2015 Taxation Laws Amendment Act
The National Treasury released a statement on 12 January 2016 informing the public that the President has signed into law the Tax Administration Laws Amendment Act and Taxation Laws Amendment Act of 2015 that were passed by Parliament in 2015. All the changes relating to retirement reforms will take effect on 1 March 2016.
The enactment of the 2015 Taxation Laws Amendment Act completes the legislative process to enable the tax harmonisation of retirement fund contributions and benefits as published in the National Treasury press release of 3 December 2015. The press release stated that the law was not changed to prevent provident and pension funds members from accessing their retirement savings upon resignations, dismissals or retrenchments. In this press release Government also cautioned workers not to resign from their jobs if they have concerns about their retirement funds. It also warned those cashing out their pension fund savings that they may be exposed to large and unnecessary taxation which will negatively impact the growth of their savings.
The 2015 Taxation Laws Amendment Act increases the threshold for annuitisation from R150 000 to R247 500; and closes certain coverage gaps. 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 threshold.
All individual taxpayers who contribute towards a retirement fund (pension or provident fund or retirement annuity) after 1 March 2016, will qualify for a tax deduction up to 27.5% of the greater of taxable income or remuneration, up to a limit of R350 000.
The National Treasury will be communicating extensively in the coming period to inform the public about the benefits of the new tax harmonisation and retirement reforms, amidst the anxieties currently being addressed in the media.
All the changes relating to retirement reforms will take effect on 1 March 2016.