A. Changes proposed in the Taxation Laws Amendment Act, 2013 (and postponed)
The Bill deals with the following changes which were proposed in the Taxation Laws Amendment Act 2013 and postponed in the Taxation Laws Amendment Bill, 2014. The changes below are due to take place with effect from 1 March 2016:
1. Taxation of contributions
2. Retirement benefits paid by provident funds
3. Transfers between funds
4. Commutation of small annuities
These changes are summarised below:
1. Tax on contributions
2. Retirement benefits paid by provident funds
3. Benefits on transfer between funds
4. Commutation of small annuities
B. New changes proposed in the Bill
In addition to the changes described previously, the Bill introduces the following further changes, particularly in relation to retirement funds:
1. Changes to pension funds classified under paragraph (a) and (b)
There are certain public sector funds which are classified as pension funds in paragraph (a) and (b) of the definition of “pension fund” in the Income Tax Act. However, these funds provide for members to be paid lump sums as cash on retirement.
It is proposed that the changes to provident fund benefits on retirement (described in item A(2) above), will extend to these funds.
2. Estate duty avoidance loophole and contributions to retirement annuity funds
The requirement that members of a retirement annuity fund must retire at age 70 was removed in 2008. Furthermore, all lump sums on retirement are excluded from estate duty. As a result, contributions to a retirement annuity fund over and above the tax free limit are excluded for estate duty purposes.
In order to limit the practice of avoiding estate duty through retirement contributions, it is proposed that contributions to a retirement fund that did not receive a deduction, be included in the dutiable part of the estate, for estate duty purposes.
However, contributions that did not receive a deduction and which have already been returned to the former fund member, either as part of a lump sum payout, or as untaxed annuity payments, will not be included in the dutiable value of the estate, to avoid any potential double counting.
3. Retirement annuities and expatriates
The current provisions do not allow for expatriates to withdraw a lump sum from their retirement annuity when they cease to be tax resident and leave South Africa or when they leave South Africa at the expiry of the work visa.
The definition of “retirement annuity fund” in the Income Tax Act only allows South Africans nationals who emigrate to another country and whose emigration is recognized by the South African Reserve Bank, to claim a lump sum payment in respect of their retirement annuity.
Currently, expatriates who cease to be tax residents, or leave South Africa at the expiry of their work visa, are not regarded as having emigrated by the South African Reserve Bank and therefore cannot claim a lump sum payment from their retirement annuity funds.
The definition of “retirement annuity fund” is to be amended to also allow for these expatriates to claim a lump sum from their retirement annuity fund when they leave South Africa.
Comments on the draft Regulations must be submitted by 24 August 2015 to:
Nomalizo Bulisile: Nomalizo.bulisile@treasury.gov.za, and
Adele Collins: acollins@sars.gov.za.
The draft default regulations are available on National Treasury’s website.
