Pension fund members who intend to withdraw money from their savings accounts after the two-track system comes into force must register for the tax.
This warning was issued by the South African Revenue Service (Sars).
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In a media statement issued on Friday afternoon, Sars advised people who had not yet registered for the tax to do so before applying to their pension funds to withdraw money under the two-stream system.
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“If an individual is not registered with the tax authority, a request for a tax directive submitted by the fund to SARS will be rejected,” it said.
Claims process
The two-part pension reform will come into force on 1 September 2024, under which contributions from pension fund members will be divided into a savings component, available once per tax year, and a pension component.
For current members of the pension fund, there is also a third component – the guaranteed component, which contains contributions from fund members as of August 31, 2024.
The savings component will be initially set at 10% of the value of the pension fund or R30 000 as at 31 August, whichever is lower. From then on, two-thirds of any new pension savings will be held in the pension component, which can only be accessed once the participant reaches pension age.
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Treasury and pension funds are working tirelessly to meet the three-day deadline.
Before a pension fund member can apply for withdrawals, the fund administrator must calculate the initial amount in the savings bank. Only after the calculation of the initial amounts has been completed and the available amount in the savings bank has been confirmed, can pension fund members begin to apply.
Upon receipt of the complaint, the fund administrator must verify the identity of the applicant and other details. Following these checks, the fund administrator may submit a request to Sars for a tax directive.
All withdrawals from the provident fund will be taxed at the member's marginal tax rate, which is significantly higher than the current tax rate for withdrawals from the early retirement fund.
Money owed to Sars
Pension fund members should note that the SARS Act may provide for additional deductions where fund members have outstanding tax bills.
“Taxpayers should ensure that they have no overdue returns and that they do not owe money to Sars. The Sars debt will be deducted from the withdrawal amount,” it says.
Sars advises pension fund members who have not yet registered for tax to do so via Electronic document submission channel or the Sars mobile app.
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Once a registered taxpayer has applied to withdraw funds from a savings bank, the pension fund will apply to SARS to issue a tax directive.
“A successful directive informs the fund what tax should be deducted from the withdrawal. If the taxpayer is fully compliant, Sars will take up to 48 hours to issue the pension fund a tax directive containing information about the pension fund member's tax liability [how much tax should be deducted from the withdrawal]”,” Sars noted.
Before the final amount is paid to the claimant, the pension fund will be informed of the need to deduct any outstanding balance on behalf of Sars.
If a person has a debt agreement with Sars, withdrawals will not be affected.
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Pension fund administrators must carry out a “trade test” with Sars to ensure the application and tax directive process runs smoothly. “The option is still available until 30 August 2024,” Sars says.
Besides, tax calculator is available on the eFiling website and on the SARS website to help pension fund members get an estimate of the amount they can expect to be paid.
To obtain a clear estimate of the payment, it is necessary to provide all necessary and accurate information.
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The guiding principle regarding the amount of tax payable is that all amounts earned or withdrawn from the fund will determine the final tax rate, Sars said.
“Any shortfall or excess of tax from the two sources of withdrawal will be settled in favour of the taxpayer or Sars upon assessment during the annual filing period.”
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