News

Posted on May 7th, 2009 in Industry News

In our previous newsletter of February 2009 we made reference to the new tax scales applicable on withdrawal benefits. Subsequently it has come to our attention that conflicting information exists in the industry:

• the SARS tax pocket guide reflects a slightly different scale from the one published in the draft legislation; and
• SARS will only start implementing the proposed tax scale once draft legislation has been promulgated, even though it is effective from 1 March 2009.

SARS released their tax pocket guide at the time of the Budget Speech on the 11th of February 2009, and this guide was also made available on the SARS website. Many auditing firms based their tax booklets on the scales published in this guide.

However, it seems that the issuing of these guides was premature, as the withdrawal benefit tax scales in these guides does not correspond to draft legislation issued shortly afterwards. This caused some confusion within the industry with conflicting scales being published by various entities.

The correct scale, as per the draft Taxation Laws Amendment Bill, 2009 issued on 19 February 2009, applies an 18% tax rate to benefits between R22 500 and R600 000. The incorrect scales in the tax pocket guide only apply this 18% rate to benefits between R22 500 and R300 000.

SARS and Treasury have confirmed that the withdrawal benefit tax scale referred to in the Taxation Laws Amendment Bill of 2009 is the correct proposed scale. This will become effective from 1 March 2009, once the Bill has been promulgated into law. This is expected to happen in the second half of this year.

The proposed scale is therefore as follows:

• The R22 500 is a cumulative value and will be reduced by any previous tax-free amounts enjoyed on or after 1 March 2009 over the member’s lifetime i.e. pre-retirement withdrawals will be taxed on a cumulative basis (subsequent pre-retirement withdrawals will be added and taxed at higher rates as per the table).
• SARS has not yet implemented the new tax regime. If a member withdraws now SARS will apply the R22 500 tax-free amount, but the balance of the benefit will still be taxed at the member’s average rate of tax. Members who withdraw now should be aware that the tax deducted from the withdrawal benefit is not the final amount. A refund or a tax liability may arise on assessment once the correct scale is implemented in SARS systems.
• Members should bear in mind that the intention appears to be to reduce the tax free lump sum at retirement by any lump sums withdrawn prior to retirement from 1 March 2009. The intention appears to be to discourage pre-retirement withdrawals as much as possible.

We will continue to provide you with updates on this important aspect of retirement planning as and when pertinent information becomes available.

A copy of the Taxation Laws Amendment Bill, 2009 is available at www.sars.gov.za.

May 2009
This article was written by Adri du Plessis.

Adri du Plessis

Legal and Compliance Manager

Adri completed her B.Comm (Law) and B.Proc degrees at the University of Port Elizabeth (now the NMMU). She commenced employment in the Employee Benefits industry in 1997 as a legal documents drafter for a small Employee Benefits Administrator, Multisure (Pty) Ltd, in Johannesburg. When Multisure (Pty) Ltd was sold to PSG she became a Legal Co-Ordinator at PSG, before being appointed as the Compliance Manager for Hollard Employee Benefits in 2000. She obtained her LLB part-time through the University of South Africa in 2001 and also obtained her CFP in 2002. She moved to Port Elizabeth and worked at Moonstone Compliance (Pty) Ltd in 2005, before joining Jacques Malan Fund Administrators (previously South City Employee Benefit Consultants) later that same year.

Adri is a member of the Pensions Lawyers Association and the Financial Planning Institute of South Africa.