Introduction of the Retirement Fund Two-Pot Retirement system

Treasury intends to fundamentally change how they govern access to our retirement funds. The proposal will be for retirement funds to cater for 2 separate pots made up of one third and two thirds of all retirement fund contributions. Members will be able to access the one third pot at any stage prior to retirement as a lump sum however they will not be able to access any portion of the two third pot as a lump sum (even on resignation). The member will be required to use the two third portion to purchase a compulsory annuity at retirement. 

Treasury released a paper “Encouraging South Africans Households to Save More for Retirement” in December 2021 and invited public comment. They are currently reviewing the comments and will look to introduce legislative tax proposals later in the year. 

Retirement funds and tax on emigration 

In the last budget government indicated that they wanted to introduce a deemed tax event when retirement fund members where no longer tax resident. After many concerns raised during public and industry consultations this proposal was withdrawn from Taxation Laws Amendment Bill 2021. Currently a retirement fund member is only subject to tax when they decide to take cash from their retirement fund on withdrawal or retirement. When that member leaves South Africa the asset is still deemed to be South African sourced and therefore liable for tax in South Africa. 

The problem for SARS is that the member may also be liable for tax in the country that they are currently residing in - and therefore, any tax treaty between South Africa and such other country may mean that South Africa will end up forfeiting its share of any tax payable. To rectify the above anomaly treasury intends on introducing legislation that will deem the retirement fund value as accrued to the emigrating member the day before they no longer qualify as a South African tax resident. If the emigrating member chooses to defer accessing their retirement fund value to a later retirement date, then such member will receive a tax credit at that stage when they actually pay tax. In this way South Africa seeks to ensure that they receive tax due. 

It is important to note that this is currently just an intention of treasury and that it is not yet in Bill format. Once proposed in the Taxation Laws Amendment Bill, industry and all other affected persons will be given the opportunity to comment. Government has recognised changing tax legislation to accommodate the above requires a review of multiple tax treaties. Government intends initiating negotiations in this regard within the year. 

Corporate income tax 

Corporate income tax will be reduced by 1 percentage point to 27%. The hope is that will positively impact on investor behaviour, influencing jobs, wages and prices. 

Tax incentives 

The budget raised concerns regarding preferential treatment for certain taxpayers and government indicates that they will look to expire incentives “that have not widened social or economic benefits will not be renewed”. Those found to be effective will be retained or improved. It will be interesting to see which tax incentives will be expired. They have previously indicated that there was no intention to increase interest exemptions and one wonders if that will be first to go. Hopefully the current incentives which encourages savings (retirement funds and tax-free investments) will not be affected. 

Disclosure of wealth

Those with assets above R50 million will be required to declare specified assets in their 2023 tax returns in order to assist with the detection of non-compliance or fraud through the existence of unexplained wealth. 

Offshore limit increase

In his speech the minister also indicated that there would be an increase for all insurance, retirement and savings funds by 5% to 45%. The 45% would include the 10% limit for Africa. 

Apportioning the interest and capital gains tax annual exclusion when an individual ceases to be tax resident 

Legislation was amended back in 2012 so that an individual’s tax year of assessment ended the day before that individuals tax residency ceased. The same individual’s new tax year assessment would begin on the day they ceased their tax residency. This meant that the individual has two years of assessment during a 12-month period which unfairly allowed said individual to access exemptions and exclusions twice in one year. To address this anomaly, government will introduce legislation to apportion the interest and capital gains tax exemption under such circumstances. 

Clarifying the compulsory annuitisation and protection of vested rights when transferring to a public sector fund 

Government will introduce legislation to ensure that vested rights with regard to provident fund contributions made prior to 1 March 2021 or member’s (over the age of 55) vested rights will be protected even if they transfer to a public sector fund. 

Clarifying the applicability of tax‐neutral transfers from a pension to a provident fund 

The introduction of mandatory annuitisation of provident funds in March 2021 also introduced tax neutral transfers into provident and provident preservation funds. However due to an anomaly to the legislation, contributions made to a pension fund prior to 1 March 2021 and that were transferred to a provident fund after 1 March 2022 did not qualify for a tax neutral transfer. Government seeks to address this anomaly by amending the offending legislation. 

Study on the tax treatment of amounts received by or accrued to portfolios of collective investment schemes 

In 2018 the government introduced a proposal in the Taxation Laws Amendment Bill to treat what they deemed to be “frequent trading” in collective investment schemes as income in nature. Currently withdrawals from collective investment schemes are capital in nature. After reviewing the many concerns raised by public and industry comments, government decided to withdraw the proposed amendments. In this year's Budget, the government indicated that they will release a discussion document to deal with tax treatment of amounts received by or accrued to portfolios of collective investments schemes. The discussion document will be open for public comment prior to any amendments being published in Taxation Laws Amendment Bill.