South African Tax Amendments aren't just passing thoughts
Paying taxes is on everyone’s mind, and seldom in a good way. Knowing some brief facts about our tax system and how you fit in may not make you feel any better. Still, as you recently embarked on your own annual tax crusade, you may even have been surprised about who pays what, who doesn’t pay, and how you fit in according to recent SARS statistics. It could even help you plan better for the next year. No doubt you’ve heard something about the recent South African tax amendments that came into effect on 1 March 2016 - marked what has become known as T-day - the day the long-awaited tax reforms became a reality in the retirement industry and for retirement fund members.
In order to provide clarity about the impact and aim of the latest South African Tax Amendments, we shed some light on the questions many have, especially regarding retirement, pension, and provident policies:
Which tax law is the Government passing that affects retirement policies?
The Government is updating a law it passed in the 2013 Taxation Laws Amendment Act that harmonised the tax treatment of contributions to retirement funds.
What has the tax reform changed?
The T-day changes proposed simplifying retirement funds, meaning that all retirement, pension and provident funds now have the same tax rules and employer and employee contributions are consolidated to reduce the scope for tax structuring.
What are the objectives of the tax and retirement reforms?
The reform seeks to achieve the following:
- Simplify the tax treatment of contributions to retirement funds (current system is complex and confusing).
- Improve vertical equity between high and low-income taxpayers by imposing a limit on the total allowable deduction to high-income taxpayers.
- Improve horizontal equity by extending the same deduction across all retirement funds.
- Enhance post-retirement income by extending the requirement to purchase an annuity to provident funds.
How will the tax and retirement reforms benefit workers?
By allowing a tax deduction up to 27.5% of income (up to R350 000) on all contributions made towards a retirement fund, our Government predicts that workers will be encouraged to save more through retirement funds, to curb old-age poverty and excessive dependency on relatives. Members of provident funds will, similar to members of pension and retirement annuity funds, be able to claim a tax deduction on their contributions to their funds. It is predicted that around 1.25 million individuals are likely to see an increase in their take-home salaries and many more will receive the tax deduction if they decide to save more for their retirement. Lastly, low savings can also result in excessive indebtedness as individuals have to borrow to meet unexpected expenditure.
The bottom line
There’s a host of facts on the 2016 South African tax amendments and you will do yourself a great favour if you familiarise yourself with them as there is allot of good that can come from utilising the reforms to your benefit. You can also read more on How will Income Tax Changes Affect You Personally?
Fincheck encourages you to save (more) this year so you don’t have to borrow to meet unexpected expenditures and only for those essential big ticket items!