Tax act delay will hit consumers long-term - expert

[rpm]

The problem with the latest delay in implementing the Tax Amendment Act is that it gives in to peoples' short-term use of provident fund savings to the detriment of long-term retirement needs, Ettiene Retief of the South African Institute of Professional Accountants (Saipa) cautioned on Thursday.

"Contributions made to a retirement fund - such as a provident fund - were done with the intent to save for retirement, but if people are allowed to access these savings, they effectively ignore the purpose of those savings, which is to fund the person in retirement," explained Retief, who is chair of Saipa's National Tax and Sars Stakeholders' Committees.

He pointed out that a proposed delay in implementing the Tax Amendment Act does not relate to retirement reform in total, but only with regards the implementation date of the compulsory annuitisation of two-thirds of provident fund savings on retirement. This was decided after an urgent meeting at ministerial level.

The act was meant to come into effect on March 1, and would see workers who had contributed to provident funds no longer being able to cash in the entire sum of their retirement savings on resignation.

The 2015 Taxation Laws Amendment Act and the Tax Administration Laws Amendment Act allows workers to cash in only a third of their savings. The remaining two-thirds have to be used to buy a retirement annuity and be paid out in monthly instalments.

The new rules would apply only to money saved after March 1 2016. Provident fund members aged 55 or older on that date would be exempted from the regulations.

"Let’s not forget that savings from retirement annuities and pension funds already have the compulsory annuitisation requirement. The retirement reform aims at ensuring that the fund rules and tax treatment of the different retirement funds - retirement annuity, pension fund, provident fund - are aligned," Retief explained.

"Where a person does not save sufficiently for retirement, that person is either forced to keep working past retirement age - which presents its own challenges - or it becomes government’s problem, which utilises a substantial part of the annual budget and is not sustainable."

Retief said the details of the proposed delay are not known. It is therefore not clear if it is an extension of the transitional rules - which apply to persons 55 years of age or older as at March 2018 - or a blanket postponement for all provident fund savings.

The October 2015 bill contained the transitional rule but the final act, promulgated in January 2016, stated the provisions would apply to provident fund savings where the person is 55 or older as at March 1 2016.

Fin24 reported earlier on Thursday that the delay in implementation marks the second year in a row that President Jacob Zuma’s government has been forced to backpedal on provisions in the Tax Amendment Act.

Labour federation Cosatu is vehemently opposed to the act, and vowed to strike and withdraw support for the ANC in elections later this year should it come into force.

In his State of the Nation address last week, Zuma hinted that government had taken note of Cosatu’s discontent over the act and that it would try to find a solution.

However, Minister in the Presidency Jeff Radebe denied on Thursday afternoon that the decision to table a legislative amendment to the Taxation Laws Amendment Act is a move to appease the ANC's alliance partner Cosatu.

"We don't take decisions based on threats as an ANC government, but when concerns are being raised to government we cannot be unmoved. It is for that reason that we want to defer the implementation of this act so that proper and effective consultation can ensue," Radebe told reporters. According to Steven Nathan, CEO of 10X Investments, the details pertaining to retirement reforms and the impact on retirement savers were never properly clarified and were misunderstood by the public.

“The new laws would in no way have jeopardised the members' right to access their existing retirement savings on March 1 2016, and the future investment return on those savings,” he explained.

Fin24 - http://www.fin24.com/Economy/tax-act-delay-will-hit-consumers-long-term-expert-20160218

 

[NarrowBandFtw]

nanny state BS ... if you need government to keep you from spending your own money you have some serious financial discipline issues, plus you need your head checked in general if you want our government to have a say in it at all

 

[Former member 61586]

nanny state BS ... if you need government to keep you from spending your own money you have some serious financial discipline issues, plus you need your head checked in general if you want our government to have a say in it at all

Agree. Its MY money. I worked for it. I should have the right to spend it as I wish.

 

[SauRoNZA]

So the 27.5% rule is still happening this year?

 

[air]

The following amendments will continue as scheduled from 1 March 2016:
1. The tax deduction for contributions to all retirement funds (including provident funds) will increase to 27.5 per cent of the greater of taxable or remuneration, up to a cap of R350 000 per year, from 1 March 2016.
2. The minimum threshold required for annuitisation for pension and retirement annuity funds will still be increased from R75 000 to R247 500.
3. Aside from the issues covered in the urgent tax amendment bill, all other provisions legislated in the 2015 Tax Laws Amendment Act (and all other tax laws) will come into force on 1 March 2016.

 

[Rkootknir]

nanny state BS ... if you need government to keep you from spending your own money you have some serious financial discipline issues, plus you need your head checked in general if you want our government to have a say in it at all

Agree. Its MY money. I worked for it. I should have the right to spend it as I wish.

You get a tax deduction from the government on that money and the government then tells you how you can spend it in a responsible way. Almost every retirement fund system in the world does this (at least in the "West").

Just take a look at what happens at the moment: A lot of people in provident funds spend all their money when they retire just so that they can receive the State Old Age Pension (if you have an income or assets above a certain amount you are not eligible for the old age pension) which then costs the state a fortune to provide - this money can be better spent on infrastructure, education, etc.

You are free to save outside of the retirement fund system if you do not wish to receive the tax deduction on contributions or if you want to spend your money as you wish. If you are forced to be a member of your employer's retirement fund that is an argument between them and yourself - the government does not force employers to provide retirement funds.

 

[supersunbird]

nanny state BS ... if you need government to keep you from spending your own money you have some serious financial discipline issues, plus you need your head checked in general if you want our government to have a say in it at all

Agree. Its MY money. I worked for it. I should have the right to spend it as I wish.

Then don't save in any Retirement Fund and go ignore the tax benefit and get all your money and invest and spend all your money on whatever your heart desires.

It's a matter between you and your employer if they want you to save in a Retirement Fund, the government just incentivises it, but you are not forced to be in it (except by your employer perhaps, so talk to them about it).

 

[SauRoNZA]

Agree. Its MY money. I worked for it. I should have the right to spend it as I wish.

So why put it in an RA/PF in the first place if it's YOUR money?

You signed up for it so you have to adhere to the terms and conditions....which by the way make much more sense for the "every man".

And when you sit without a penny to your name at retirement the rest of us will pay to keep you alive.

 

[Vrotappel]

nanny state BS ... if you need government to keep you from spending your own money you have some serious financial discipline issues, plus you need your head checked in general if you want our government to have a say in it at all

Nobody forces you to put your money in any of these funds. If you want to enjoy the tax benefits that come with them follow the rules.

The ANC bending over backwards to retain the Cosatu vote...

 

[NarrowBandFtw]

jeez guys what's with the multiple "if you don't like the rules, don't invest" type of statements.

why are you so very happy to let someone else control your money just because you got a tax break? would you not prefer an arrangement where you get the tax break and have the control?!?

Just because it works like this elsewhere, and it has worked liked this forever, you assume it should not be changed? If government was serious about promoting retirement planning it will not seek control over your savings and it will still give you the tax benefit.

Don't even get me started on taxing the growth of investments, retirement or otherwise, TFSA is a baby step in the right direction, but income from ANY retirement savings should be tax free, currently I see it as double taxation: I already paid you 40% of my income in order to have that money to invest, now you want to tax the income that money generates too?!?

On the Cosatu front, yeah screw them and the ANC, I don't think they deserve special treatment, we should all fall under the same rules which these laws will achieve, no problem with that. Big picture perspective however: why not go one step further and streamline things to make it more favourable for everyone?

 

[SauRoNZA]

jeez guys what's with the multiple "if you don't like the rules, don't invest" type of statements.

why are you so very happy to let someone else control your money just because you got a tax break? would you not prefer an arrangement where you get the tax break and have the control?!?

Just because it works like this elsewhere, and it has worked liked this forever, you assume it should not be changed? If government was serious about promoting retirement planning it will not seek control over your savings and it will still give you the tax benefit.

Don't even get me started on taxing the growth of investments, retirement or otherwise, TFSA is a baby step in the right direction, but income from ANY retirement savings should be tax free, currently I see it as double taxation: I already paid you 40% of my income in order to have that money to invest, now you want to tax the income that money generates too?!?

On the Cosatu front, yeah screw them and the ANC, I don't think they deserve special treatment, we should all fall under the same rules which these laws will achieve, no problem with that. Big picture perspective however: why not go one step further and streamline things to make it more favourable for everyone?

Because I don't want to be paying for other people who can't work with money when they hit age 65 and cash it all out to start their own business and then epically fail at which point their expect the government to help them out.

I would rather the government help them NOW, so they don't need to later.

If that means I need to keep my money locked down (which is all it is...I still get to invest it however and wherever I want) then so be it.

 

[NarrowBandFtw]

If that means I need to keep my money locked down (which is all it is...I still get to invest it however and wherever I want) then so be it.

Regulation 28 means you cannot invest "wherever" you want, but I get what you're saying, you'd still prefer not to have it locked down though right? If there was a way to not have masses of freeloaders become your problem and still give you full control over your funds you'd prefer it to the current arrangement?

 

[mountainboy]

jeez guys what's with the multiple "if you don't like the rules, don't invest" type of statements.

why are you so very happy to let someone else control your money just because you got a tax break? would you not prefer an arrangement where you get the tax break and have the control?!?

Just because it works like this elsewhere, and it has worked liked this forever, you assume it should not be changed? If government was serious about promoting retirement planning it will not seek control over your savings and it will still give you the tax benefit.

Don't even get me started on taxing the growth of investments, retirement or otherwise, TFSA is a baby step in the right direction, but income from ANY retirement savings should be tax free, currently I see it as double taxation: I already paid you 40% of my income in order to have that money to invest, now you want to tax the income that money generates too?!?

On the Cosatu front, yeah screw them and the ANC, I don't think they deserve special treatment, we should all fall under the same rules which these laws will achieve, no problem with that. Big picture perspective however: why not go one step further and streamline things to make it more favourable for everyone?

Narrowmind, you should rather investigate the new tax laws properly before commenting incorrectly as others might believe you.

You are not taxed double. Tax is defered until retirement and even then it should be better than your current tax rate if structured correctly.

For every rand I invest,I get 41 cents returned immediately ie my R1 only costs me 59c. With an increase in personal tax very likely next week,it becomes even more attractive

Why people are still confused about this reform is beyond me

 

[SauRoNZA]

Regulation 28 means you cannot invest "wherever" you want, but I get what you're saying, you'd still prefer not to have it locked down though right? If there was a way to not have masses of freeloaders become your problem and still give you full control over your funds you'd prefer it to the current arrangement?

On the Regulation 28 front you are quite right...but then you also knew that when you signed up.

I have no problem at all with it being locked down...because that is exactly what it should be. Any sensible person should leave it alone.

I wouldn't even have a problem if they didn't have the 1/3rd rule because if I can help myself I won't touch any of it until I absolutely have to.

If there was a way to protect me from the freeloaders sure...but THIS regulation is the way to protect me from the freeloaders so it's a bit of a moot argument.

It's about protecting people from themselves.

 

[NarrowBandFtw]

Narrowmind, you should rather investigate the new tax laws properly before commenting incorrectly as others might believe you.

You are not taxed double. Tax is defered until retirement and even then it should be better than your current tax rate if structured correctly.

For every rand I invest,I get 41 cents returned immediately ie my R1 only costs me 59c. With an increase in personal tax very likely next week,it becomes even more attractive

Why people are still confused about this reform is beyond me

Deferred tax is still tax, tax at a lower rate is still tax, hence double taxation. The term referring to a situation of being taxed on two separate occasions, not at twice the rate of course.

All of that of course is an existing situation that I personally do not appreciate, I did not mean to imply it has anything to do with the tax reform, which generally I think is a good thing insofar as it doesn't impact me negatively at all. It is an opportunity to impact people even more positively though i.e. while you're changing tax laws anyway you have an opportunity to make an even bigger impact.

 

[supersunbird]

jeez guys what's with the multiple "if you don't like the rules, don't invest" type of statements.

why are you so very happy to let someone else control your money just because you got a tax break? would you not prefer an arrangement where you get the tax break and have the control?!?

Just because it works like this elsewhere, and it has worked liked this forever, you assume it should not be changed? If government was serious about promoting retirement planning it will not seek control over your savings and it will still give you the tax benefit.

Don't even get me started on taxing the growth of investments, retirement or otherwise, TFSA is a baby step in the right direction, but income from ANY retirement savings should be tax free, currently I see it as double taxation: I already paid you 40% of my income in order to have that money to invest, now you want to tax the income that money generates too?!?

On the Cosatu front, yeah screw them and the ANC, I don't think they deserve special treatment, we should all fall under the same rules which these laws will achieve, no problem with that. Big picture perspective however: why not go one step further and streamline things to make it more favourable for everyone?

You have no idea how it works, so let me tell you (using whatever figures just for illustrative purposes):

You get paid R400 000 per year. You contribute 15% (aka R60 000) to a pension fund. You only pay tax on the R340 000. So that R60 000 is not taxed and it grows totally tax free. When you eventually retire, then you get taxed on the income, at a lower rate due to age.

And tax works in brackets, you get taxed 16% on the first R100 000, 22% on the next R100 000, 33% on the next R100 000 and 41% on that last R40 000. No one pays near the highest tax bracket unless the are so deep in that bracket it makes the first backets insignificant.

A TFSA is much less tax efficient than a Retirement Fund.

Comprende?

 

[mountainboy]

Deferred tax is still tax, tax at a lower rate is still tax, hence double taxation. The term referring to a situation of being taxed on two separate occasions, not at twice the rate of course.

All of that of course is an existing situation that I personally do not appreciate, I did not mean to imply it has anything to do with the tax reform, which generally I think is a good thing insofar as it doesn't impact me negatively at all. It is an opportunity to impact people even more positively though i.e. while you're changing tax laws anyway you have an opportunity to make an even bigger impact.

Defered tax is not double taxation. Its being taxed only once at a much later stage and at a much better rate.

 

[NarrowBandFtw]

You have no idea how it works, so let me tell you (using whatever figures just for illustrative purposes):

You get paid R400 000 per year. You contribute 15% (aka R60 000) to a pension fund. You only pay tax on the R340 000. So that R60 000 is not taxed and it grows totally tax free. When you eventually retire, then you get taxed on the income, at a lower rate due to age.

And tax works in brackets, you get taxed 16% on the first R100 000, 22% on the next R100 000, 33% on the next R100 000 and 41% on that last R40 000. No one pays near the highest tax bracket unless the are so deep in that bracket it makes the first backets insignificant.

A TFSA is much less tax efficient than a Retirement Fund.

Comprende?

you sir have categorically proven that bold statement as BS, btw I do know exactly how it works, seems I needed a reminder though.

 

[mountainboy]

you sir have categorically proven that bold statement as BS, btw I do know exactly how it works, seems I needed a reminder though.

Glad you got it Narrowband

Now explore this a bit more and see the real and immediate benefits

 

[supersunbird]

you sir have categorically proven that bold statement as BS, btw I do know exactly how it works, seems I needed a reminder though.

Shirley () you did lol

As I was saying, you are not forced (at least not by government) to save in any Retirement Fund. If someone were to force you to play rugby for payment, you'd take it up with them and just not play if you didn't want too.

Only problem I have with Regulation 28 is the 25% foreign limit, I'd rather have it at 50%. But not withstanding, one can have a great growth portfolio despite that. My portfolio... 75% shares, 17.5% property (that's performed better than shares over the past 10 years) and 7.5% in bonds. And you know what? Even that 7.5% pays out good interest, enough to match the dividend pay-outs of the shares. You can use that interest to buy more shares by often rebalancing the bonds to keep is as low as possible.