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THE GOVERNMENT has proposed changes to the tax law that could have important implications for members of pension funds who wish to transfer their savings abroad.
The National Treasury yesterday proposed changes that could allow the SA Revenue Service (Sars) to subject interest on pension funds to tax when an individual ceases to be a South African tax resident.
Currently, South Africa can waive its tax rights when people become tax residents of another country before or when they retire.
Informing Parliament’s Standing Committee on Finance, the Treasury said the rules were changed last year and a three-year moratorium was in place for people who were no longer South African tax residents. , before they can access their retirement savings.
The Treasury’s chief director for economic tax analysis, Chris Axelson, said that according to double taxation agreements, that money, if taken, might not be taxable in South Africa at all.
Axelson, however, said it was different for people who stay as South African tax residents, who can only access their money once they’re 55 or older.
“Thus, individuals would have benefited from a total tax deduction on the amount paid into the retirement fund. They would have enjoyed tax-free growth on the investments in the pension fund, and when they left the country they would not pay any taxes either, ”Axelson said.
“It really gets rid of our tax rights on these types of assets, so we’re trying to fix that.
“The proposition we are saying is that when an individual ceases to be a South African tax resident, we will consider that a tax must be paid on the day before he ceases to be a resident.
“But we’re not actually asking that the tax be paid at that time, so it can be deferred. This is the same regime or the same treatment as you do for capital gains tax.
As a result, Axelson said the Treasury had proposed a two-pronged approach for both withdrawals and amounts retired.
“If an individual were to retire prior to retirement or death, the individual will be deemed to have ceded his stake in this pension fund on the day before he ceases to be a South African tax resident, and the interest will part of that person’s assets, and they won’t need to make a payment, ”he said.
“However, if they do make a withdrawal after three years of being a non-resident for tax purposes, they will then have to pay a tax that was applicable on this amount the day before their termination, using the tax tables on withdrawals in force at time, plus interest.
Jenny Gordon, head of technical investment advice for Alexander Forbes, said the wording of the proposed section 9HC was inadequate and did not give effect to the intent of the explanatory memorandum. Therefore, Gordon said, it was unlikely to be successfully implemented on March 1, 2022.
“The legislation that would be necessary to give effect to this type of provision is complex, and many other provisions of the Income Tax Act, the Tax Administration Act and the Pension Funds Act should be modified at the same time, in addition to the Sars processes. . It was not proposed in the bill, ”Gordon said.
“We are engaging with regulators in written submissions and hearings on the bill, with the intention of reaching consensus for a workable solution.”[email protected]