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New rules for employer contributions to retirement funds
March 2015 will bring into effect new tax provisions introduced into the Income Tax Act 1962 by the Taxation Laws Amendment Act of 2013. Taxand South Africa consider these new rules and some of the complexities surrounding this taxable benefit provision relevant to employers.
A taxable benefit will arise if an employer has made any contribution for the benefit of any employee to any pension fund, provident fund or retirement annuity fund. This is detailed in the 7th Schedule and depends on whether a retirement fund constitutes a defined contribution component (DC component) or a defined benefit component (DB component) or a combination of both components. A DC component is defined in relation to how the value of the retirement benefit that the employee will receive as a member of the fund is calculated. A DB component means a component of a pension fund, provident fund or retirement annuity fund other than a DC component of a fund.
In addition the employer contribution or payment to a fund in respect of risk benefits provided by the fund directly or indirectly for the benefit of a member of the fund is deemed to be a contribution made in respect of a DC component of that fund.
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