The much-anticipated legislation to give effect to the tax harmonisation reforms of retirement funds has finally been signed into law by the President. The changes will be implemented with effect from 1 March 2016, as was anticipated prior the official publication of the legislation in the Government Gazette on 8 January 2016.
Below is a short summary highlighting certain aspects of the changes:
Company payroll changes
- The employer contribution in respect of members will be treated as a taxable fringe benefit in the hands of the individual members. Your payroll will therefore need to reflect the employer contribution as taxable fringe benefit on member’s salary or wage slips.
- Members will, however, qualify for a tax deduction in respect of their own contributions and the employer contributions up to a maximum of 27.5% of the greater of taxable income or remuneration, up to a limit of R350 000. Your payroll will therefore need to be adjusted in order to cap the tax relief granted to members up to the value of these thresholds.
Aspects to be communicated to members
- We recommend that pension fund members (and members of retirement annuity funds) receive a communication explaining the changes above. We have found that it is very helpful to include sample calculations of how the new thresholds will apply in the communication in order for members to clearly see that their take-home pay will not be affected (unless they are currently contributing in excess of the thresholds).
- We recommend that provident fund members receive a communication explaining the changes above as well as the effect that these changes will have on the member’s take-home pay. The changes will most probably result in an increase in take-home pay for provident fund members (who would not have enjoyed any tax relief on their member contributions up to 1 March 2016). We have found that it is very helpful to include sample calculations of how the new thresholds will apply in the communication in order for members to clearly see how their take-home pay will be affected. The other important aspect of the tax harmonisation changes could also be communicated to provident fund members, that is, compulsory annuitisation on retirement for all members under the age of 55 on 1 March 2016 and who have a fund credit value (accumulated after 1 March 2016) of more than R247 500 when they reach retirement.