On July 31, the National Treasury and South African Revenue Services (Sars) released a draft of the new Tax Laws Amendment Bill (TLAB).
The proposed law changes again effectively proved to be another move from the government to get their hands on retirement funds. Please note that for the purpose of this article retirement funds include, pension preservation, provident preservation, and retirement annuities.
The new legislation seeks to prevent South Africans who no longer pay tax in South Africa from withdrawing retirement funds until they can prove non-tax residency for an uninterrupted period of three years or longer.
The proposed changes according to the TLAB, are looking to come into effect at the start of the next tax year, which is March 1 2021.
As per the February 2020 budget, it was announced that foreign-earned income above R1.25 million will now be taxable. People that had applied for financial emigration were exempt from tax, granted they had the financial emigration status, but this entire system will now be phased out by March 2021.
The current legislation as it stands allows South Africans who have financially emigrated, and have concluded the exchange control process of financial emigration, as recognised by the South African Reserve Bank (Sarb) to be able to withdraw their retirement funds in full.
There has been a recent increase in South Africans looking to formalise non-resident status to withdraw their retirement funds from South Africa and invest in a more stable economy. This could be the core reason that the government has taken the decision to crush the outflow of retirement funds, by proposing to change the way in which people exit.
This new change will be implemented by introducing a new test which will make provisions for payments of retirement lump sum benefits for when a member ceases to be a tax resident in South Africa.
The change is looking to be implemented in the next seven months which does not give people much time to withdraw their retirement funds from South Africa if they have formally emigrated. Please also be advised that the process to financially emigrate is a lengthy process so it is advisable that ex-South Africans do not leave the process to the last minute.
The introduction of this possible law change was not too much of a surprise, as we are all aware of how the government is closing in on retirement funds. The release of the TLAB still needs to run its course but we would advise that should you be in the process of financial emigration, finish the process before your retirement savings are locked in.
Disclaimer: Please note that we are not experts on this subject and the above article is for information purposes only.