tax harmonisation of retirement fund contributions and ...€¦ · tax harmonisation of retirement...

IContents

I


Table of Contents

Part I Disclaimer 1

Part II Taxation Laws Amendment Act2015 1

................................................................................................................................... 11 New Retirement Fund Taxation Legislation

......................................................................................................................................................... 1Media Statement 2016 on Retirement Reform

......................................................................................................................................................... 13 Types of Contribution Plans

.................................................................................................................................................. 2DC - Defined Contribution

........................................................................................................................................... 2Fringe Benefit Calculation

........................................................................................................................................... 2New SARS Codes for Reporting on Tax Certif icates

.................................................................................................................................................. 2DB - Defined Benefit

........................................................................................................................................... 3Fringe Benefit Calculation


.................................................................................................................................................. 3DC & DB - Hybrid Fund


......................................................................................................................................................... 3Retirement Annuity

.................................................................................................................................................. 3New SARS Code

......................................................................................................................................................... 4Example Calculation

......................................................................................................................................................... 4Difference in Calculation from 2015 to 2016

.................................................................................................................................................. 4High Earner Example 1

........................................................................................................................................... 52016 Tax Year

........................................................................................................................................... 62017 Tax Year

........................................................................................................................................... 7Tax Calculation Comparison

.................................................................................................................................................. 7High Earner RA Only Example 2

........................................................................................................................................... 72016 Tax Year

........................................................................................................................................... 82017 Tax Year


.................................................................................................................................................. 9High Earner Example 3

........................................................................................................................................... 102016 Tax Year

........................................................................................................................................... 112017 Tax Year


.................................................................................................................................................. 11EE and ER Pension Example 4

........................................................................................................................................... 122016 Tax Year

........................................................................................................................................... 122017 Tax Year


.................................................................................................................................................. 13EE and ER Pension + EE and ER Retirement Annuity Example 5

........................................................................................................................................... 132016 Tax Year

........................................................................................................................................... 142017 Tax Year


.................................................................................................................................................. 14100% ER Pension Fune Example 6

........................................................................................................................................... 152016 Tax Year

........................................................................................................................................... 152017 Tax Year


................................................................................................................................... 162 D-BIT Systems Payroll Changes

......................................................................................................................................................... 16Tax Calculation

......................................................................................................................................................... 16Pension Provident Fund New Rules

.................................................................................................................................................. 17Country Whose Rules are to be Obeyed

.................................................................................................................................................. 17Pen.Prov Component Sw itch

......................................................................................................................................................... 18Pension Fund Action Setup

.................................................................................................................................................. 18DC Pension EE and ER Contribution

Tax Harmonisation of Retirement Fund Contributions and BenefitsII


........................................................................................................................................... 18Calc Tab

........................................................................................................................................... 19Rules Tab

........................................................................................................................................... 20Linked Tab

.................................................................................................................................................. 20Employee Taxation Record

........................................................................................................................................... 21Taxable Tab

........................................................................................................................................... 21Benefit Tab

........................................................................................................................................... 22Contrib Tab

........................................................................................................................................... 22Deduction Tab

.................................................................................................................................................. 22DB Pension EE and ER Contributions

........................................................................................................................................... 23Calc Tab

........................................................................................................................................... 23Rules Tab

........................................................................................................................................... 24Linked Tab


........................................................................................................................................... 24Taxable Tab

........................................................................................................................................... 25Benefit Tab

........................................................................................................................................... 25Contrib Tab

........................................................................................................................................... 26Deduction Tab

.................................................................................................................................................. 26DC & DB Pension EE and ER Contribution

........................................................................................................................................... 26Calc Tab

........................................................................................................................................... 27Rules Tab

........................................................................................................................................... 27Linked Tab

.................................................................................................................................................. 27Employees Tax Record

........................................................................................................................................... 28Taxable Tab

........................................................................................................................................... 28Benefit Tab

........................................................................................................................................... 29Contrib Tab

........................................................................................................................................... 29Deduction Tab

.................................................................................................................................................. 29Pension Fund 100% ER Contribution

........................................................................................................................................... 30Calc Tab

........................................................................................................................................... 30Rules Tab

........................................................................................................................................... 31Linked Tab

........................................................................................................................................... 32Employee Tax Record

...................................................................................................................................... 32Benefit Tab

...................................................................................................................................... 32Contrib Tab

...................................................................................................................................... 33Deduction Tab

......................................................................................................................................................... 33Provident Fund Action Setup

.................................................................................................................................................. 33DC Provident EE and ER Contributions

........................................................................................................................................... 34Calc Tab

........................................................................................................................................... 34Rules Tab

........................................................................................................................................... 35Linked Tab

.................................................................................................................................................. 35Employee Tax Record

........................................................................................................................................... 36Taxable Tab

........................................................................................................................................... 36Benefit Tab

........................................................................................................................................... 37Contrib Tab

........................................................................................................................................... 37Deduction Tab

.................................................................................................................................................. 37DB Provident EE and ER Contributions

........................................................................................................................................... 38Calc Tab

........................................................................................................................................... 38Rules Tab

........................................................................................................................................... 39Linked Tab


........................................................................................................................................... 39Taxable Tab

........................................................................................................................................... 40Benefit Tab

........................................................................................................................................... 40Contrib Tab

........................................................................................................................................... 41Deduction Tab

.................................................................................................................................................. 41DC & DB Provident EE and ER Contribution

........................................................................................................................................... 42Calc Tab

........................................................................................................................................... 42Rules Tab

........................................................................................................................................... 43Linked Tab

.................................................................................................................................................. 43Employees Tax Record

IIIContents

III


........................................................................................................................................... 43Taxable Tab

........................................................................................................................................... 44Benefit Tab

........................................................................................................................................... 44Contrib Tab

........................................................................................................................................... 45Deduction Tab

.................................................................................................................................................. 45Provident Fund 100% ER Contribution

........................................................................................................................................... 45Calc Tab

........................................................................................................................................... 46Rules Tab

........................................................................................................................................... 47Linked Tab

.................................................................................................................................................. 47Employee Tax record

........................................................................................................................................... 47Benefit Tab

........................................................................................................................................... 48Contrib Tab

........................................................................................................................................... 48Deduction Tab

......................................................................................................................................................... 48Retirement Annuity Fund Action Setup

.................................................................................................................................................. 48Retirement Annuity EE and ER Contributions

........................................................................................................................................... 49Calc Tab

........................................................................................................................................... 49Rules Tab

........................................................................................................................................... 50Linked Tab


........................................................................................................................................... 50Taxable Tab

........................................................................................................................................... 51Benefit Tab

........................................................................................................................................... 51Contrib Tab

........................................................................................................................................... 52Deduction Tab

.................................................................................................................................................. 52Retirement Annuity 100% ER Contribution

........................................................................................................................................... 52Calc Tab

........................................................................................................................................... 53Rules Tab


........................................................................................................................................... 54Benefit Tab

........................................................................................................................................... 54Contrib Tab

........................................................................................................................................... 55Deduction Tab

1 Tax Harmonisation of Retirement Fund Contributions and Benefits


1 Disclaimer

The purpose of this document is to show how the current legislation is implemented in the PayrollWindows. D-BIT Systems makes no warranties or representations to the quality or suitability of thisdocument. Clients use this document entirely at their own risk.

For full legislation logon to the following websites:

www.sars.gov.za www.treasury.gov.za

2 Taxation Laws Amendment Act 2015

2.1 New Retirement Fund Taxation Legislation

After many deliberations, postponements, amendments and a lot of confusion, the new taxation rulesfor retirement funds are set to come into effect on 01 March 2016.

2.1.1 Media Statement 2016 on Retirement Reform

Any contribution paid by the employer towards an employee’s retirement fund – whether apension, provident or retirement annuity – will now be taxed as a fringe benefit in the hands of theemployee.

The calculation of the fringe benefit value will depend on whether the retirement fund is classifiedas a Defined Contribution (DC), Defined Benefit (DB) or Hybrid fund.

For a DC fund, the fringe benefit value is equal to the amount paid by the employer.

For a DB or Hybrid fund, the fringe benefit value is calculated as (X*Y)-Z

1. X is a contribution factor that will be provided to the employer in the form of a fundcontribution certificate

2. Y is the taxable remuneration portion of the employee’s income used to determine the fundcontribution or RFI

3. Z is the retirement fund contribution amount paid by the employee

The contributions made towards a retirement fund will also result in a tax deductible portion, whichis calculated as the employee contribution plus the fringe benefit portion, limited to the lesser ofR350 000 per year or 27.5% of remuneration.

2.1.2 3 Types of Contribution Plans

DC - defined ContributionDB - defined BenefitDC & DB - Hybrid Fund

2Taxation Laws Amendment Act 2015


2.1.2.1 DC - Defined Contribution

A defined contribution fund (a fund that consists solely of defined contribution components) is a fundfor which the contribution can be directly linked to the benefit that the member is entitled to.The fringe benefit value will be the actual company contribution towards the fund. The employercontributes R500, then the fringe benefit value is R500.

2.1.2.1.1 Fringe Benefit Calculation

The fringe benefit value is the employer-paid contribution.

2.1.2.1.2 New SARS Codes for Reporting on Tax Certif icates

3817 - Pension Fund Fringe Benefit, employers portion which is now taxable in the hands of theemployee.3825 - Provident Fund Fringe Bnenfit employers contribution which is now taxable in the hands of theemployee.

2.1.2.2 DB - Defined Benefit

For a defined benefit fund, the value is harder to calculate due to an inherent element of cross-subsidiation across members where the value of contributions does not match the member’sbenefits.If the fund is a ‘defined benefit fund’ then the fringe benefit will be calculated with a formula (theformula will calculate the monthly fringe benefit). The formula calculates a ‘notional’ employercontribution to the defined benefit fund based on the estimatedincrease in retirement benefits. The ‘notional amount’ is the fringe benefit value to the employee.The fringe benefit value is calculated using the following formula:

X = (A X B) – C



2.1.2.2.1 Fringe Benefit Calculation

The fringe benefit value must be calculated according to a formula.

X = (A X B) - C

Where:A = value provided by the fund certificateB = the employees RFI (Retirement Funding Income)C = the employees own contribution to the fund (but excluding voluntary contributions).


3818 - Pension Fund Fringe Benefits, employer contributions which is now taxable in the hands ofthe employee.3826 - Provident Fund Fringe Benefits, employer contributions which is now taxable in the hands ofthe employee.

2.1.2.3 DC & DB - Hybrid Fund

It is possible to have a fund which has different components (defined benefit, defined contribution,underpin and/or risk components). If this is the case, the fund will calculate a fund member categoryfactor which takes all the components into account. This factor will be applied to calculate themonthly fringe benefit.The same formula is applied as the Defined benefit Fund.


3819 - Pension Fund Fringe Benefits, employer contributions which is now taxable in the hands ofthe employee3827 - Provident Fund Fringe Benefits, employer contributions which is now taxable in the hands ofthe employee

2.1.3 Retirement Annuity

Fringe benefit now applies to employer contributions to retirement annuities.

2.1.3.1 New SARS Code

3828 - Employer retirement annuity fund contributions



2.1.4 Example Calculation

Employee basic salary R1 5000 00 per annumEmployees defined contribution pension fund's rules provides for an employer contribution of15% and an employee contribution of 7.5% of his basic salary.The employee also contributes 5% towards a retirement annuity fund.

Employer = R225 000 p/a (1 5000 00 x 15%)Member - pension fund = R112 500 p/a (1 5000 00 x 7.5%Member - retirement annuity = R75 000 p/a (1 5000 00 x 5%

Total combined contribution = R412 500

The employees actual combined contribution of R412 500 exceeds the maximum allowablededuction of R350 000, therefore only R350 000 will be allowed as a tax deduction on assessment,with the balance of R62 500 rolling over until the next year of assessment,

The employee will be taxed on the 15% employer pension fund contribution of R225 000 as a fringebenefit.

2.1.5 Difference in Calculation from 2015 to 2016

Here are some examples showing the different effects that the new retirement fund tax calculationwill have on employees in various earning brackets.

2.1.5.1 High Earner Example 1

Employee has Provident Fund EE and ER contributionEE Retirement Annuity.



2.1.5.1.1 2016 Tax Year

Employee had no tax deduction benefit for their Provident Fund.The employee was allowed 15% on Non-Retirement Funding Income as a tax deduction for theirRetirement Annuity.



2.1.5.1.2 2017 Tax Year

Employee has 'Fringe Benefit' tax ER contribution to Provident Fund. Employee's 'Allowable' total retirement contribution deduction is limited to R350 000 per annum.



2.1.5.1.3 Tax Calculation Comparison

2.1.5.2 High Earner RA Only Example 2

EE Retirement Annuity only.

2.1.5.2.1 2016 Tax Year



The employee was allowed 15% on Non-Retirement Funding Income as a tax deduction for theirRetirement Annuity.

2.1.5.2.2 2017 Tax Year

Employee's retirement annuity contribution deduction is limited to R350 000 per annum.




2.1.5.3 High Earner Example 3

EE and ER Provident Fund ContributionsEE Retirement Annuity



2.1.5.3.1 2016 Tax Year

Employee had no tax deduction benefit for their Provident Fund.The employee was limited to R3500 being the greater amount as a tax deduction for their RetirementAnnuity.



2.1.5.3.2 2017 Tax Year

Employee has 'Fringe Benefit' tax ER contribution to Provident Fund. Employee's 'Allowable' total retirement contribution deduction is R300 000 per annum and allowedas less then the limit of R350 000.


2.1.5.4 EE and ER Pension Example 4

EE and ER Pension Fund



2.1.5.4.1 2016 Tax Year

Employee had tax deduction benefit for their Pension Fund limited to '7.5% of RetirementFunding Income'.

2.1.5.4.2 2017 Tax Year

Employee has 'Fringe Benefit' tax ER contribution to Pension Fund. Employee's 'Allowable' total retirement contribution deduction is R94500 per annum and allowed asless then the limit of R350 000.




Enter topic text here.

2.1.5.5 EE and ER Pension + EE and ER Retirement Annuity Example 5

EE and ER Pension FundEE and ER Retirement Annuity

2.1.5.5.1 2016 Tax Year

Employee had tax deduction benefit for their Pension Fund.The employee was allowed R1750.00 as a tax deduction for their Retirement Annuity as all incomewas Retirement Funding.



2.1.5.5.2 2017 Tax Year




2.1.5.6 100% ER Pension Fune Example 6

100% ER Pension Fund



2.1.5.6.1 2016 Tax Year

Employee had no tax deduction benefit for the ER contribution to Pension Fund.

2.1.5.6.2 2017 Tax Year





2.2 D-BIT Systems Payroll Changes

Tax CalculationPension, provident and Retirement Annuity action set up.

2.2.1 Tax Calculation

From 1 March 2017 the ‘Forecast on Current’ calculation is no longer supported. System will

automatically change employees to ‘Forecast on YTD’

2.2.2 Pension Provident Fund New Rules

Country whose rules are to be obeyed MUST = South Africa.

Pen prov component switch MUST be selected.



2.2.2.1 Country Whose Rules are to be Obeyed

2.2.2.2 Pen.Prov Component Switch

NB: A Critical error message will be given if component not advised.



2.2.3 Pension Fund Action Setup

Pension Fund Contributions EE and ERPension Fund Contributions ER Only

2.2.3.1 DC Pension EE and ER Contribution

Main action = Employee ContributionLink action = Employer Contribution

Calc TabRules TabLinked TabEmployee Tax Record

2.2.3.1.1 Calc Tab



Type of action = DeductionSequence = sequence number to be 'Prior' to the 'Normal Taxation' action

2.2.3.1.2 Rules Tab

Country whose rules are to be obeyed = South Africa

IRP% Category = 4001

Tax Category = Pension



2.2.3.1.3 Linked Tab

Type of link action = Employer Contribution

Tax Category = No tax category

Reporting Category = 4472

Pen.Prov Component = select Defined Contribution until further notice, SARS has not catered

for the Defined Benefit and combined components ib the August 2016 SARS BRS.

2.2.3.2 Employee Taxation Record

Taxable TabBenefit TabContrib. TabDeductions Tab



2.2.3.2.1 Taxable Tab

EE Contribution will also add to 4001

2.2.3.2.2 Benefit Tab

Employers Pension Fund Contribution as a fringe benefit writes to either 3817, 3818 or 3819depending on action Pen Prov Component switch.



2.2.3.2.3 Contrib Tab

Adds to 4472

2.2.3.2.4 Deduction Tab

Combined Employee and Employer Pension Fund Contributions.

2.2.3.3 DB Pension EE and ER Contributions



NB: This type of fund method use a formula to calculate the fringe benefit value as follows:

Formula = Current Fixed Remuneration + YTD Fixed Remuneration x (Fund Member CategoryFactor e.g 0.20) – Current EE Contribution + YTD EE Contribution.

NB: The Fund Member Category Factor is obtained from the Fund.



2.2.3.3.1 Calc Tab

Type of Calculation = may be a 'Standard Amount' given by the fund and not a percentageType Action = DeductionSequence = less than Normal Taxation action.

2.2.3.3.2 Rules Tab

Country whose rules are to be obeyed = South AfricaIRP5 category = 4001Tax category = Pension




Type of link action = Employer ContributionTax Category = No tax categoryReporting Category = 4472Pen.prov. Component = Defined BenefitPen.Prov. Factor = Fund Member Category Factor given by fund NB: A Critical error message will be given if component not advised. The payroll will not be able to be

locked until action is corrected.







2.2.3.5 DC & DB Pension EE and ER Contribution






2.2.3.5.1 Calc Tab



2.2.3.5.2 Rules Tab


2.2.3.6 Employees Tax Record






2.2.3.7 Pension Fund 100% ER Contribution

Rules TabLinked TabEmployee Tax Record



2.2.3.7.1 Calc Tab

Type of action = Employer's contributionSequence = sequence number must be 'Prior' to the 'Normal Taxation' action

2.2.3.7.2 Rules Tab


IRP5 Category = 4472




Exit Formula = 100% ER

Formula Below


Pen Prov Component = select Defined Contribution until further notice, SARS has not catered




2.2.3.7.4 Employee Tax Record

Benefit TabContrib. TabDeduction Tab

2.2.3.7.4.1 Benefit Tab

Employers Pension Fund Contribution as a fringe benefit writes to either 3817, 3818 or 3819 depending on action Pen Prov Component switch.

2.2.3.7.4.2 Contrib Tab

Adds to 4472.



2.2.3.7.4.3 Deduction Tab

Adds to 4001 as deemed to be paid by the employee.

2.2.4 Provident Fund Action Setup

Provident Fund Contributions EE and ERProvident Fund Contributions ER Only

2.2.4.1 DC Provident EE and ER Contributions


Rules TabLinked TabEmployee Tax Record



2.2.4.1.1 Calc Tab

Type of action = DeductionSequence = sequence number 'Prior' to 'Normal Taxation' action.

2.2.4.1.2 Rules Tab



Tax Category = Provident fund






Reporting Category = 4473 Provident fund company

NEW SWITCH = Pen Prov Component MANDATORY

Pen Prov Component = Defined Contribution

2.2.4.2 Employee Tax Record






Employers Pension Fund Contribution as a fringe benefit writes to either 3825, 3826 or 3827 depending on action Pen Prov Component switch.




Adds to 4473


Adds to 4003 combined Employee and Employer Contributions.

2.2.4.3 DB Provident EE and ER Contributions








2.2.4.3.1 Calc Tab

2.2.4.3.2 Rules Tab




2.2.4.5 DC & DB Provident EE and ER Contribution








2.2.4.5.1 Calc Tab

2.2.4.5.2 Rules Tab




2.2.4.6 Employees Tax Record






2.2.4.7 Provident Fund 100% ER Contribution


2.2.4.7.1 Calc Tab



2.2.4.7.2 Rules Tab




Exit Formula = 100% ER

Formula Below




Pen.Prov. Component – select Defined Contribution until further notice, SARS has not catered


2.2.4.8 Employee Tax record

Benefit TabContrib. TabDeduction Tab


Employers Pension Fund Contribution as a fringe benefit writes to either 3825, 3826 or 3827



depending on action Pen Prov Component switch.


Adds to 4473



2.2.5 Retirement Annuity Fund Action Setup

R/A Fund Contributions EE and ERR/A Fund Contributions ER Only

2.2.5.1 Retirement Annuity EE and ER Contributions

Calc TabRules TabLinked Tab



2.2.5.1.1 Calc Tab

Sequence - prior to 'Normal Taxation' action

2.2.5.1.2 Rules Tab


IRP% Category = 4006

Tax Category = Retirement annuity






Reporting Category = 4475


Taxable TabBenefit TabContrib TabDeduction Tab





Add to 3828


Adds to 4475




Combined contributions add to 4006

2.2.5.3 Retirement Annuity 100% ER Contribution

Calc tabRules TabEmployee Tax Record

2.2.5.3.1 Calc Tab

Sequence - prior to 'Normal Taxation' action



2.2.5.3.2 Rules Tab





Benefit TabContrib TabDeduction Tab




Adds to 3828


Adds to 4475

tax harmonisation of retirement fund contributions and ...€¦ · tax harmonisation of retirement...

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