LEGAL UPDATE ISSUE 10

Taxation Laws Amendment Act, 2013

Background
The Taxation Laws Amendment Act, 2013 (the Act) was signed into law on 12 December 2013. Changes are effective 1 March 2015.

Insured monthly disability benefit premiums (insured monthly disability income)
• With effect from 1 March 2015, premiums for income continuation benefits will no longer be tax deductible.
• Benefits when payable will, however, be tax-free.
• This means that employers paying such premiums as part of retirement fund contributions will have to ensure that their payroll is correctly programmed to treat these contributions as fringe benefits for tax purposes.

Contributions to retirement funds
• Employer contributions to retirement funds will be taxed as fringe benefits with effect from 1 March 2015.
• At the same time, individuals will be able to deduct up to 27.5% of the higher of remuneration or taxable income (previously pensionable salary) as contributions to pension, provident and retirement annuity funds.
• The annual maximum limit for this deduction will be R350 000.
• From a practical perspective, payrolls will have to be adjusted to:
(a) reflect the employer contributions as fringe benefits (with corresponding deduction for employee, making it essentially tax neutral); and
(b) accommodate the above-mentioned limits (27.5% / R350 000).
• Indications are that additional voluntary contributions are included in the 27.5%.

Levelling the playing field for retirement funds
• From March 2015 not more than one third of retirement benefits from a provident fund may be taken in cash.
• This does not apply to the built-up balance in existing provident funds as at 1 March 2015 and future growth on that value.
• This change also does not apply to provident fund members who are 55 years or older on 1 March 2015. They may still take their total retirement benefit in cash.
• What this means is that your fund administrator will have to keep separate records of provident fund retirement savings pre 1 March 2015 (plus growth thereon) and post 1 March 2015 pension fund savings (plus growth thereon).

Commutation of retirement funds
• From 1 March 2015, a memberwith a retirement benefit of R150 000 or less will be able to take the full benefit in cash. The previous limit was R75 000.

Conclusion
With the above mentioned changes we see a shift towards simplicity, uniformity and a more level playing field for retirement funds (pension, provident and retirement annuity funds). Your fund consultant will be able to guide you through the process of making the necessary adjustments to your fund rules.

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