By Sanlam Life, 21 February 2019
The purpose of this document is to provide intermediaries with information applicable to their work. The budget proposals are subject to ratification by Parliament. The final legislation is expected to be tabled later this year. We will then provide you with detailed information.
Refining the foreign employment income tax exemption for South African residents
From 1 March 2020, South African residents who spend more than 183 days in employment outside the country will be subject to South African taxation on any foreign employment income that exceeds R1 million. To prevent monthly withholding of income tax in South Africa and in the host country, the law will change to allow South African employers to reduce their monthly local pay-as-you-earn (PAYE) withholding by the amount of foreign taxes withheld on the employment income.
Before implementation, there will be a workshop to consult taxpayers on their administrative concerns. The amendments will be during the 2019 legislative cycle.
Study on the tax treatment of amounts received by portfolios of collective investment schemes
In 2018, there were initial draft amendments to the Taxation Laws Amendment Bill to tax the profits of some collective investment schemes as revenue instead of capital. However, after reviewing the public comments on this draft, government decided to take more time to work with industry to find solutions that will not negatively affect the relevant groups. This study is for the 2019 legislative cycle.
From 2016, there is a separate risk policy fund in addition to other policyholders’ funds such as the individual and company policyholders’ funds to tax long-term insurers. There is also the untaxed policyholders’ fund that is exempt from tax and that is for retirement funds and annuities. If a policy allocated to a risk policy fund is paying benefits in the form of an annuity, then the transfer of assets between that fund and the untaxed policyholder fund of the insurer creates an administrative burden. The legislation will change to address this.
The Insurance Act (2017), which came into effect during 2018, replaced provisions of the Long-term Insurance Act (1998) and the Short-term Insurance Act (1998). The definitions in the Income Tax Act will change in line with the new Insurance Act.
There has been no change in the amounts that individuals may deduct as a medical scheme fees tax credit when determining tax payable.
The rate at which donations tax is levied, remains unchanged.
Deductions in respect of donations to certain public benefit organisations remains the same at 10% of taxable income.
The table applicable to withdrawal benefits from retirement funds remains unchanged.
The table applicable to retirement fund lump sum benefits or severance benefits remains unchanged.
Once a member of a retirement fund retires and receives an annuity as a retirement benefit, any contributions to the retirement fund that did not qualify for a deduction when determining the member’s taxable income are tax-exempt. Currently, this exemption does not apply to annuities received from a provident or provident preservation fund. 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 would apply for contributions made after 1 March 2016.
Members of a pension fund can deduct contributions to their retirement funds from their taxable income when determining their monthly employees’ tax and annual income tax payable. Upon the death of a member, the surviving spouse may be entitled to receive a monthly spousal pension from the retirement fund. These spousal pension payments are subject to PAYE by the retirement fund.
If the surviving spouse also receives a salary or other income, it is added to the spousal pension to determine his or her correct tax liability on assessment. The result of the assessment is often that the surviving spouse has a tax liability that exceeds the employees’ tax withheld by the employer and retirement funds during the year of assessment, since the aggregation of income pushes them into a higher tax bracket. In most cases, the surviving spouse does not foresee the additional tax liability and does not save money to settle the liability. This creates a cash flow burden and a tax debt for the surviving spouse. It is proposed that:
Any PAYE excessively withheld as a result of this proposal will be refunded upon assessment.
The provisions relating to capital Gains Tax remains unchanged.
The table setting out the rate at which transfer duty is levied remains the same.
The rate at which estate duty is levied, remains unchanged.