Changes to what is tax de­ductible

Weekend Argus (Saturday Edition) - - GOODPUZZLES - LAURA DU PREEZ

You should be able to claim a tax deduction for re­tire­ment fund con­tri­bu­tions against pas­sive in­come such as in­ter­est in­come or roy­al­ties, the lat­est tax amend­ments pro­pose.

The Tax Laws Amend­ment Bill, re­leased by Na­tional Trea­sury late last week, pro­poses these de­duc­tions be al­lowed with ef­fect from March 1 this year.

On March 1, the new tax deduction regime for re­tire­ment fund con­tri­bu­tions be­came ef­fec­tive, mak­ing it pos­si­ble for you to claim con­tri­bu­tions to a pen­sion fund, prov­i­dent fund or re­tire­ment an­nu­ity (RA) as a deduction against tax­able in­come or tax­able re­mu­ner­a­tion, which ever is higher, up to 27.5 per­cent of that in­come or re­mu­ner­a­tion.

Ac­cord­ing to the ex­plana­tory me­moran­dum to the bill, un­til March 1 this year, mem­bers of RAs were able to claim con­tri­bu­tions to RAs as a deduction against pas­sive in­come.

Un­der the new tax deduction regime, the Act was amended to al­low for de­duc­tions against in­come from “car­ry­ing on a trade”, which ex­cludes de­duc­tions against pas­sive in­come.

The pro­posal in the amend­ment bill is to al­low you to deduct con­tri­bu­tions to an RA, a pen­sion fund or a prov­i­dent fund from both in­come from a trade and pas­sive in­come.

How­ever, cap­i­tals gains will con­tinue to be ex­cluded from pas­sive in­come.

An­other pro­vi­sion of the In­come Tax Act al­lowed you to carry over ex­cess con­tri­bu­tions to an RA and deduct them the fol­low­ing year. This too has been amended, with ef­fect from March 1 this year. In terms of this pro­vi­sion, you can now also roll over ex­cess con­tri­bu­tions to a pen­sion fund and claim them as a deduction in the fol­low­ing year. Pre­vi­ously you had to wait un­til re­tire­ment to claim ex­cess con­tri­bu­tions to a pen­sion fund.

But the change refers only to ex­cess con­tri­bu­tions made af­ter March 1 this year, ef­fec­tively pre­vent­ing any­one who made ex­cess con­tri­bu­tions to an RA be­fore the start of this tax year from rolling these over and claim­ing them.

The amend­ment bill pro­poses fix­ing this so that you can roll over and claim from this year ex­cess con­tri­bu­tions made be­fore March 1 to a pen­sion fund or RA.

Last year’s changes were aimed at har­mon­is­ing the tax treat­ment of con­tri­bu­tions to prov­i­dent funds and pen­sion funds. The rollover of ex­cess con­tri­bu­tions to prov­i­dent funds are not yet in­cluded be­cause their mem­bers are not yet re­quired to buy an an­nu­ity (monthly pen­sion) on re­tire­ment with two thirds of their sav­ings. Trea­sury hopes to in­tro­duce this mea­sure by 2018.

Other pro­posed amend­ments in the bill will en­sure that:

• If you re­ceive a lump sum or an­nu­ity from an RA that arises from con­tri­bu­tions made while you were not in South Africa, these will not be re­garded as hav­ing arisen in re­spect of ser­vices ren­dered out­side the coun­try and there­fore will not be sub­ject to the tax ex­emp­tion on for­eign pen­sions.

• You will not be able to with­draw your sav­ings from an RA be­fore age 55 un­less you em­i­grate from South Africa and your em­i­gra­tion is recog­nised by the South African Re­serve Bank. The ex­plana­tory me­moran­dum says the fail­ure to spec­ify em­i­gra­tion as recog­nised by the Re­serve Bank and to al­low the with­drawal of lump sums from an RA when a South African res­i­dent ceases to be one has cre­ated a loop­hole that al­lows RA fund mem­bers to with­draw their sav­ings with­out for­mally em­i­grat­ing.

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