Pension Tax Whammy

PLAN: TREASURY WANTS EXEMPTION ON PAY FOR OVERSEAS WORK GONE

- Amanda Visser

Retired South Africans who contributed to a foreign retirement product while working abroad in the past are facing a higher tax burden—and potentially even double taxation—from next year.

National Treasury is proposing to scrap the blanket tax exemption in the Income Tax Act on foreign retirement benefits received by South African tax residents for past employment abroad. The proposed amendment date is 1 March next year.

Affected parties have until 12 September to comment on the proposed changes in the draft Taxation Laws Amendment Bill that was published on 16 August.

Treasury has two issues with the current blanket exemption. It may result in double non-taxation, where the foreign country does not tax the retirement income due to its domestic law or tax treaty limitations. SA also foregoes the revenue due to the exemption.

The second issue is that SA foregoes revenue because, despite having the exclusive right to tax under a double tax agreement (DTA), it maintains the exemption. The foreign country may then choose to tax the retirement benefit since SA does not.