The first Budget speech under the presidency of Cyril Ramaphosa was delivered on 21 February 2018 by Minister of Finance Malusi Gigaba.
The 2018 National Budget directs spending to the most pressing national priorities namely educating the youth; protecting the vulnerable and investing in enablers of inclusive growth. Budget 2018 charts a path out of economic stagnation, anticipating a steady increase in economic growth which will create a path to prosperity for South Africans and improve our nation's finances over time.
The taxation on lump sum withdrawals, retirement, or severance benefits, as set out below, remains unchanged as do the deductions.
Retirement fund lump sum withdrawal benefits
|Taxable Income||Rate of Tax|
|R0 to R25 000||0% of table income|
|R25 001 to R660 000||18% of taxable income above|
|R660 001 to R990 000||R114 300 + 27% of taxable income above R660 000|
|R990 001 and above||R203 400 + 36% of taxable income above R990 000|
Retirement fund lump sum benefits or severance benefits
|Taxable Income||Rate of Tax|
|R0 to R500 000||0% of taxable income|
|R500 001 to R700 000||18% of taxable income above R500 000|
|R700 001 to R1 050 000||R36 000 + 27% of taxable income above R700 000|
|R1 050 001 and above||R130 500 + 36% of taxable income above R1 050 000|
Retirement fund contributions during a year of assessment are deductible by members of those funds. Amounts contributed by employers are taxed as fringe benefits and treated as contributions by the individual employee.
The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits).
Furthermore, the deduction is limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward immediately to the following year of assessment and are deemed to be contributed in that following year. The amounts carried forward are reduced by contributions set off against retirement fund lump sums and against retirement annuities.
Retirement reforms - what to expect going forward
Tax treatment of contributions to retirement funds situated outside South Africa
The Income Tax Act currently exempts all retirement benefits from a foreign source for employment rendered outside of South Africa from taxation. The interaction of this exemption with double taxation agreements and other provisions of the Income Tax Act will be reviewed to ensure that the principle of allowing deductible contributions only in cases where benefits are taxable is upheld.
Align tax treatment of preservation funds upon emigration
Upon formal emigration an individual is able to withdraw the full value of their retirement annuity, after paying the applicable taxes. Government will consider aligning the tax treatment of different types of retirement fund withdrawals in such circumstances.
Allowing transfers to pension and provident preservation funds after retirement
In 2017, amendments were made to allow the transfer of pension or provident fund amounts to a retirement annuity fund after the retirement date of an employee. These amendments expanded the choice of available retirement funds if an individual decided to postpone retirement. Pension preservation and provident preservation funds were excluded as the administration required to disallow once-off withdrawals from these funds was considered too onerous. Industry consultations indicate that the system changes will not be burdensome, thus it is proposed that transfers to pension preservation and provident preservation funds be catered for in the legislation.
Rectifying tax anomalies on the transfer of retirement funds
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. Legislative amendments will be retrospectively introduced to correct these unintended tax liabilities.
Improving the treatment of retirement fund members
Government's retirement reform programme will continue in 2018. Progress on the annuitisation of provident funds and preservation has been slower than anticipated because of a delay in the release of the discussion paper on comprehensive social security reform. As a result, consultations in the National Economic Development and Labour Council are still in progress and expected to be completed by the end of the year. As soon as an initial agreement is concluded, a set of recommendations can be finalised.
Other issues to be referred to the National Economic Development and Labour Council include broadening coverage to low-income earners who fall outside the collective bargaining system or work for small employers, and bringing all public retirement funds within the same regulatory framework as private funds.
Government has also directed the Financial Services Board to proceed with the following reforms:
Lowering costs and consolidating funds
- A key driver of costs is the large number of very small and uneconomical retirement funds (there are currently 5 144 funds, of which 1 651 are active). The Financial Services Board will oversee a significant reduction in funds (preferably to less than 200)
Modernising and improving the governance of all retirement funds to King IV standards
- All retirement funds must now submit audited financial statements annually and include a minimum number of independent trustees
Ensuring benefits are claimed
- The Financial Services Board estimates that, in 2016, over R40-billion in pension and provident funds were not claimed. Working with the government, the Financial Services Board will consult with the National Economic Development and Labour Council on more efficient measures to find beneficiaries, including by centralising data and funds
Strengthening enforcement measures to deal with criminal and unethical prac ces
- The Financial Services Board will publish directives in 2018 to improve disclosures by both retirement funds and administrators, and to outlaw unethical practices.
Tax rates – individuals and trusts
|Taxable income||Rate of tax|
|R0 to R195 850||18% of each R1|
|R195 851 to R305 850||R35 253 + 26% of taxable income above R195 850|
|R305 851 to R423 300||R63 853 + 31% of taxable income above R305 850|
|R423 301 to R555 600||R100 263 + 36% of taxable income above R423 300|
|R555 601 to R708 310||R147 891 + 39% of taxable income above 555 600|
|R708 311 to R1 500 000||R207 448 + 41% of taxable income above 708 310|
|R1 500 001 and above||R532 041 + 45% of taxable income above 1 500 000|
|Trusts (other than special trusts)||Rate of 45%|
- State old age grants increase fromR1 505 to R1 600
- State old age grants for over 75s increase fromR1 525 to R1 620
- War veterans grant increases from R1 525 to R1 620
- Disability grants increase from R1 505 to R1 600
- Foster care grants increase from R890 to R920
- Care dependency grants increase from R1 505 to R1 600
- Child support grants increase from R355 to R380
- Below age 65 increases from R75 750 to R78 150
- Age 65 to 74 increases from R117 300 to R121 000
- Age 75 and over increases from R131 150 to R135 300
- Primary (age below 65) increases from R13 635 to R14 067
- Secondary (age 65 and over) increases from R7 479 to R7 713
- Tertiary (age 75 and over) increases from R2 493 to R2 574
- Value Added Tax
- increased for the first time since 1993, from 14% to 15%
- The fuel levy has increase by 52c (22c will go towards the general fuel levy and the remaining 30c will go to the Road Accident Fund).
The estate duty on estates which exceed R30-million will increase from 20% to 25%. The first R3,5-million deduction will still be applicable (effective 1 March 2018)
Ad valorem excise duties
- The ad valorem tax on motor vehicles will increase from 25% to 30%. Existing ad valorem rates of 5% and 7% will now increase to 7% and 9% respectively
- Alcohol will increase by between 6% and 10%
- Tobacco will increase by 8.5%
This article was first published in Glassock Guidelines, Edition 10. This publication does not provide advice. If you have any questions/comments on the above, please contact your consultant.