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Legal update on Taxation Laws Amendment Bill

 

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The highly anticipated Taxation Laws Amendment Bill 2017 (TLAB) was published on 19 July 2017, for public comment prior to introduction in Parliament. This bill gives effect to some of the tax proposals announced in the 2017 Budget Speech and 2017 Budget Review. Please note that the bill is only draft legislation and is subject to change prior to formal promulgation.

 

Below we highlight a few key proposals which may impact financial advisers and their clients.

 

1.   Retirement fund contribution deductions

The provisions detailing the permissible deductions on retirement fund contributions are currently contained in section 11(k) of the ITA.

 

Proposal

It is proposed that section 11(k) be removed and a new section 11F be added. A new limiting criteria for the allowable deductions is to be inserted to avoid circumstances where an assessed loss may be created.

The new limiting criteria proposed is that the total deduction may not exceed the lesser of:

* R350 000; or

* 27,5% of the higher of the person’s remuneration or taxable income; or

* taxable income before allowing any deduction under this section and before the inclusion of any taxable capital gain

Proposed effective date:  1 March 2016

 

2.  Foreign employment income exemption

 

Proposal

It is proposed that the exemption that currently applies where a South African tax resident earns foreign employment income in respect of services rendered outside South Africa (subject to certain requirements), be removed. This means that taxpayers will be taxed in full in SA on the foreign income, but that they may qualify for a deduction to the extent that they were taxed in the foreign country.

Proposed effective date: 1 March 2019

 

3.  Section 7C – loans to trusts

Section 7C came into effect on 1 March this year and applies to low interest and interest-free loans made to a trust.

 

Proposal

TLAB proposes that section 7C should be extended to include loans made to a company that is a connected person to a trust.

Proposed effective date: 19 July 2017

 

4.  Additional exclusion in respect of section 7C

Currently the anti-avoidance measures provided for under section 7C do not apply to certain types of trusts/loans (e.g. special trusts, vesting trusts, PBO trusts, loans used for the acquisition of primary residence of the lender etc).

 

Proposal

The proposal is also to create an exemption for the scenario where the trust is created solely for the purpose of giving effect to an employee share incentive scheme. Certain other requirements must be met in order for loans to such trusts to be excluded from the section 7C provisions.

Proposed effective date: 1 March 2017

 

5.  Transferring retirement fund benefits after reaching normal retirement age

Members of retirement funds may elect not to retire at the normal retirement age. They may retain their benefit in the employer fund and elect to retire at a later stage.

 

Proposal

Treasury is proposing that those members should be allowed to transfer their benefit to an RA if they wish to leave the employer fund. Transfers to preservation funds are not included in the proposal.

Proposed effective date: 1 March 2018

 

6.  Tax exempt status of pre-March 1998 benefits in public sector funds

Currently, if you transfer your public sector benefit to another fund, and you have a pre-March 1998 tax-free benefit, the tax-free status of that benefit is retained. However, should you transfer to a subsequent fund (for example, a preservation fund with another provider), the tax free status of the benefit is lost.

 

Proposal

The proposal is to retain the tax-free status of the pre-March 1998 benefit for one additional transfer to a different fund. For example: GEPF benefit transferred to Preservation Fund 1; thereafter transferred to Preservation Fund 2. Tax free benefit will still be retained in Preservation Fund 2 but lost upon subsequent transfer.

Proposed effective date: 1 March 2018

 

7.  Removing 12-month limitation on joining newly established pension or provident fund

If a new pension or provident fund is established, the current position is that employees must join that newly established fund within 12 months. If an employee misses the 12-month period, they are unable to join that fund.

 

Proposal

It is proposed that the 12-month limit be removed.

Proposed effective date: 1 March 2018

 

8.  Postponement of provident fund annuitisation

NEDLAC discussions on the social security paper are still ongoing.

 

Proposal

Treasury proposes that the annuitisation requirements for provident funds be postponed (yet again).

Proposed effective date: 1 March 2018

 

Reference: Investec Legal Update July 2017

 

http://www.treasury.gov.za/