TAXATION IN SOUTH AFRICA 2016/7

Transcription

1 Retirement Fund March 2016 TAXATION IN SOUTH AFRICA 2016/7 Your Retirement - Our Passion Sentinel Retirement Fund Reg No 12/8/1215 Sentinel House 1 Sunnyside Drive Sunnyside Park PARKTOWN 2193 P O Box MARSHALLTOWN 2107 Johannesburg South Africa info@sentinel.za.com Tel (27)(11) Fax (27)(11)

2 INCOME TAX Taxation of retirement provision in South Africa is based on the E E T principle that implies the following: Ÿ Contributions are tax deductible (Exempt), Ÿ Growth earned on investments in a retirement fund is tax-free (Exempt) and Ÿ Benefits are taxed (Taxable) when these become payable. Tax Deduction on Retirement Fund Contributions Changes to the tax deductibility of retirement fund contributions will take effect on 1 March These changes form part of T-Day amendments to the Income Tax Act. The new dispensation is summarised in the following table. Employer contributions Member contributions Pension Fund Provident Fund Retirement Annuity Fund Previous dispensation Employer contributions to pension and provident funds were tax deductible up to 20% of approved remuneration, in the hands of the employer. Tax deductions for member contributions differed depending on the type of fund to which contributions were made. The greater of: Ÿ 7.5% of retirement funding income (i.e. Fund Salary), or Ÿ R1,750. No immediate tax deduction. The greater of: Ÿ 15% of non-retirement funding income, or Ÿ R3,500 minus pension fund contributions, or R1,750. New dispensation from 1 March 2016 Employer contributions will be treated as a fringe benefit in the hands of a member. (Employers will retain full tax deductibility). The fringe benefit value of the employer contribution PLUS member contributions to all retirement funds, will qualify for a tax deduction in the hands of the member, up to a maximum of 27.5% of the greater of remuneration or taxable income, limited to a maximum of R350,000. Excess contributions will rollover to subsequent years. Other important matters regarding this new tax dispensation that will also take effect on 1 March 2016: Ÿ Non-deductible contributions will enjoy roll-over tax relief In the event that contributions exceed the maximum allowable tax deduction in any specific year, the non-deductible portion will rollover to following years and will continue to do so until the total value of non-deductible contributions will be deducted from the lump sum benefit or monthly pensions that the member is entitled to at retirement. 1

3 Ÿ The de minimus provision Where a member's total retirement capital (Fund Credit) at retirement is less than R247,500 (R75,000 prior to 1 March 2016), the member will not be required to provide for a monthly pension (annuitise) and will be allowed to take the full value as a lump sum. Tax on Lump Sum Benefits Benefits become payable when members leave the service of their employer, either due to resignation, dismissal, retrenchment, retirement or death. Withdrawal benefit lump sums are taxed in terms of the following tax table: WITHDRAWAL LUMP SUMS R0 R25,000 R25,001 - R660,000 R660,001 R990,000 R990, % 18% of taxable income above R25,000 R114, % of taxable income above R660,000 R203, % of taxable income above R990,000 This tax table is applied on an accumulative basis on the aggregate of retirement fund lump sum withdrawal benefits accruing from March Retirement, retrenchment and death benefit lump sums are taxed in terms of the following tax table: RETIREMENT, RETRENCHMENT & DEATH LUMP SUMS R0 R500,000 R500,001 R700,000 R700,001 R1,050,000 R1,050, % 18% of taxable income above R500,000 R36, % of taxable income above R700,000 R130, % of taxable income above R1,050,000 This tax table is applied on an accumulative basis on the aggregate of retirement fund lump sum benefits accruing from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009 as well as severance benefits accruing from March Tax on monthly income (PAYE) Employees' tax (PAYE) is levied on remuneration earned by employees. Members' remuneration will be subject to PAYE through their employers and the Fund acts as employer for pensioners. Any monthly pension paid by the Fund, is taxable. The following Income Tax Table for 2016/7 applies from 1 March 2016 until 28 February

4 TAX ON MONTHLY INCOME (PAYE) R0 to R188,000 R188,001 to R293,600 R293,601 to R406,400 R406,401 to R550,100 R550,101 to R701,300 R701,301 and above 18% of each R1 R33,840 plus 26% of the amount above R188,000 R61,296 plus 31% of the amount above R293,600 R96,264 plus 36% of the amount above R406,400 R147,996 plus 39% of the amount above R550,100 R206,964 plus 41% of the amount above R701,300 Tax thresholds determine the total taxable income levels where individuals, in different age groups, start paying tax. Tax rebates and thresholds with effect from 1 March 2016 are as follows: Age category Below to and older Total Rebate R13,500 R20,907 R23,373 Annual Tax Threshold R75,000 R116,150 R129,850 Pension Fund members who worked outside SA during their term of membership will be entitled to an additional tax exemption on monthly pensions, based on the number of years worked outside SA in relation to the total years of membership. This is arranged by the Fund for members who provide substantiating documentary proof. Medical tax credits on monthly medical aid contributions are allowed as a tax rebate: Ÿ R286 for the first two dependants and Ÿ R192 for every dependant thereafter. Exemption on Interest Earned The following exemptions apply to interest earned on investments: Ÿ Individuals below the age of 65: R p.a. Ÿ Individuals aged 65 and older: R p.a. Tax-free savings accounts were introduced on 1 March 2015 to encourage personal savings. Individuals are able to contribute a maximum of R per tax year, with a lifetime limit of R and returns earned in these accounts will not be subject to tax. 3

5 OTHER TAXES The following table provides information about different taxes, thresholds and rates that are levied in South Africa. ESTATE DUTY Exemption at death Tax rate R3,5 million per person 20% DONATIONS TAX Annual Exemption Tax Rate Donations between Spouses R100,000 per taxpayer 20% Exempt TRANSFER DUTY ON FIXED PROPERTY Property Value R0 to R750,000 R750,001 to R1,250,000 R1,250,001 to R1,750,000 R1,750,001 to R2,250,000 R2,250,001 to R10,000,000 R10,000,001 and above 0% of property value 3% of property value above R750,000 R15, % of property value above R1,250,000 R45, % of property value above R1,750,000 R85, % of property value above R2,250,000 R937, % of property value above R10,000,000 CAPITAL GAINS TAX Annual Exclusion Primary Residence Exclusion Exclusion on Death Exclusion on disposal of small business CGT inclusion Rate for individuals Maximum effective tax rate for individuals R R2 million R R1.8 million 40% 16,4% SARS website address: This brochure provides information with regard to different taxes levied in to South Africa. It does not give rise to any rights or obligations. In the event of errors, current legislation and regulations will prevail and the Fund cannot be held liable for any damage or loss. 4