New Tax Laws 2016: Harmonisation of tax treatment of contributions
This is primarily intended to allow for tax harmonisation of contributions and benefits in respect of different types of retirement fund, and it introduces a cap on contributions for tax purposes.
Employer contributions to retirement funds are now taxed as a fringe benefit in the hands of employees.
Excess contributions will be taxed if they exceed the LOWER of:
- 27.5% of gross remuneration for the tax year (or the total taxable income, if it is higher);
- R350 000 per annum.
This limit applies to combined employee and employer contributions - any excess contributions will be taxed monthly via the PAYE system.
Here is a summary of the new tax regime:
|Pension Fund / Provident Fund / Retirement Annuity|
|Definition of income||Higher of “gross remuneration” and “taxable income”|
|Member and employer contributions||27.5% of income is tax deductible, subject to a maximum contribution of R350 000 per annum|
|Employer contributions||Taxed as fringe benefits in the hands of the member|
|Death and disability benefit contributions:|
|Benefits provided by the fund||Included in the member and employer contributions – this applies to the death-in-service benefit provided for POBPF members|
|Benefits provided outside the fund||Premiums are tax separately in the member’s hands – this applies to the funeral, disability and spouse’s death benefits provided for POBPF members|
|Fund expenses||Included in the member and employer contributions|
|Roll-over provisions||Amounts over the limits are carried forward to subsequent tax years|
|Non-deductible contributions||Members will be entitled to receive part of any lump sum taken at retirement free of tax, to the extent that this represents contributions that were paid on an after-tax basis (i.e. were in excess of the tax limits)|