Budget 2016: Tax changes

In essence, very little has changed for our members. However, the reforms announced during the 2016 budget speech provide the opportunity for some members to contribute more towards retirement in a tax efficient manner.

From 1 March 2016, the tax treatment of contributions towards retirement savings will change as follows:

  • All company contributions will be treated as a fringe benefit, but will be allowed as a tax deduction in the hands of employees.
  • Company contributions are also allowed as a tax deduction.
  • The maximum permissible tax deduction has increased to 27.5% of taxable income, but is limited to R350 000 per year.

As far as your income from the company is concerned, taxable income is income on which PAYE is determined.

TFG Payroll only takes into account your company earnings for purposes of calculating PAYE.

There is a technical calculation, which SARS prescribes to determine the value of the company contribution. As a result of this calculation, SARS deems the company contribution of 12%, for fringe benefit purposes, to be 12.9%.

Total contributions to TFG Retirement Fund for company employees up to grade 6 are as follows:

  % of Pensionable (basic) Salary
Company contribution for fringe benefit purposes 12.9%
Employee contribution 7.5%
% of pensionable salary allocated towards retirement 20.4%

The maximum permissible deduction is 27.5% of taxable income (limited to R350 000). This means that if your income from the company is made up of only pensionable (basic) salary, then you will be able to contribute 7.1% (27.5% minus 20.4%) of your pensionable salary, as an Additional Voluntary Contribution (AVC), towards your retirement, and you will get this additional amount as a tax deduction, limited to R350 000 per year.

If your income from the company is made up of your pensionable (basic) salary and other amounts, such as a car allowance, housing allowance or year-end gift, then you will be able to contribute the 7.1% of pensionable salary, as detailed above, plus 27.5% of your additional earnings, as an Additional Voluntary Contribution, towards your retirement, and you will get this additional amount as a tax deduction, limited to R350 000 per year.

It is important to note that if you are also contributing privately towards to a retirement annuity fund, you must consider that if you make full use of your available tax deduction within TFG Retirement Fund, it is likely to impact the tax deductibility of your external retirement annuity fund contribution.

There is no restriction to the amount you can contribute as an AVC towards TFG Retirement Fund, provided that the contribution comes from your earnings as a deduction by Payroll. The only limitation is the amount that can be deducted for tax purposes each year.

Speak to your personal financial advisor if you have any concerns in this regard.

It is also useful to note that investing in TFG Retirement Fund, in the form of an Additional Voluntary Contribution, provides an opportunity for investing in a vehicle with low fees and a very good long-term investment return track record.

What should you do next?

The changes detailed above are for your information and to assist you, should you wish to contribute more towards retirement in a tax-efficient manner.

Quick News

Contributions
16 Feb 2021
TFG Retirement Fund

Rule changes relating to your member contributions
Contribute more to your retirement
16 May 2017
Pay less tax by making Additional Voluntary Contributions to your retirement Fund.
Update your Nomination of Beneficiary form
21 Nov 2016
Find out how to nominate your beneficiaries.