rates) loans made to trusts
It is proposed that where a seller sells an asset to a trust via a loan account, the difference between the interest that would arise with reference to the official rate of interest (currently 8%) and the interest which would arise with reference to the actual rate of interest applicable to the loan ( ie either 0% or a rate lower than the official rate) will be regarded as income in the hands of the seller. The amount so regarded will not qualify for the normal interest exemption.
Any reduction of the interest free (or interest below market rates) loan, by way of annual donations will not qualify for the annual R100 000 exemption for donations tax.
The seller has three years to recover any tax attributable to such deemed income from the trust which benefitted from the interest free or interest favourable loan.
Inclusion of emigration as a requirement for the withdrawal from retirement annuity funds
Currently a retirement annuity fund member may make a full withdrawal from a retirement annuity fund once he or she ceases to be a tax resident without officially emigrating. Now, such withdrawal will only be permitted as part of the formal emigration process.