T-day for new tax regime on re­tire­ment funds will be in 2015

Weekend Argus (Saturday Edition) - - PERSONALFINANCE - BRUCE CAMERON

T-Day, the day a new tax regime for re­tire­ment funds is to be in­tro­duced, is now of­fi­cially March 1, 2015. From this date most tax­pay­ers will be able to deduct a higher amount in con­tri­bu­tions from their tax­able in­come.

P-Day, how­ever, is still sub­ject to fur­ther ne­go­ti­a­tions with var­i­ous par­ties in­clud­ing trade unions and em­ploy­ers. P- Day is the day on which it is pro­posed that it will be com­pul­sory to pre­serve your re­tire­ment sav­ings un­til re­tire­ment and then use at least two-thirds to pur­chase a pen­sion to pro­vide you with an in­come for life.

Mea­sures to pre­vent fund mem­bers cash­ing in re­tire­ment sav­ings be­fore re­tire­ment are seen as a key re­tire­ment re­form is­sue by the in­dus­try and govern­ment, but the pro­pos­als de­tailed in a dis­cus­sion pa­per pub­lished by National Trea­sury last year are still sub­ject to ex­ten­sive de­bate, par­tic­u­larly with the trade unions.


The T-day date was con­firmed on Thurs­day with the pub­li­ca­tion of the Tax­a­tion Laws Amend­ment Bill, which gives ef­fect to the pro­pos­als made in the Bud­get this year.

The key changes to be im­ple­mented on T-day are:

You will be able to deduct both your and your em­ployer’s con­tri­bu­tions to a pen­sion fund, prov­i­dent fund or re­tire­ment an­nu­ity fund of up to 27.5 per­cent of your re­mu­ner­a­tion or tax­able in­come, which­ever is greater.

There will be a rand cap of R350 000 on the to­tal amount you may deduct from your tax­able earn­ings in any tax year. This is to pre­vent the wealthy claim­ing ex­ces­sive de­duc­tions.

Your em­ployer’s con­tri­bu­tions, in­clud­ing any pre­mi­ums for group life as­sur­ance, will be added to your tax­able in­come as a fringe ben­e­fit, but will be de­ductible from your tax­able in­come as part of the 27.5 per­cent de­duc­tion. Spe­cial for­mu­las will be used to cal­cu­late the em­ployer con­tri­bu­tions to de­fined-ben­e­fit and hy­brid re­tire­ment funds.

Con­tri­bu­tions in ex­cess of the an­nual cap may be rolled over to fu­ture years when you may not reach the R350 000 amount. You will be able to add the nom­i­nal value of any ad­di­tional amounts un­claimed to the tax-free lump sum at re­tire­ment.

From T-Day, any new con­tri­bu­tions made to a prov­i­dent fund will be sub­ject to the same an­nuiti­sa­tion rules as pen­sion funds, namely that at least two-thirds of the sav­ings must be used to pur­chase a pen­sion at re­tire­ment (see “Prov­i­dent funds will be phased out very slowly”, right).

In a me­dia re­lease, Trea­sury says con­sul­ta­tions will con­tinue to take place with in­ter­ested par­ties, in­clud­ing trade unions, busi­nesses and pub­lic ser­vants, to dis­cuss the pro­posed re­forms.

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