Treasury announces tax changes for retirement funds in 2016

Article source: Accounting Weekly 

The tax harmonisation reforms for retirement funds will be implemented from 1 March 2016‚ the Treasury says.

“This is in terms of the current law legislated in 2013‚ and amended in 2014 by shifting the effective date to 1 March 2016 (ie the Taxation Laws Amendment Act‚ No 39 of 2013‚ as amended by Act No 43 of 2014).

The 2015 Taxation Laws Amendment Bill did not amend the scheduled implementation date‚ “but only amends the R 150‚000 de minimis threshold to R 247‚500; closes certain coverage gaps; and requires a review of the legislation after two years from the effective date‚ and to report this review to Parliament”‚ the Treasury said.

Both Houses of Parliament had now passed the Taxation Laws Amendment Bill‚ 2015‚ which now only awaited the assent of the President‚ expected to be later this month or early January 2016‚ it added.

The National Council of Provinces (NCOP) passed the Bill on 1 December‚ after the National Assembly passed the Bill on 26 November.

In terms of the reforms‚ all individual taxpayers who contribute towards a retirement fund (pension or provident fund or retirement annuity) after 1 March 2016 (ie from the next tax year)‚ will qualify for a tax deduction up to 27.5% of the greater of taxable income or remuneration‚ up to a limit of R 350‚000.

The law also allows one-third of the retirement saving to be cashed out as a lump sum‚ with the remaining two-thirds to be annuitised.

“This law already applies to all pension fund and retirement annuity fund members‚ but will now be extended to members of provident funds.

“Hence‚ all new contributions into provident funds after 1 March 2016 by those younger than 55 years will be subject to the two-thirds annuitisation requirement‚ but only once the amount at retirement exceeds the de minimis threshold. It will take several years before many provident fund members under the age of 55 years reach this higher limit‚” the Treasury said.