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South Africa Confirms Retirement Fund Tax Harmonization

by Lorys Charalambous, Tax-News.com, Cyprus

07 December 2015


Following parliamentary passage of the 2015 Taxation Laws Amendment Bill (TLAB), the South African National Treasury has confirmed that reforms to ensure the consistent tax treatment of all retirement funds will be implemented from March 1, 2016.

The National Treasury confirmed that the TLAB does not amend the scheduled implementation date, but only amends the de minimis threshold to ZAR247,500 (USD17,235) from ZAR150,000; extends coverage to provident funds; and requires a review of the legislation after two years from the effective date.

All individual taxpayers who contribute towards a retirement fund (pension or provident fund, or retirement annuity) after March 1, 2016 (i.e. from the next tax year), will qualify for a tax deduction up to 27.5 percent of their taxable income or remuneration, whichever is the greater, up to a limit of ZAR350,000. This will extend the tax deduction benefit on contributions to provident fund members.

The legal amendment allows one-third of the retirement saving to be cashed out as a lump sum, with the remaining two-thirds to be annuitized. This law already applies to all pension fund and retirement annuity fund members, but will now also be extended to members of provident funds.

All new contributions into provident funds after March 1, 2016, by those younger than 55 years, will be subject to the two-thirds annuitization requirement, but only once the amount at retirement exceeds the de minimis threshold. It is expected to take several years before many provident fund members under the age of 55 years reach this higher limit.

The National Treasury pointed out that pension funds and retirement annuities are already required to annuitize two-thirds of retirement benefits. They will therefore not be affected by the new annuitization requirement.

It has stressed that, "if [provident fund] members want to enjoy tax deductions for retirement contributions, then they should be expected to commit to annuitization (two-thirds) with a one-third lump sum, the same benefits offered by pension funds and retirement annuity funds."

TAGS: South Africa | tax | investment | pensions | law | retirement | legislation | tax breaks | legislation amendments | individual income tax | Africa | Tax

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