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24 July 2018 South Africa: Personal Income Tax implications of Draft Tax Administration Laws Amendment Bill On 16 July 2018, South Africa's National Treasury published the 2018 Draft Taxation Laws Amendment Bill (DTLAB) and the 2018 Draft Tax Administration Laws Amendment Bill (DTALAB) for public comment. Comments are due by the close of business on 16 August 2018. This Tax Alert summarizes the key Income Tax proposals under the 2018 DTALAB regarding individuals, savings and employment. In addressing the previous non-compliance of the employer contributions paid to funds administered by the Bargaining Councils, for the benefit of employees, it is proposed that the employer contributions should constitute a taxable fringe benefit in the employee's hands and be subject to Pay As You Earn (PAYE) withheld by employers. This amendment would be effective 1 March 2019. The value of the taxable fringe benefit should be the contribution made by the employer on behalf of the employee. In the event that bulk contributions are made by the employer on behalf of employee's, and the employer is unable to attribute specific contributions to specific employees, the taxable fringe benefit is to be calculated in respect of the total contributions paid by the employer divided by the number of employees on behalf of which the contributions are paid. The above taxable fringe benefit provisions should not be applicable to the extent that the contribution is being made to a pension or provident fund as the taxation of those contributions is already specifically addressed in the Act. Taxpayers who incur only a portion of the medical scheme contributions in respect of dependents, should only be able to claim a proportion of medical tax credit. The medical tax credit should be allocated between taxpayers who made the payment of medical scheme contributions. The definition of "dependent" in section 6A of the Act should therefore address instances where the person making the medical scheme contributions and the person for whom the payments are made on behalf of, are not in the same medical scheme, as required in terms of the Medical Schemes Act. Removing taxable benefit on to low or interest free loans granted to low-income employees for low-cost housing Effective 1 March 2019 paragraph 11 of the Seventh Schedule to the Act will be amended, to extend the relief from triggering a taxable benefit on a low- or interest-free loan with a value not exceeding R450,000, provided by an employer to a low-income earning employee with remuneration not exceeding R250,000, provided the loan is granted solely for the acquisition of residential accommodation. Effective retroactively to 1 March 2017, transfers of employer contributions, as contemplated in section 15E(1)(b) of the Pension Funds Act No. 24 of 1956, within retirements funds of the same employer, will not create a taxable fringe benefit in the employee's hands. This will mean that paragraph 2(l) and 4 of the Seventh schedule to the Act will be amended to also exclude from taxable fringe benefits any transfers of an actuarial surplus within retirement funds of the same employer. Alignment of tax treatment of withdrawals from preservation funds upon emigration or repatriation on expiry of work visa The definitions of "pension preservation fund" and "provident preservation fund" in section 1 of the Act is to be amended to provide for the members of such funds to be entitled to withdraw their full lump sum benefit when they emigrate from South Africa and such emigration is recognized by the South African Reserve Bank for the purposes of exchange control or upon repatriation on expiry of the work visas. Tax treatment of transfers to pension preservation or provident preservation funds after reaching normal retirement age but before retirement date The definitions of "pension preservation fund," "provident preservation fund," "pension fund," and "provident fund" in section 1 of the Act and paragraph 6A of the Second Schedule to the Act are to be amended to allow for transfers from a pension or provident fund to a pension preservation or provident preservation fund on or after reaching normal retirement age, as defined in the rules of the fund, but before retirement date. In addition, the single allowable withdrawal applicable to preservation funds will not apply to the amounts transferred from a pension or provident fund to a pension preservation or provident preservation fund made by the member of the fund after reaching normal retirement age but before an election to retire.
Document ID: 2018-5897 |
