2012 BUDGET OVERVIEW IRO EMPLOYEE BENEFITS

ATTENTION ALL EMPLOYERS!!!!!!!!   In the 2012 budget the Minister of Finance made a number of proposals that are relevant to the employee benefit industry. Changes to tax treatment of retirement fund contributions: The following will take effect from 1 March 2014 and are designed to encourage South Africans to save for retirement. “Contributions by Employees and Employers to pension, provident and retirement funds will be tax deductible by individual employees. Individual taxpayer deductions will be set at 22.5%, for those below 45 years and 27.5% for 45 year and above, of the higher of employment or taxable income. Annual deductions will be limited to R250000 and R300000 for taxpayers below 45 years and above 45 years respectively (up from the proposed R200000 proposed last year) This will effectively mean that maximum contributions on income in excess of R1 111 000 and R1 090 000, respectively, will not be deductible. A minimum monetary threshold of R200000 will apply to allow low-income earners to contribute in excess of the prescribed percentages.” Some assistance will be offered to those who contribute in excess of the threshold. Non-deductible contributions (in excess of the thresholds) will be exempt from income tax if, on retirement, they are taken as either part of the lump sum or as annuity income. Contributions towards risk benefits and administration costs within retirement savings will be included in the maximum percentage allowable deduction.   FALSE JOB TERMINATIONS Employees cannot withdraw funds from employer-provided retirement schemes before retirement unless an employee terminates employment with that employer. In some instances, employees terminate their employment solely to gain access to employer-provided retirement...

EXPLANATION OF THE MEDICAL TAX CREDITS

The medical TAX CREDIT is a fixed amount that will be offset against tax payable. It will replace the TAX DEDUCTION that was granted for medical scheme contributions. According to SARS the system of tax credits seeks to bring about greater fairness. All taxpayers, no matter what their income, will derive an equal tax benefit for their medical scheme contributions as the tax credit is a fixed amount. The current system of deductions for medical scheme contributions had the effect that the higher your income the higher the value of your deductions. The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while high income earners will experience a decrease in net pay to bring about equality in the tax system for medical scheme contributions. Here are some examples to show how the new system will work. How these amounts will be influenced by the new tax rates announced by the Minister in his Budget Speech is also shown below   The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while hig income earners will experience a decrease in net pay to bring equality in the tax system for medical scheme contributions. I have some examples for those of you interested EXAMPLE 1Taxpayer A earns a monthly salary of R16040. He makes a monthly contribution of R1 203 to a pension fund and R2 263 to a medical scheme for himself and three dependants.   Tax deduction system...