TAX

New legislation

ID-100265979.jpg

The compulsory annuitisation of provident funds for tax purposes is no surprise. The enabling legislation was introduced into the Income Tax Act in 2013. However, the proposal has been controversial since enactment, and organised labour has been lobbying for it to be scrapped. It now appears that it will go ahead, with effect from 1 March 2016.

The result of the legislation is that, with a few exceptions detailed below, contributions to provident funds after 1 March 2016 plus growth thereon until retirement will be subject to the same annuitisation requirements as pension funds and retirement annuity funds. In other words, the fund member may elect to take a maximum of one-third of the fund value represented by such contributions plus growth thereon to retirement as a lump sum upon retirement. The remaining two-thirds must be taken in the form of an annuity over the life of the member. Contributions made prior to 1 March 2016 plus growth thereon until retirement may still be withdrawn as a lump sum in its entirety.

One exception to the compulsory annuitisation requirement relates to fund members who are 55 years or older on 1 March 2016. Such members will not face compulsory annuitisation at all – neither in respect of contributions prior to or after 1 March 2016, nor growth thereon until retirement. The other exception relates to cases in which the total fund value upon retirement, excluding the above amounts which may be withdrawn entirely in the form of a lump sum, does not exceed R247 500. In such cases the entire amount may be withdrawn as a lump sum. This amount was increased from R150 000, apparently in an effort to placate organised labour. Organised labour is of the view that members need to access their funds on retirement or earlier, as it believes that it is the members’ rights to do so. They would also like this proposal, together with Government’s proposals expected later this year on the proposed reform of South Africa’s social security system, to be considered.

The main reason for the proposal was to encourage savings into retirement. Too often one sees a situation where the fund member takes the full lump sum immediately upon retirement and squanders it. As we are all aware, the propensity to save in South Africa is very low and South Africa can ill afford to fund more citizens than at present. Business on the whole therefore favours the proposal.

David Warneke, Tax Partner, BDO 

 

 

comments powered by Disqus

R1
R1

This edition

Issue 84
Current


Archive


Opportunitymag How blockchain technology can transform global supply chain and logistics https://t.co/IhHecd0CMr https://t.co/xDBqcSkk7o 22 min - reply - retweet - favorite

Opportunitymag The importance of transport in South Africa https://t.co/Njbo97leGN https://t.co/7Fmwwf6XGG 4 hours - reply - retweet - favorite

Opportunitymag The inspiring story of a mineworker's child https://t.co/IqcUtAoS93 https://t.co/h6gcuKOCQ9 7 hours - reply - retweet - favorite

  • Cedrick Ramaboya
  • Naomza Serongoane
  • Masie Tsheole
  • Keith Kubheka