22 February 2018 by

The transfer of retirement funds: Anomalies no more

In terms of paragraph 2(l) of the Seventh Schedule to the Income Tax Act No 58 of 1962, where an employer has made any contribution for the benefit of any employee to any pension fund, provident or retirement annuity fund, such contribution constitutes a fringe benefit in the hands of an employee. Such fringe benefit is included in the gross income of an employee. The amounts contributed by the employer forms part of a so-called employer reserve account and constitutes a post-tax amount as the fringe benefit has already been taxed. 

However, the Budget notes that currently, the transfer of fund amounts between, or within, retirement funds at the same employer has inadvertently led to a tax liability for members, due to the current wording of the legislation. In principle, there should be no additional tax consequence for members if the transfers refer to amounts that have already been contributed to the retirement fund. The Budget therefore proposes that legislative amendments will be retrospectively introduced to correct these unintended tax liabilities. This proposed amendment is likely to be welcomed by all persons who have contributed to a retirement fund, especially as it will likely apply retrospectively.

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