Contribution allocation towards Retirement Savings

New Tax Laws  as from 1 March 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);
• R 350 000 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)