TAXATION LAWS AMENDMENT ACT UPDATE

    
         
    The Taxation Laws Amendment Act No. 23 of 2018 was promulgated on 17 January 2019. The amendments now enacted cover the following changes which may be of interest to you:    
         
 
 
 
Alignment of tax treatment of withdrawals from preservation fund upon emigration or repatriation on expiry of work visa.

The tax treatment of all retirement funds, including pension preservation funds and provident preservation funds (as opposed to only retirement annuity funds previously), allow members of preservation funds to be able to access and withdraw the full value of their post-tax retirement benefits upon emigration for Exchange control purposes, or repatriation on the expiry of a work visa.

(Effective Date: 1 March 2019)
 
 
Tax treatment of transfers to pension preservation fund or provident preservation fund after reaching normal retirement age, but before retirement date.

A member of a pension or provident fund who reaches normal retirement age (55 years) but has not yet retired, may (in addition to transferring to a retirement annuity fund) also transfer funds to a pension preservation or provident preservation fund. In addition, the single allowable withdrawal applicable to preservation funds will not apply to the amounts transferred from a pension or provident fund to a pension preservation or provident preservation fund made by the member of the fund after reaching normal retirement age, but before an election to retire.

(Effective Date: 1 March 2019)
 
 
Further anti-avoidance proposals on offshore trusts and companies.

In order to close the loophole in the current tax legislation regarding the use of trusts to avoid tax or recharacterize the nature of income, SARS proposed amendments applicable to South African resident individuals having an indirect interest in a foreign company through foreign trusts. The effect is that where a resident funded an offshore trust for example, and the offshore trust (or any one or more connected person in relation to the trust), holds more than 50% of the voting or participation rights in a foreign company, that the dividend (participation) exemption will therefore not be applicable:
  • if there is a donation, settlement or other disposition by a resident individual to a foreign trust to acquire shares in a foreign company, any foreign dividend received by or capital gain arising from a disposal of the shares should be attributed back to the resident donor and taxed in the donor’s hands; and

  • foreign dividend income or capital gains vesting in a resident beneficiary will be taxed in the beneficiary’s hands.
(Effective Date: 1 March 2019)
 
 
  Note: The ‘participation exemption‘ refers to the exemption in respect of foreign dividends received by or accrued to a person who holds at least 10% of the total equity and voting rights in the foreign company declaring the dividend and as a result, would ordinarily be exempt when the dividend is attributed to a SA resident donor, or vested in a SA resident beneficiary  
 
 
     
 

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