Verdict on Retirement Fund Withdrawal Coming Soon

In this article, we look at findings and insights derived from an interview with Head of Tax Technical at Tax Consulting SA, Jean du Toit.

The time is drawing closer for South Africans who are considering emigrating to learn their fate around pensions. There has been a long wait since the publication of the draft tax Bills on the 31st of July 2020 and on 07th of October 2020, the Standing Committee on Finance (“the Committee”) heard oral submissions on the proposed tax amendments. Tax Consulting SA is one of the few tax firms who have made oral submissions to the Parliament, thus can confirm that the most debated amendment is the intention of the government, to impose a three-year lock-in period on retirement funds when a person emigrates.

The government announced the intention to modernize the exchange control system in February, and as by-product thereof, the current process of emigration through the South African Reserve Bank (SARB) will be phased out. The announcement was profound from a tax perspective because this emigration process (commonly referred to as “financial emigration”) is the trigger for emigrating South Africans to withdraw their retirement funds.

It is now proposed that a person will only be permitted to withdraw their retirement fund if they can prove they have not been tax resident in South Africa for at least three years. This immersed prospective emigrants in uncertainty.

Key issues
The murmurs on “prescribed assets” and motive behind the lock-in period raised questions. However, the National Treasury reassured that it was not the driver behind the amendment. We have learnt from the National Treasury and Committee that the reason behind the three-year lock in is to prevent cases where individuals withdraw their retirement fund under the pretenses of emigration, only to return to South Africa shortly after.

Furthermore, the SARB will now take up to a year to conclude the financial emigration process, thus raising the question of will taxpayers who initiated the process prior to the effective date of 1 March 2021 be permitted to withdraw their retirement fund under the old dispensation?

When will we know?
Thus far stakeholders have raised their concerns in written submissions to National Treasury, which was followed by a public workshop. The National Treasury is said to publish their official response document in the month of October 2020, at which point, we shall be made aware of where the amendment is heading.

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(Source: FA News, 2020)


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