Taxation Laws Amendment Bill of 2015
By Kobus Hanekom, Simeka Consultants & Actuaries
The draft Taxation Laws Amendment Bill (TLAB) was circulated for comment on 22 July 2015. It does not contain any new developments as far as retirement funds are concerned. It merely gives effect to the key proposals announced in the 2015 Budget Review:
- T-day still to be implemented on 1 March 2016
- Making state funds subject to T-day
- T-day legislation being debugged
- Closing the estate duty loophole
1. T-Day still to be implemented on 1 March 2016
National Treasury recently indicated that they still intend to implement T-Day financial regulations on 1 March 2016. The explanatory memorandum confirms this and introduces a number of T-Day adjustments.
In addressing recent union concerns, it appears that National Treasury hopes to bring the unions on board by adjusting the de-minimus threshold (see explanation of ‘de-minimus’ below). The memorandum states “further amendments may be effected to the de-minimus threshold at which individuals would be required to purchase an annuity at retirement, to take into account consultations through NEDLAC. This will be in line with a request arising from hearings in the Standing Committee on Finance in 2014.”
Observation: National Treasury’s intention was to increase the de-minimus amount from R75 000 to
R150 000 from 1 March 2016. This means that if a member’s retirement benefit is below R150 000 the entire benefit can be taken as a lump sum. If the de-minimus amount is increased to say R300 000, it may well be less than the average retirement benefit accumulated by workers in provident funds. As such it may take the sting out of the T-Day implications for these members. If it is implemented it will of course apply to both pension and provident fund members.
2. Making the GEPF and other state funds subject to T-Day
Some of the changes proposed will ensure that the T-day requirements apply to all funds, private and public. Changes are therefore being made to the definitions of both state and municipal pension funds to make them subject to the commutation limits upon retirement. The GEPF is still excluded from this limit.
3. T-Day legislation being refined and debugged
One of the technical matters being addressed in provident funds is the amount that will be protected from compulsory annuitisation. It is proposed that not only the contributions but also other amounts credited to the member’s individual account in a provident fund prior to 1 March 2016, as well as the fund return thereon, will now also “protected”.
The “protected” contributions and other amounts must further be “reduced by any amounts permitted by law to be deducted from the member’s individual account of the provident fund”. The effect of this is that deductions from a member’s fund value (such as divorce payments) should be deducted from the member’s pre-1 March 2016 fund value (in other words from the “protected” amount), and not from their post-1 March 2016 fund value.
4. Closing a loophole to avoid estate duty through excessive contributions to retirement funds
Section 3 of the Estate Duty Act, 1955, will be amended by the insertion of a new subsection. The effect of this is that retirement fund contributions that did not receive a tax deduction are included in the dutiable part of a deceased member’s estate for estate duty purposes.
The subsection will come into operation on 1 January 2016 and will apply to the estate of a person who dies on or after that date.
5. Withdrawal from retirement funds by non-residents
It is proposed that the definition of “retirement annuity fund” be amended to allow for expatriates to withdraw a lump sum from their retirement annuity fund when they cease to be tax resident and leave South Africa. It will also apply if they leave South Africa at the end of their work visa and were not regarded as resident by the South African Reserve Bank for exchange control purposes.