WITHDRAWALS FROM RETIREMENT ANNUITY FUNDS, PRESERVATION PENSION FUNDS AND PRESERVATION PROVIDENT FUNDS UPON EMIGRATION
23 Jul 2019
Prior to the change in tax legislation effective from 1 March 2020, South African tax residents who are employed outside of South Africa were (subject to certain criteria) exempt from South African tax on their foreign earnings. From 1 March 2020 the maximum exemption from tax has been limited to the first R1M in taxable income. The potential impact of a prevention of double taxation agreement between South Africa and the country where the person is employed, however needs to be taken into consideration. Persons considering Financial Emigration or actual emigration need to be aware of the implications these steps have on being able to withdraw lump sums from Retirement Annuity Funds, preservation pension funds and preservation provident funds.
When a member of a Retirement Annuity Fund ceases to be a tax resident, the person is entitled to receive the full value of the after tax lump sum benefit from the Retirement Annuity Fund if the member emigrates from South Africa, and such emigration is recognised by the South African Reserve Bank for the purposes of exchange control. Expatriates are also allowed to withdraw the full value of after-tax lump sums from their Retirement Annuity Funds when they leave South Africa at the expiry of the work visas that were granted in terms of the Immigration Act No. 13 of 2002.
As from 1 March 2020 the above concession has been extended to members of preservation pension and preservation provident funds if the members emigrate from South Africa and such emigration is recognised by the South African Reserve Bank for the purposes of exchange control or upon repatriation on expiry of their work visas. Prior to 1 March 2020 only members of retirement annuity funds were able to access and withdraw the full value of their after-tax retirement benefits upon emigration or repatriation on expiry of the work visa, while members belonging to pension preservation funds or provident preservation funds were not permitted to do so.
TRANSFERS OF ACTUARIAL SURPLUS BETWEEN RETIREMENT FUNDS
Contributions made by an employer owned retirement fund into another employer owned retirement fund for the benefit of the employees, previously created a taxable fringe benefit in the hands of employees.
Transfers of actuarial surpluses between, or within retirement funds of the same employer previously triggered fringe benefits in the hands of employees. The transfers were deemed to be a contribution by the fund for the benefit of employees, and regarded as a taxable benefit in the employees’ hands. Amendments effective from 1 March 2017 were made to the Income Tax Act to allow for transfers of amounts between, or within retirements funds of the same employer so as not to create a taxable fringe benefit.