| RETIREMENT FUND MEMBERSHIP MANUAL
TAXATION OF BENEFITS In this section, the tax treatment of the following benefits is explained: Contribution allocation towards retirement savings Retirement benefits • Death benefits •
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Disability benefits Resignation benefits
Disclaimers In the event of a conflict of the following with the Income Tax Act, the Act will apply. The Income Tax Act is complicated and it is very important that you seek specialist advice if you have questions about taxation of your retirement benefits.
CONTRIBUTION ALLOCATION TOWARDS RETIREMENT SAVINGS Amended Tax Laws 2016: Harmonisation of tax treatment of contributions This was primarily intended to allow for tax harmonisation of retirement fund contributions and benefits and it introduces a cap on contributions for tax purposes. The tax deduction for contributions is limited to 27.5% (of the greater of taxable income or remuneration), up to an annual limit of R350 000. This is to the benefit of most members and allows members, in terms of tax deductibility, to save more towards retirement and would only negatively affect the tax of members of Funds who are very high earners. It is meant to create fairness in tax harmonization of contributions and to clamp down on very high earners who contribute larger amounts to retirement funds in order to reduce their tax commitments.
RETIREMENT BENEFITS Taxation of the cash lump sum payment Any amount of your retirement benefit that you take in cash is subject to tax. The Tax-Exempt (tax-free) portion is: Up to R550 000 (plus such portion of your AIPF transfer value that was subjected to a zero tax rate) of the retirement benefit will be exempt from tax. This tax exempt amount of R550 000 will be reduced by any tax-exempt amounts that you have received previously on withdrawal from a Pension or Provident fund. Any contributions that have been made by the member that were not previously tax-exempt will also be taken into account and will be added to the R550 000, thus increasing the tax-free portion of R550 000. If a member has previously received lump sum cash payments from a Retirement Fund, these amounts will be taken into account (at the tax rates applicable at retirement) thereby reducing the R550 000 tax- exempt portion. Any amount of the retirement benefit that is taken in cash and that exceeds the limits stated above will be taxed as follows: LUMP SUM DEATH OR RETIREMENT BENEFIT
TAX LIABILITY
R0 to R 550 000
0%
From R550 001 to R770 000 From R770 001 to R1 150 000
18% of taxable income exceeding R550 000 R39 600 plus 27% of taxable income exceeding R770 000
Exceeding R1 150 001
R143 550 plus 36% of taxable income exceeding R1 155 000
NOTE: The same tax-table applies to a withdrawal from a Retirement Annuity Fund.
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