Living annuities
If you have invested your retirement savings in a living annuity, the maximum amount you can draw out as a pension each year may be reduced to 17.5 percent of the annual value of your capital, while the minimum amount you can draw out may be reduced to 2.5 percent.
According to tax proposals outlined in the Budget Review, the government plans to amend the drawdown limits on living annuities to between 17.5 and 2.5 percent.
Currently, living annuity pensioners can draw down between five and 20 percent of the annual value of their capital.
The Budget Review notes that withdrawals at the higher rates often leave pensioners with insufficient funds.
Early withdrawals
The government plans to amend the Pension Funds Act and the Income Tax Act to enable retirement fund members to surrender all or part of their interest in a fund to meet a maintenance or divorce order, or housing loan payments.
The Budget Review notes that there is currently a lack of clarity in the law and this often means that a member's forced surrender of his or her interest is effectively deferred until a member's final retirement or withdrawal from the fund. This delayed surrender gives rise to unnecessary tax complications, the Budget Review notes.
On divorce, for example, a member's former spouse may be awarded part of the member's retirement interest, but the money has to remain in the fund, without growth, until the member retires.
The Budget Review says the Pension Funds Act will be amended to clarify that such a forced withdrawal triggers an immediate severance from the fund (as opposed to a delayed severance upon retirement or withdrawal), and corresponding changes will also be made to the Income Tax Act.
Civil servants' benefits
Until 1998, public servants were able to withdraw lump sums from their retirement funds tax-free.
The amounts they saved before 1998 can still be withdrawn tax-free, but lump-sum withdrawals of amounts contributed after 1998 are subject to tax in line with the tax other retirement fund members pay.
However, if a public servant moves to the private sector and transfers his or her public sector retirement fund benefits to a private sector pension fund, that former public servant will, like any other retirement fund member, enjoy only a limited tax-free withdrawal from the fund on retirement, and any lump-sum withdrawal beyond this amount will be taxed.
The government is considering amendments so that former civil servants retain the tax-free pre-1998 pension build-up in these circumstances.
Lump-sum death benefits
Lump-sum death benefits up to R300 000 paid to the dependants of an employee who dies as a result of an occupational injury may become taxfree. The Budget Review says that the Income Tax Act provides for lump sums paid in terms of the Compensation for Occupational Injuries and Diseases Act for deaths caused by occupational injuries to be tax-free.
However, payments of a similar kind made outside the Compensation for Occupational Injuries and Diseases Act framework are, as a rule, subject to income tax.
As a result, the government is proposing to amend Income Tax Act so as to provide for such payments to be tax-free.
Share-incentive schemes
The government is reconsidering its broad-based share-incentive scheme and may change it because usage of the incentive appears to be minimal, the Budget Review states.
The incentive was introduced in 2004, to facilitate broad-based share employee ownership among rank-and file employees.
Small business tax
The National Treasury and the South African Revenue Service (SARS) have commissioned a small business tax compliance cost study, according to the Budget Review and the results of this study could result in a more simplified tax regime for small businesses being introduced next year.
Easier provisional tax
SARS has admitted that its provisional tax system is problematic to enforce and to comply with and has decided to consider amending it.
It says effective provisional tax systems should be simple and require minimal audit intervention.
SARS is considering amendments to give more certainty to the provisional tax system, to minimise compliance and administrative burdens and to ensure a coherent penalty/interest structure.
However, it says any amendments will become effective only after taxpayers and SARS have been given
sufficient time to update their computer systems.
Tax refunds via bank
SARS is considering making income tax refunds directly into your bank account only. According to the Budget
Review, refunds made by cheque result in delays, are the subject to fraud and cost SARS a lot.
In light of the fact that the banks have introduced low-cost Mzansi bank accounts and that fewer than 2 500
refunds in 2006 were to taxpayers who did not have access to a bank account, SARS is considering requiring refunds to be made directly into taxpayers' bank accounts.