Minister of Finance Enoch Godongwana has published a notice in the Government Gazette exempting former members of deregistered retirement funds from paying income tax on “bulking settlement payments”.
Bulking settlement payments relate to amounts that became due and payable by fund administrators to retirement funds before 1 January 2009 but were not paid because the funds had been deregistered.
The gazetting of the notice follows the publication of the draft notice for public comment on 6 March. The closing date for comments was 6 April.
In 2008, changes were made to paragraph 2C of the Second Schedule to the Income Tax Act to allow the Minister of Finance to prescribe, by notice in the Government Gazette, that bulking settlement payments by retirement funds will qualify for an income tax exemption. The minister published such a notice on 1 March 2009.
The changes made in 2008 to paragraph 2C of the Second Schedule applied only to former members of active/registered retirement funds.
Some retirement funds had been deregistered when the changes were made in 2008 to paragraph 2C of the Second Schedule and when the minister issued the notice in 2009. As a result, fund administrators could not pay the bulking settlement payments to the retirement funds, to be distributed to their former members. These bulking settlement payments are still held by the administrators.
Consequently, a new paragraph 2D was inserted into the Second Schedule to provide for the tax-exempt treatment of bulking settlement payments to former members of deregistered funds.
The notice published on 3 May 2023 was issued in terms of paragraph 2D and therefore applies to former members of closed (deregistered) retirement funds. These former members will not pay income tax on bulking payments made by fund administrators provided the payments meet the following criteria:
- The bulking settlement payments relate to amounts that became due and payable by the administrator to the retirement funds before 1 January 2008;
- Such bulking payments have not been allocated because the funds have been deregistered; and
- The administrator has entered an agreement with the FSCA to make such bulking settlement payments directly to the former members of the deregistered funds.
National Treasury said, “this will be the last opportunity to rectify the error”, because the government does not wish to condone non-compliance. As such, it is proposed that once the bulking payments are finalised, the provisions relating to bulking payments in paragraphs 2C and 2D of the Second Schedule to the Income Tax Act should be repealed.
