The removal of a few words in the latest version of the Taxation Laws Amendment Bill, 2015, appears to have rectified a loophole contained in an earlier version of the Bill that would have resulted in a notable reduction in an employee's take-home pay if they belonged to a retirement fund.
One of the major changes in the proposed new tax law is that an employer contribution to a retirement fund will be treated as a fringe benefit in the hands of the employee with effect from 1 March 2016. This is in accordance with the general standardisation of the tax treatment of contributions to the various different types of retirement funds e.g. pension, provident and retirement annuity funds.
When the proposed new law was first published, Shepstone & Wylie identified that the way that the law was drafted meant that the employer contribution (to be deemed a fringe benefit) would only be tax deductible at the end of the tax year (whereas the employee contribution would be tax deductible on a monthly basis In simple terms, this meant that employees would be liable for Pay As You Earn (PAYE) tax on their employer's contributions to their retirement fund every month (resulting in a reduction of their take home pay) with effect from 1 March 2016, and would only be able to claim a "refund" at the end of the tax year.
Following extensive engagement between Shepstone & Wylie and SARS, as well as other industry bodies, we are pleased to note that this position has been rectified in the latest version of the Bill. The pleasing outcome for employees is that both employee and employer contributions will (following the implementation of the other related changes with effect from 1 March 2016) be deductible from an employee's remuneration in order to calculate the balance on which monthly PAYE is to be deducted.
The other significant change introduced in the Bill is the proposed compulsory annuitisation requirement in respect of provident funds. National Treasury appears to be committed to achieving 1 March 2016 as the effective date for the implementation of the annuitisation and taxation changes, however further consultation is still to take place and there has yet to be a clear commitment from Government to impose the changes from 1 March 2016. Shepstone & Wylie will keep you abreast of all that transpires going forward.
To view the Draft Bill, the Draft Explanatory Memorandum and National Treasury’s Request for Public Comment on the Timing of Uniform Taxation and Annuitisation for Retirement Funds, click here.