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Retirement Planning
Tuesday, May 1, 2007
On the table

The National Treasury announced proposals on 13th March 2007 regarding the revision of the tax-free portion of lump-sum benefits payable upon retirement.
However, Old Mutual’s Solly Keetse emphasises that the new tax regime is still a proposal, and needs to be ratified, while the final promulgated law may differ.
“Should the proposed changes be enacted as they are they will become effective from 1st October 2007,” he notes.
Again, assuming no changes to the proposals, the complex calculations to determine the tax-free portion of the one third lump sum received on retirement or death as contained in Formula A and B of the Second Schedule to the Income Tax Act are to be abolished. It is proposed that they will be replaced by a simple, quantum based flat-rate. Formula C dealing with exemption for pre-1998 government years of service would, however, remain.
So under the new regime, the tax-free lump sum will be:
• R300 000 plus,
• Previous non-deductible contributions, plus
• Pre-1998 Government employment (Formula C).

The new regime ends all reliance on ‘salary’ and ‘years of service’, he explains.
Also to be abolished is the complex averaging formula in section 5(10) of the Income Tax Act.
Under the new regime, the taxable portion lump sum would be taxed at:
• 18% for the first R300 000 taxable amount, plus
• 36% for the remainder.

“In summary, the first R300 000 of your one third commutable retirement lump sum will be tax-free; the second R300 000 will be taxed at 18% whilst the balance will be taxed at 36%,” says Mr Keetse.
Please consult your Financial Planner or advisor if you have any further questions on this subject.

Copyright © Insurance Times and Investments® Vol:20.4 1st May, 2007
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