New tax laws simplified: What it means for you

The tax bill that President Jacob Zuma has signed into a law has left many confused.

The Tax Laws Amendment Act and the Tax Administration Laws Amendment Act seek to compel workers to preserve their retirement savings over a longer period, restricting them from deducting all of their retirement savings in cash.

Head of Old Mutual Corporate Consultants Hugh Hacking told ENCA that this law was established to encourage people to save more towards their retirement.

"Government are putting restrictions on what you can do when you actually retire with your savings. And they are saying that you need to use at least two-thirds to buy an annuity or a monthly pension and so that is a change for the provident funds where in the past you could take the whole amount as cash," he said.

Only applies to new tax year

What has been done as a concession is that the limit has been moved up to R247 500, so any amount that you have saved up to that level is not affected by this at all and you could take it as cash. What they've also said as a concession is that any monies that have been saved up until now, this tax year, will not be impacted at all.

So everything that you've saved up until the end of this tax year you will still have to take the whole amount as cash. So it really applies to new money that's saved from the new tax year going forward.

How does the law affect retrenchment?

This change of legislation doesn't impact that situation (retrenchment) at all. So if you change jobs or you're retrenched, or you're dismissed or for any reason you leave your employer you can still access your cash at any point.

So that has not been changed at all with this change in the law, this change in the law only impacts retirement at this stage.

Will people who were taxed more still enjoy rebate benefits?

Going forward you will now be able to deduct the monies that you contribute to your retirement funds from your taxable salary, so that will mean that for many people that are over the tax threshold that they will be a reduction in the amount of tax.

It also means that for people that want to save more than the current 15% of salary that's tax deductible, they can get an additional deduction as well. There is an overall cap for very high income earners, there is a limit to how much you can deduct.

Workers over 55 years and older will not be affected

If you're over 55, you won't be affected. Although if you do change retirement funds, that dispensation falls away so when you change retirement funds, the 'grandfathering' as its called, falls away. So people should just check if they are over 55 and they want to change retirement funds what they're rights are.

All new contributions into provident funds after 1 March 2016 by those younger than 55 years will be subject to the two-thirds annuitisation requirement‚ but only once the amount at retirement exceeds the de minimis threshold. It will take several years before many provident fund members under the age of 55 years reach this higher limit‚” Treasury explained recently.

It added that pension and provident funds would remain under control and management of boards’ trustees‚ and that the government “cannot touch those funds”.

“Government has no intentions of introducing preservation ‘through the back door’.