Finance questions answered



I have excess retirement annuity contributions to the value of R407 000, which have been rolled over during the past few years. My questions are about changes to the Income Tax Act that came into effect on March 1, 2016.

* Will the rolled-over amount still qualify for the current 15-percent tax deduction at the end of 2015/16 tax year?
* If it does, will the balance be rolled over to the 2016/17 tax year?
* If it is rolled over to the 2016/17 tax year, will the balance then qualify for the 27.5-percent tax deduction in the following years?
* If the R407 000, or what is left over after the 2015/16 tax year, does not qualify for rollover to the 2016/17 tax year, will it form part of my estate when I die?

Name withheld

Jason Garner, area manager at Old Mutual Private Wealth Management, replies: I am sure, as with any change, there is lots of confusion surrounding the retirement reforms introduced this year and the proposed future reforms.

The so-called T-day retirement reforms were introduced on March 1. From that date, members of retirement annuities, pension funds and provident funds could claim as a deduction 27.5 percent of the greater of their “remuneration” received from their employers or their overall “taxable income”, subject to an annual limit of R350 000. Any contribution that exceeds these limits will be deemed to have been made in the following tax year and the same deduction regime will apply.

Therefore, any excess contributions will still be deductible, subject to the maximum amounts allowed, in the 2015/16 tax year, where the 15-percent maximum regime applies. Any amount remaining thereafter will still be deductible in the new 2016/17 tax year, where the new 27.5-percent regime applies. After that, any remaining amount will continue to be rolled over for future years, as it had in the previous regime, provided, of course, that there are no changes in the future.

As regards the portion that forms part of your estate, recent changes mean that any disallowed portion unused at the date of your death is included in your estate. However, the portion of the amount used to reduce the taxable amount of any compulsory annuity purchased from a retirement fund will not be included in your estate.

Given these changes, it is critical that you re-examine your financial plan and goals to ensure that sufficient savings are invested into an appropriate inflation-plus strategy to achieve long-term goals within your desired risk tolerance, and to ensure that the vehicle chosen is appropriate, taking into account tax, liquidity, investment term and other factors.




My former employer paid me two months’ severance pay. This was included in my taxable income and taxed at my maximum tax rate. Is this amount not regarded as being of a capital nature, not income, and therefore taxed at a different rate?

MJ Latsky

Jason Garner, area manager at Old Mutual Private Wealth Management, replies: Unfortunately, any amount received from your employer is regarded as revenue, not capital. The Income Tax Act requires that severance pay is taxed according to the same table as your retirement fund lump sums, either on retirement if you have been retrenched or on withdrawal if you have resigned, and not at your marginal rate of tax (see severance benefit tax table, link below)

The only “grey” area is whether leave pay that is included in severance pay should be taxed as in the table or at your marginal rate. The South African Revenue Service appears to tax pay in lieu of leave at your marginal rate.

From – Your Questions Answered