The time for South Africans who take into account emigrating to be taught their destiny round their pensions is drawing nearer, notes Jean du Toit, head of tax technical at Tax Consulting SA.
“We have now come a great distance since publication of the draft tax Payments on 31 July this 12 months, and on 7 October 2020, the Standing Committee on Finance (“the Committee”) heard oral submissions on the proposed tax amendments.
“As one of many few tax corporations who made oral submissions to Parliament, we will verify essentially the most debated modification stays the one round authorities’s intention to impose a three-year lock-in interval on retirement funds when an individual emigrates,” stated Du Toit.
Within the February Finances Speech, authorities introduced it’ll modernise the trade management system and as a by-product thereof, the present technique of emigration by the South African Reserve Financial institution (SARB) will probably be phased out.
The announcement was profound from a tax perspective as a result of this emigration course of – generally known as monetary emigration – is the set off for emigrating South Africans to withdraw their retirement funds.
“True to their phrase, when the draft tax payments have been revealed, it was revealed that the withdrawal of retirement funds upon emigration will probably be topic to a brand new take a look at.
“It’s now proposed that an individual will solely be permitted to withdraw their retirement fund if they will show they haven’t been tax resident in South Africa for a minimum of three years. This immersed potential emigrants in uncertainty,” stated Du Toit.
The proposed modification was met with rapid opposition. Earlier than anything, the latest murmurs of “prescribed belongings” raised questions on the motive behind the lock-in interval. However Nationwide Treasury has given its assurance that this isn’t the driving force behind the modification, stated Du Toit.
“Nationwide Treasury and the Committee have principally saved their playing cards near their chest, however we’ve discovered that the rationale behind the three-year lock in is to stop instances the place people withdraw their retirement fund beneath the pretences of emigration, solely to return to South Africa shortly after.”
The validity of this argument is questionable, however the true issues lay with the brand new proposed take a look at itself. Figuring out residency isn’t a tick field train and contemplating the burden of proof rests with the taxpayer, the query is what will probably be accepted as proof of cessation of residency?
However, with the SARB now taking as much as a 12 months to conclude the monetary emigration course of, will taxpayers who initiated the method previous to the efficient date of 1 March 2021 be permitted to withdraw their retirement fund beneath the outdated dispensation?
When will we all know?
To this point, stakeholders have raised their considerations in written submissions to Nationwide Treasury, which was adopted by a public workshop.
“Now these points have been ventilated in Parliament however, thus far, we’re nonetheless unsure if our considerations will probably be taken to coronary heart. Fortuitously, Nationwide Treasury will publish their official response doc on 13 October 2020, at which level we must always know the place the modification is headed – watch this area,” stated Du Toit.
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