The Taxation Laws Amendment Bill was recently published. The Bill addresses the following two important aspects relating to deductions on contributions and the exemptions on retirement benefits for persons working abroad.

Previously, deductions to retirement annuity funds were only allowed to be set off against “non-retirement funding income”. This included passive income such as interest or royalties but excluded taxable capital gains.

In contrast, deductions to pension funds could only be set off against “retirement funding income”. This comprised of income from employment and it did not include passive income.  

When the tax treatment of contributions to retirement funds was amended to be harmonized across all retirement funds, in March 2016, deductions against passive income was unintendedly excluded.

Hence members of retirement annuity funds cannot deduct contributions against the passive income.  

The Amendment Bill proposes to rectify this oversight and proposes to introduce a deduction against contributions to be set off against passive income (excluding taxable capital gains), for all retirement funds.   

The proposed effective date for this change is 1 March 2016. 

Pension fund contributions that were above the deductible limits were not allowed to be rolled over to the following year to potentially be deducted in that year. However, upon retirement these amounts could be taken tax free. 

In March 2016 the legislation changed to allow any contribution above the limit to any retirement fund to be rolled over to the following year. However, these legislative changes do not cater for the rollover rule to apply to any excess contributions made before 1 March 2016 to pension funds and retirement annuity funds.

It is now proposed that excess contributions, to both pension funds and retirement annuity funds, contributed before 1 March 2016 be allowed to be rolled over and deducted in the following tax year. 

This will not apply to provident fund contributions as there is no requirement for provident funds to purchase an annuity. 

The proposed effective date for this change is 1 March 2016.

The Act allows a South African tax resident who is employed outside South Africa to receive a tax free retirement benefit equivalent to the amount that accrued during the period of employment outside South Africa.

Also allowable are deductions to contributions to a South African fund.

To ensure a fair tax treatment of retirement benefits received by South Africans, National Treasury has proposed that the exemption should only apply to retirement benefits emanating from foreign retirement funds. Hence the exemption will not apply to participation in a South African registered retirement fund.

Members working abroad will still be eligible for deductions on contributions to a South African fund.   

The proposed effective date for this change is 1 March 2017.

The Bill still has to go through the parliamentary approval process before it is promulgated into law.