On 23 April 2020, National Treasury published a media statement announcing certain tax measures to combat the economic effect of the national lockdown due to the COVID-19 pandemic. One of the interventions included in these tax measures related to expanding the access to living annuity funds. This will assist individuals who either need cash flow immediately or who do not want to be forced to realise living annuity investments that have underperformed.
The tax measures offered in the media statement will be given legal effect in terms of two bills namely the Disaster Management Tax Relief Bill and the Disaster Management Tax Relief Administration Bill. These Bills have since been revised to provide the necessary legislative amendments required to implement the tax measures and were published on 1 May 2020 for urgent public comment due by 15 May 2020. The consultation documents are available on the National Treasury’s website.
The documents for consultation were published together with a draft Explanatory Memorandum on the Revised Draft Disaster Management Tax Relief Bill, which explains that Government proposes to amend current legislation by expanding access to living annuities for a limited period of four months beginning 1 May 2020 and ending on 31 August 2020 as follows:
Living Annuity Draw Down Rates
- Individuals who receive funds from a living annuity will be allowed to temporarily immediately either increase (up to a maximum of 20 per cent from 17.5 per cent) or decrease (down to a minimum of 0.5 per cent from 2.5 per cent) the proportion they receive as annuity income, instead of waiting up to one year until their next contract “anniversary date”;
- Individuals will be able to adjust their draw down rates at any time during this period (irrespective of whether or not the contacts’ anniversary date falls within the said period);
- Any elections made during this period will only be applicable for the above mentioned four-month period. The lapsing of this period will result in the draw down rates automatically reverting to the rates applicable before said election.
Individuals whose anniversary date falls within the proposed four-month relief period may elect to amend their draw down rate either in accordance with the existing legislation (thereby making their election valid until their next anniversary date), or in accordance with the above-mentioned proposal, which applies for a limited period of four months, (resulting in their draw down rate automatically reverting to the draw down rate elected at their previous anniversary date after the four-month period).
Withdrawals
In addition, the Government also proposes the following amendments:
- The R50 000, which is the minimum value of the annuity or part of the retirement interest which an individual can withdraw in the event that there was any previous lump sum commutation in the fund and R75 000 in any other case, be replaced by a single threshold of R125 000 to be applied as the de-minimis amount.
- The proposed amendments to the de-minimis amounts to R125 000 will not be limited to the four-month period and will continue to apply thereafter.
Public comments on the proposed tax amendments regarding COVID-19 tax measures can be submitted to the National Treasury’s tax policy depository at 2020AnnexCProp@treasury.gov.za and Adele Collins at acollins@sars.gov.za by close of business on 15 May 2020.
Advisors who assist their clients to make use of these amendments should ensure that they keep detailed records of their discussions with clients, evidence of the new/updated information obtained from clients and the advice which they gave to their clients. Ensure that clients are alerted to the potential consequences of the change and warn the client of any impact that these changes may have on their longer-term plans. Where clients decide to act against the advice or recommendation provided, ensure the records reflect this and that clients understand how their decision may affect them in the future.