1. Taxation Laws Amendment Act 2018 and recent tax issues related to retirement funds
Jenny Gordon

3. Taxation Laws Amendment Act 2018-

4. Annuitisation of Provident Funds postponed to 1 March 2021
Implementation of the proposals for provident fund members to purchase annuities on retirement has been postponed a number of times in order for the detail to be resolved at NEDLAC. This is taking far longer than anticipated.
The TLAA again postpones the effective date for the annuitisation of provident funds to 1 March The postponement is to allow negotiations at Nedlac to be finalised.
This gives the industry two more years to prepare for the event, administratively.
the Minister of Finance to table a report in the National Assembly, by not later than 31 August 2020, on the result of deliberations about the proposals set out in the TLAB
Comment: The way the legislation has been drafted will need to be revisited as there are technical revisions which need attention Industry bodies intend to consult with NT and make submissions to ensure that the drafted law correctly reflects the policy intention.

5. Tax Treatment of Transfers to Pension and provident Preservation Funds after reaching Normal Retirement Age but before Retirement date
Pre 1 March 2015 on reaching retirement date could only retire and buy a pension
Since 1 March 2015, retirement date is an election to retire after normal retirement age in terms of the rules of a fund.
Can defer retirement date after reaching normal retirement age but before retirement date by:-
Remaining a deferred member of the employer pension or provident fund; or
Since 1 March 2018 by transferring from a pension or provident fund to a retirement annuity fund.
WEF 1 March 2018 – can transfer to Preservation or after reaching normal retirement age in terms of the rules of the fund, but before retirement date.
The one withdrawal applicable to preservation funds before retirement date will not apply to amounts transferred
New paragraph 2(1)(c) of Second Schedule allows transfer
New Paragraph 6A allows deduction for transfer after normal retirement age and before retirement date,

6. Normal Retirement Age – Income Tax Act versus Rules of Fund.
Normal retirement age in the ITA is:
Age 55 for RAF and Preservation funds
Sickness, accident, infirmity, incapacity of mind or body
Becomes entitled to retire
Rules of funds have “normal retirement age “ last day one can retire from employment
paragraph 2(1)(c) of the Second Schedule which refers to “on or after normal retirement age, as defined in the rules of the fund.”
clarification of the purposive meaning from SARS
corresponds with the definition of “normal retirement age in the Income Tax Act”. earliest date on which the fund rules allow a member to qualify for a retirement benefit or retirement interest.

7. Transfers from Public Sector Funds to Private Sector Fund
Until 1 March 2018, a transfer of the pre 1 March 1998 amount directly from a public sector fund to a private sector fund was tax free.
However, further transfers from the private sector fund to another private sector fund caused the member to lose the tax free status of the pre 1 March 1998 amount.
With effect from 1 March 2018, the Act was amended to allow the tax free status of the pre 1 March 1998 amount to be retained on the next transfer to another private sector fund, but not to any further transfers.
The way in which the legislation was drafted is ambiguous in that it potentially contemplates more than the next transfer.
The Act will be amended to clarify that it applies only to a direct transfer from the private sector fund.
It seems that it will apply only if the transfer to the second fund occurred after 1 March 2018.

8. Transfer from Provident Preservation fund into Pension fund
Fund to fund transfers is an accrual event.
deduction is provided by paragraph 6 of the Second Schedule to the Act which results in the amount transferred being untaxed.
Only exceptions - where a pension fund or pension preservation fund benefit is transferred to a provident fund or provident preservation fund.
Inadvertent mistake = provident preservation fund into a new employer pension fund, no deduction provided.
Amended in TLAA 2018
“a provident preservation fund into any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund”.
This also applies to Divorce awards made to a non-member spouse which may be transferred to a fund chosen by the non-member spouse.

9. Emigration Benefit extended to Preservation funds
Members of Retirement Annuity funds have been allowed to withdraw full amount in cash on official emigration or expatriates when they leave South Africa at the expiry of the work visa.
Members belonging to a pension preservation fund or a provident preservation fund were restricted from doing so after they had made their one withdrawal before retirement
Extended to members of Pension and provident preservation funds.
Deferred members qualify for the benefit in both a RA fund and Preservation fund
Therefore
Exception =deferred member in a pension and provident fund
Effective date: 1 March 2019

10. Definition of “Retirement Interest
In a technical amendment, the definition has been amended as follows with effect from 1 March 2019.:
‘retirement interest’ means a member’s share of the value of a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund as determined in terms of the rules of the fund on the date on which he or she elects to retire or transfer to a pension preservation fund, provident preservation fund or retirement annuity fund;’’.
This facilitates the transfer of a member’s deferred benefit to a preservation fund or retirement annuity fund.
Comment: It is noteworthy that a retirement interest cannot currently be transferred to another pension or provident fund. (not to be confused with the right to transfer a paid up benefit before it becomes a deferred retirement benefit). However, there is merit in this being allowed in certain situations which is being proposed by industry bodies in submissions made to NT.

11. Deduction for Contributions to Retirement Funds must be Proportionately Incurred Between SA and Foreign Sources.
Any allowable deductions contemplated in sections 11F ( 27,5% retirement fund deduction) and section 18A (charitable donations) must be deemed to have been incurred proportionately in respect of taxable income derived from sources within and outside the Republic.
The deduction under section 11F and section 18A must be allocated in relation to the taxable income from sources within and outside the Republic before taking into account any deduction in terms of those sections

12. Section 11F Section 11(k) is now section 11F.
Section 11(k) is now section 11F
27,5% deduction in respect of contributions to retirement funds.
All other section 11 deductions are in the production of income for the purposes of trade
Needed separate section.

13. Tax treatment of actuarial surplus between retirement funds
Where an employer makes any contributions to a retirement fund for the benefit of an employee, it is a taxable fringe benefit under the Seventh schedule..
So is a benefit provided by an associated institution if such benefit would have constituted a taxable benefit had it been granted directly by the employer
An associated institution includes an employer established retirement fund.
So any contributions made by an employer owned retirement fund into another employer owned retirement fund is a taxable fringe benefit in the hands of employees. This also applies to transfers of actuarial surpluses
To address these unintended anomalies, surplus transfers or transfers between within or between retirements funds of the same employer not to create a taxable fringe benefit in the employee’s hands.
Effective date 1 March 2017

14. .
National Budget 2019

15. Budget 2019:Tax treatment of bulk payments to former members of closed fund
Retirement funds are permitted to make certain extraordinary payments to their members tax free, provided that these payments are approved by the Minister of Finance in a Government Gazette notice.
In 2009, the Minister of Finance issued a notice in Government Gazette No approving retirement funds to make tax-free payments of “secret profits”, “surplus calculations” and “unclaimed benefits”.
When the notice was issued, some deregistered retirement funds had already paid fund administrators, but the amounts were not yet paid to the affected members and/or beneficiaries.
It is proposed that these payments currently held by fund administrators on behalf of deregistered retirement funds qualify as tax-free payments, provided they meet the relevant criteria. We will have to wait to see what the proposed criteria are.

16. Budget 2019: Section 10C
Exemption against “compulsory annuity” income for contributions to retirement funds which did not qualify for a deduction under the current section 11F (previously sections 11(k) and 11(n)) or paragraph 5(1)(a) or 6(1)(b)(i).
compulsory annuity – excludes from a provident fund or a preservation provident fund.
National Budget: To encourage annuitisation (regular payments in retirement), it is proposed that this exemption be extended to provident and provident preservation fund members who receive annuities.
The exemption will apply for contributions made after 1 March 2016

17. Budget 2019: Reviewing the tax treatment of surviving spouse pensions
surviving spouse pension from the retirement fund. – subject to PAYE
Salary – subject to PAYE
On assessment, aggregation of income pushes them into a higher tax bracket.
Creates cash flow burden and a tax debt for the surviving spouse.
It is proposed that:
Surviving spouses are provided with effective communication relating to tax and financial issues???
The monthly spousal pension be subject to PAYE withholding at a specified flat rate
Tax rebates should not be taken into account in the calculation of spousal pensions.
Questions
Does it apply to annuities paid from funds only? Or living annuities?
Flat rate -Could be in a worse position
Have to submit tax returns to get refund
Does it apply if the annuity is only source of income?
Any PAYE excessively withheld as a result of this proposal will be refunded upon assessment

18. Annexure C submissions of Industry lobby groups.

19. Submission: Multiple contracts in a RA and Preservation Fund
Definition of retirement annuity fund
save  for the transfer of any member’s total interest in any approved retirement annuity fund into another approved retirement annuity fund; no member’s rights to benefits shall be capable of surrender, commutation or assignment or of being pledged as security for any loan;
Cannot transfer a single contract in the transferring RA if the member holds more than one contract in that transferring RA.
SARS confirms that the full retirement interest must be transferred
Definition of Preservation fund
With the exception of amounts transferred to any other ..fund, not more than one amount contemplated in paragraph 2(1)(b)(i) of the Second Schedule is allowed to be paid to the member during the period of membership of the fund: provided that this paragraph applies separately to each payment or transfer to the fund …”

20. Submission: Transfer of unclaimed benefit in a retirement annuity fund
Currently no provision
Request for provisions

21. Submission: Partial access to lump sum withdrawal and retirement benefits
In fund preservation- should be able to make a part withdrawal
A member who retires from employment – access to lump sum and allow later payment of the annuity.

22. Submission: Lower minimum drawdown rate for living annuities
not less than 0,5 per cent and not greater than 17,5 per cent of the value of assets
Circumstances change after retirement

23. Submission: Allowing withdrawal of transfer to employer fund
Currently the ITA does not allow for multiple withdrawals from the same pension or provident fund, for instance where a member transferred a preserved benefit to a fund and has both an inactive and an active record.
If member preserves in a Preservation fund, withdrawal available
If a transfer to employer fund, right of withdrawal is lost
Submission to allow the same rights as out-of-fund preservation

24. SARS Interpretation Notes.
SARS Interpretation Notes

25. GN 18 –methods of purchasing annuity
Repeal of GN 19: One annuity had to produce a guaranteed amount of R and up to 4 Living annuities
GN 18 – Retirement funds are, as a result, permitted to provide an annuity to a retiring member by paying the annuity directly, or by purchasing the annuity in the name of the fund, or by purchasing the annuity in the name of a retiring member. While the aforementioned methods may be provided for in the rules of a retirement fund, a member may select only one of them and not a combination.
Not in line with policy
SARS /NT confirmed that only in-fund or out of fund annuities can be bought; not a combination of in-fund and out of fund annuities. 
Awaiting response on resubmission.

26. Interpretation note 99 – unclaimed benefits
Pre 1 March 2009 – accrued within 6 months. Taxed, Growth is IT3(b) interest
After 1 September 2008 could be transferred to Unclaimed Benefit Fund within 24 Months
On transfer apply for a nil directive IT3(a) and transfer benefit and interest to UBF
Member claims from UBF. All growth IT3 (b) interest
Problem
UBF is a preservation fund
Benefit invested for growth in portfolios not interest
Tax should be under Second schedule
Anomaly that interest paid to the fund, Usually paid to member
Querying practice note via SARS

27. Interpretation note 104 Foreign service
Section 10(1)(gC)(ii) exempts from normal tax any lump sum, pension or annuity received by or accrued to any resident from a source outside the Republic as consideration for foreign services rendered.
Does not apply to a lump sum, pension or annuity received by or accrued to a resident from a local retirement fund or an insurer,
except to the extent that an amount (which relates to foreign services rendered) was transferred to that local retirement fund or insurer in respect of that member .

28. ROT’s 1 March 2017 to 31 June 2017 manually
1 July 2017 onwards –electronically
outstanding ROT’s .
Transferor fund goes for tax directive to transfer – transferee fund or insurer submits ROT based on information furnished by transferee fund.
If incorrect information –rejected by SARS
Marker on record “NO”
Letters to clients in 2018
Moratorium
SARS writes to members -2019
Industry response

29. THANK YOU