Finance Minister Trevor Manuel announced three tax changes which will affect you in his Medium Term Budget Policy Statement in Parliament this week.
Manuel says the changes are part of the on-going reform of the retirement fund industry which is aimed at encouraging savings and preserving retirement fund benefits.
The changes are:
- The monetary cap on the exemption from tax on medical scheme contributions paid on your behalf by an employer, or the limit on the amount you may deduct from your taxable income for medical scheme contributions, will be increased in March next year to take account of inflation.
As of March this year, the first R500 of your contributions for each of the first two beneficiaries and R300 for each additional beneficiary, may be paid by your employer without any tax consequences for you, or if you do not receive an employer subsidy, you may deduct your contributions up to these amounts from your taxable income.
Manuel will announce the new caps when he delivers his budget in February next year.
- Former members and pensioners of retirement funds who receive benefits from a fund surplus distribution may now transfer these benefits into their retirement savings without paying tax on the amounts.
Until now, beneficiaries have been forced to take the money as cash and pay tax on the benefit at their marginal rate of interest.
- Retirement annuity (RA) fund members who have made an RA paid up and are finding the residual amount is being gobbled up in costs will be allowed to cash in the amount before the age of 55, which is currently the earliest date at which you may mature an RA.
The National Treasury still has to announce the maximum amount that it will allow you to cash in before the age of 55 and the effective date of the change.
Meanwhile, the South African Revenue Service (SARS) recently announced that you can apply for advance rulings on how SARS will interpret and apply tax law provisions to financial transactions.
This will help you assess the tax implications of financial transactions before you enter into them.
The advance rulings, which are binding on SARS, can either be issued as "binding private rulings" that apply only to a particular applicant (this includes corporates and individual taxpayers) for the specific transaction, or as "binding general rulings", which will apply to everyone in the situations covered by the rulings.
Franz Tomasek, SARS's assistant general manager for legislation, says that both general and private rulings will be made public on SARS's website, so that no taxpayer or adviser is at an advantage over other taxpayers or advisers. In the case of private rulings, the name of the applicant will not be published.
Tomasek says the rulings are binding on SARS but not on taxpayers. You can still go ahead with the transaction and then dispute the ruling after SARS makes its assessment of your tax obligations.
Before making a binding general ruling, SARS will consider such things as the number of inquiries and the number of applications for private rulings on a particular issue.
If SARS at some later point changes its mind on a ruling, the effect of the ruling will generally not be retrospective.
The application process for a binding private ruling is a formal one and you will have to pay for the application - R2 500 for small businesses and R10 000 for all other taxpayers - so it is best reserved for substantial transactions.
More details on advance rulings are available in the Income Tax Brochures section of SARS's website at www.sars.gov.za