Author: Jenny Klein The date of implementation of new rules relating to the tax treatment of contributions to retirement funds, which were expected to take effect on 1 March 2015, was postponed until 1 March 2016, in terms of the Taxation Laws Amendment Act of 2014. Among other changes, the new rules will affect the employees’ tax implications of employer contributions to retirement funds, and the deductibility for income tax purposes by the member of such contributions, thus affecting both participating employers and members. In addition, depending on the nature of the benefits available to members, the retirement fund may be obliged to provide information to the participating employer in respect of contributions for specific categories of fund members. The implications of some of these changes are highlighted below.
Category: Retirement
Tax treatment of contributions to retirement funds
Author: Jenny Klein (Tax Manager at ENSAfrica) The date of implementation of new rules relating to the tax treatment of contributions to retirement funds, which were expected to take effect on 1 March 2015, was postponed until 1 March 2016, in terms of the Taxation Laws Amendment Act of 2014. Among other changes, the new rules will affect the employees’ tax implications of employer contributions to retirement funds, and the deductibility for income tax purposes by the member of such contributions, thus affecting both participating employers and members. In addition, depending on the nature of the benefits available to members, the retirement fund may be obliged to provide information to the participating employer in respect of contributions for specific categories of fund members. The implications of some of these changes are highlighted below.
The tax free nature of a voluntary severance package
Loss of employment through retrenchment (forced or voluntary) is a reality many employees face in the current economic climate. Over the last number of years, various tax concessions have been made to ease the financial burden on employees facing retrenchment, mainly in the form of tax free thresholds which apply to certain lump sum employer payments. Navigating the tax pitfalls of retrenchment is important, as it is not necessarily guaranteed that all forms of payment upon retrenchment will qualify for preferential tax treatment.
Closing the loophole on retirement annuities and estate duty
Author: Denver Keswell (Nedgroup Investments) “To eliminate the potential to avoid estate duty, government proposes that an amount equal to the non-deductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away.” The statement above is drawn from the 2015 Budget Review and while National Treasury has no intention of scrapping the estate duty exemption that applies to retirement annuities, it would like to stop those who abuse the tax advantages of using a retirement annuity, particularly from an estate duty perspective.
Rethinking retirement – when must employees retire?
The question often arises as to when employees should retire and when employers can compel such employees to retire. There is no statutory retirement age applicable to all employees. The retirement age should be agreed between the parties. Where there is no agreed retirement age, an employer may retire an employee who has reached the retirement age that is the norm. Parties normally agree in the employment contract on a retirement ages or often agree that the retirement age will be as per a company policy or the rules or a retirement fund.
Budget 2015 – Retirement planning opportunities in flux
The 2015 budget has referred to various changes which will affect retirement planning opportunities for individuals. The widely publicised changes to taxation of contributions to retirement funds was due to take effect as from 01 March 2015 but had been postponed during the past year to 01 March 2016 ( i.e. the 2017 tax year).
Retirement reform: seeing past the market myths to the benefits
By Cindy Wilson, Director: BDO Employee Benefits and David Crossley, Practice Manager BDO Wealth Advisers Johannesburg, South Africa- Government’s proposed legislative changes to current retirement funds have created a great deal of controversy and confusion in the market, with some individuals going so far as to resign from their jobs in order to cash-in and ‘protect’their provident fund savings. This is based on the mistaken belief that Government will not allow members to access their benefits once these changes are implemented. In fact, nothing could be further from the truth.
Exemption of foreign pensions received by South African residents
Over the past few years there has been uncertainty surrounding the circumstances of South African residents receiving pension payments for services rendered or partly rendered outside South Africa. The South African Revenue Service (SARS) has previously taken the view that if the fund was located in South Africa, then the source was deemed to be in South Africa and therefore rendered the total amount of the pension payment as being taxable in South Africa, irrespective of the fact that the pension may have related partly to services that were rendered outside the country.
Pensions received by SA residents from SA pension funds for services rendered partly abroad
Author: Jenny Klein – Tax Manager at ENSafrica Many South Africans spend significant periods of time working outside the country. Due to the fact that South Africa taxes the world-wide income of its residents, payments received by residents for services rendered outside the country are included in their gross income for South African tax purposes, but may subsequently be excluded from their taxable income in terms of any available exemptions. Whilst this may be the case the question is often posed whether any similar exemption may apply to their pension benefits received upon retirement from their South African pension fund in relation to the period of services rendered abroad.
Retirement Reform – Why you should not be afraid
Author: Cindy Wilson and David Crossley, Wealth and Advisory, BDO South Africa Johannesburg, South Africa- November. 06, 2014 A great deal of controversy has surrounded the Government’s proposed legislative changes to current Retirement Funds in 2015. Already a number of employees have taken extreme measures and have resigned from their employment in order to cash in their Provident Fund savings. These actions were taken under the mistaken belief that the Government would not allow members access to their benefits, once the law was implemented.