Change in Tax treatment of Pension, Provident and Retirement Annuity Funds

Posted: August 14, 2016 in For the Entrepreneurs, Taxes, Uncategorized
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As from the 1st March 2016, the tax treatment of pension, retirement annuity and provident funds will be changed so that contributions made by the employer will be a fringe benefit.

Basically, it means that there will be an increase in the amount payable for UIF and SDL payable from employees and employers.

These contributions will be allowed as deductions in the employee’s hands and will be limited to 27% of the greater of the remuneration of taxable income (excluding lump sums received) but capped at an annual limit of R350,000.00, Excess contributions will be carried forward into the following year of assessment.

Only the employee may claim contributions (both in respect of the employer and the employee contributions)

 

Going forward , pension and retirement annuity funds will all be subject to the one third lump sum and two-thirds annuity rules, unless the lump sum is below R150,000.00.The annuitisation threshold for pension and RA fund members increases R247,500 on 1 March 2016 (previously R75,000).

Members may benefit from the new definition of the base against which the deduction is measured. This base is now the higher of “gross remuneration or taxable income”. The base was previously defined as “approved remuneration” for pension funds and “pensionable income” for provident funds (as defined by the employer).

The reference to “taxable income” effectively enables pension and provident fund members who receive outside income (income from rental income, alternate employment or investments) to claim a pension fund deduction against such income. Previously such “outside” income could only be used to claim deductions on RA contributions. Members who wish to top up their retirement fund savings will no longer need to take out a separate RA.

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