Page 1115 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
(d) However, vested rights are preserved and those members over 55 years are exempted from the requirement to annuitise.
(e) In turn, the de minimis threshold is increased from R75 000 to R247 500. This effectively means that members of pension, provident and retirement annuity funds who do not have a retirement bene t exceeding R247 500 at retirement will not be required to annuitise. Only members who have a retirement bene t of R247 500 will be required to annuitise.
In addition to this, the legislation proposes further consultation by the Minister of Finance within two years of the implementation of the retirement reforms. The legislation proposes that the Minister of Finance, after consulting with the relevant stakeholders, review the impact and implementation of the retirement reforms and table the report on the review in Parliament not later than 30 June 2018.
IV. Effective date
The proposed amendments will come into operation on 1 March 2016 and apply in respect of years of assessment commencing on or after that date.
1.2 CLOSING A LOOPHOLE TO AVOID ESTATE DUTY THROUGH EXCESSIVE CONTRIBUTIONS TO RETIREMENT FUNDS
[Applicable provision: Section 3 of the Estate Duty Act]
I. Background
Prior to 2008 there was a limitation that individuals with a retirement annuity fund would be required to retire (purchase an annuity) before they reached the age of 70, however this was removed in the 2008 Taxation Laws Amendment Act. The intention here was to allow individuals to work beyond the regular retirement age and still contribute to their retirement. In the same year, the Estate Duty Act was amended to exclude lump sum retirement assets from the dutiable portion of the estate upon death (pension annuities were already exempt). The explanatory memorandum stated that the amendment was intended to ‘alleviate nancial dif culties that a family may face upon the death of the family’s income provider’ and that the change was ‘in line with Government’s efforts to promote long-term retirement savings’.
II. Reasons for change
These two amendments opened up an opportunity for individuals to use retirement annuity contributions to avoid estate duty. Contributions to retirement annuity funds that did not receive a deduction, since they were above the deductibility limit, could pass to the estate upon death (without being subject to the retirement lump sum tax tables) and could then pass to the bene ciaries of the estate free from estate duty. Although it would be more dif cult to actively plan, the same route for avoidance of estate duty could potentially exist for contributions to provident funds or pension funds that were above the deductibility limits.
III. Proposal
To limit the practice of avoiding estate duty through retirement contributions it is proposed that contributions that were made on or after 1 March 2015 to a retirement fund that did not receive a deduction should be included in the dutiable part of the estate for estate duty purposes. Contributions that did not receive a deduction which have been included as part of any lump sums payouts to the retirement fund member or that have been used to offset the tax liability for annuity payments to the retirement fund member will not be included in the dutiable value of the estate (to avoid any potential double counting).
IV. Effective date
The proposed amendments will come into operation on 1 January 2016 and apply in respect of the estate of the person who dies on or after that date and apply in respect of contributions made on or after 1 March 2015.
1.3. WITHDRAWAL FROM RETIREMENT FUNDS BY NON RESIDENTS
[Applicable provision: Paragraph (b)(x)(dd) of the de nition of ‘retirement annuity fund’ in section 1]
I. Background
Expatriates who move to South Africa for a xed term of employment often contribute to a retirement annuity fund to continue saving for retirement in a tax ef cient manner. These expatriates may during the term of their xed employment contract in South Africa, become tax residents in South Africa by application of the physical presence test. Some of the expatriates may stay in South Africa for a short period of time and do not qualify as residents for tax purposes in terms of the physical presence test nor are they regarded as resident by the South African Reserve Bank for exchange control purposes. At the end of the xed term contract or expiry of the work visa, these expatriates would normally leave South Africa. When these expatriates leave South Africa they intend to withdraw their lump sum contributions from their retirement annuity fund.
II. Reasons for change
The current provisions do not allow for expatriates to withdraw a lump sum from their retirement annuity when they cease to be tax resident and leave South Africa or when they leave South Africa at the expiry of the work visa. The de nition of ‘retirement annuity fund’ in section 1(b)(x)(dd) provides for a lump sum payment of bene ts where the member emigrated from the country and that emigration is recognized by the South African Reserve Bank for the purposes of exchange control. This de nition only caters for South African nationals who emigrate to another country. When expatriates cease to be tax resident and/or leave South Africa after the term of the xed employment contract, or when they leave South Africa at the expiry of their work visa, they are not regarded as having emigrated by the South African Reserve Bank for the purposes of exchange control. As a result, they are not entitled to receive a lump sum payment from their retirement annuity funds.
SAIT CompendIum oF TAx LegISLATIon VoLume 2 1107