Treasury moots tax-free savings plan

CAPE TOWN — The National Treasury has proposed the creation of a new tax-free, non-retirement savings product for low- to middle-income earners to increase SA’s disturbingly low level of household savings.

The low level of savings heightens the financial vulnerability of households and deepens SA’s dependence on volatile foreign capital inflows to fund investment.

The proposals are contained in two consultation papers released yesterday for public comment. The proposed new savings product will offer tax-free returns, growth and withdrawals, and will replace the taxfree interest income regime in place at present.

Two types of accounts have been suggested. The first would be interest-bearing accounts which could invest in bank deposits, retail savings bonds or interest-bearing unit trusts such as money-market funds.

The second type would be equity accounts, which invest in shares or property unit trusts.

“Earnings and capital growth within these tax-preferred savings vehicles will be exempted from income tax,” the Treasury document reads. “Contributions will be made from after-tax income and will be capped.

“The proposed combined annual limit will be R30,000 and a lifetime limit of R500,000 per individual.”

Transition mechanisms, such as allowing taxpayers aged 45 to 49 years to invest up to a quarter of their lifetime limit, would be considered. Those aged 50 to 59 years would be allowed to invest up to half of their lifetime limit, those aged 60 to 65 years three-quarters, and those above 65 may be allowed to invest up to the full lifetime limit.

Association for Savings and Investment SA CEO Leon Campher said his organisation had been working closely with the Treasury on the proposals.

The Treasury has further made proposals to harmonise the tax treatment of contributions to retirement funds as outlined in the February budget. Contributions by employers to retirement funds would remain tax deductible for taxable employers, and employer contributions would be taxed as a fringe benefit in the hands of the employee.

Employee contributions would be deemed for tax purposes to be made up of both the employee and the employer contributions. The total contribution would be capped at R250,000, or 22.5% of taxable income for taxpayers 44 years and younger.

A cap of R300,000, or 27.5% of taxable income, will apply to those aged 45 years and above. The closing date for comment on the two discussion papers is November 30.