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Retirement Funds and Investments

Medical Schemes and Medical Insurance

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The Taxation Laws Amendment Act 2013:

The Taxation Laws Amendment Act 2013 that was signed into law in December 2013 may impact on various aspects of a company’s employee benefits offering.

 

MEDICAL SCHEMES:

Already, the Act has brought about a change to the Tax Credits system for medical expenses, and other changes impacting on retirement funds and disability cover will come into effect on 1 March 2015.

 

 

MEDICAL SCHEMES
Change effective 01 March 2014
What has changed? How does it affect you as an employer?
How does it affect your employees?
Tax credits have replaced tax deductions for out of pocket medical expenses for all taxpayers

No impact.

Employee education required

Contact me for education of employees.

• High earners with medical expenses may pay more tax.


• No Section 18 deduction.

Until now, the medical tax credit has not applied to people over 65, but as from 1 March 2014, the system applies for taxpayers of all ages.

• Persons 65 years and older will no longer be entitled to a full deduction of their contribution and out of pocket costs and instead become entitled to medical scheme contribution tax credits plus medical expenses tax credits for all other out of pocket expenses.
• Persons under 65 will continue to be entitled to medical scheme contribution tax credits in respect of their medical scheme contributions. These individuals will no longer be able to claim a deduction for out of pocket medical expenses. Instead, medical tax credits will be claimable for additional medical expenses.

GROUP DISABILITY INCOME POLICIES:

GROUP DISABILITY INCOME POLICIES
Change effective 01 March 2015
What has changed? How does it affect you as an employer? How does it affect your employees?

Tax regime to be reversed. Contributions to income protection policies no longer tax deductible.
 

Proceeds from these policies will be tax
free.

Payroll change required.

Employee fringe benefit tax remains, but without reciprocal deductions.
 

Employee education required.

• Monthly take home pay will reduce due to contributions no longer being tax deductible.


• Disability income benefit will be tax free if claimed.

RETIREMENT FUND CONTRIBUTIONS:

 

RETIREMENT FUND CONTRIBUTIONS
Change effective 01 March 2015

What has changed? How does it affect you as an employer? How does it affect your employees?

Employer contributions to retirement funds (including RAs) will be tax deductible without limit.

These will be added as fringe benefit tax to the employee.

Company practices, including payroll changes, required: contributions treated as fringe benefits. Employer contributions added as a fringe benefit.
Employee allowed up to 27.5% deduction of above contribution.

Employer contributions to occupational funds will be treated as a fringe benefit.
 

Employers will be able to claim unlimited
deductions on their contributions (current
limit is 20%).

Both member and employer contributions will be regarded as the member’s contributions and will therefore be eligible for deduction.
Tax-free transfer of retirement benefits between funds.

No impact.
 

Employee education required.

Members of pension, provident, retirement annuity and preservation funds will be allowed to transfer their benefits between these funds without having to pay any tax.

From 1 March 2015, the deduction available to taxpayers for the combined contributions to provident, pension and retirement annuity funds will be 27.5% of the greater of “remuneration” or “taxable income”. This is subject to an annual maximum of R350 000.
 

For most taxpayers, the new deduction regime should represent an improvement because they will be able to increase their contributions from 15% of net retirement funding income to 27.5% of taxable income.

PROVIDENT/PENSION FUND MERGER:

PROVIDENT/PENSION FUND MERGER
Change effective 01 March 2015
What has changed? How does it affect you as an employer? How does it affect your employees?
Provident fund members will become subject to pension fund rules on retirement.

No impact.
 

Employee education required.

• Cash commutation will no longer be allowed for provident fund members at retirement (see de minimus exception in next row of this table).


• At retirement, one third of the fund value (pension or provident) can be taken as a lump sum. The other two thirds must be used to buy retirement income.


• Does not apply to members’ balances as at 28 February 2015 plus future growth on these balances.

De minimus amount increased from R75 000 to R150 000 Employee education required. If a member’s total benefit is R150 000 or less at retirement he/she will be allowed to take the full benefit as a cash lump sum and won’t have to buy a pension.

Members of provident funds who are older than 55 years on 1 March 2015 will still have full access to their entire
benefit at retirement.

Need more information — If you have any questions about the Act and any of these impacts it might have on you or your employees, please don’t hesitate to contact me.

 

PENSION FUNDS ACT AMENDMENTS: SECTION 13A - CONTRIBUTIONS:

With the promulgation of the Financial Services Laws General Amendment Act, 2013 on 16 January 2014, a number of changes were effected to the Pension Funds Act.
 

The purpose of this letter is to specifically address the amendments to Section 13A of the Pension Funds Act, which is effective 28 February 2014, and its impact on Employers.
 

Section 13A spells out the requirements for the payment of contributions and the submission of contribution data to retirement funds.
 

The following new sections have been added to Section 13A, namely ss13A(8), (9) and (10).

  • S13A(8) imposes a personal liability on the directors of companies and members of close corporations where such persons are regularly involved with the overall financial affairs of the company/close corporation and contributions are not paid to the fund. For any other type of entity, the personal liability is attached to the person who is regularly involved in the management of the entity’s financial affairs.
  • S13A(9) requires that the fund to request an employer in writing to notify it of the identity of the person who is so personally liable. Where the employer fails to notify the fund of the relevant director, member or person, all directors, all members of the CC or all persons constituting the governing body of the entity are personally responsible for compliance with s13A.
  • S13A(10) requires the fund’s trustees to report non-compliance with s13A in terms of the conditions prescribed by the registrar, as well as in a format as may be prescribed by the registrar.

*Adopted from Old Mutual's Corporate Advisor: July 2014

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