Sage Pastel Payroll • Retirement Reform Information

Retirement Reform Information act – 2016

View the Retirement Reforms.PDF here.

NOTE: This information comes from the Pastel Payroll blog website.

Before 01 March 2016, Retirement Funding Income allocated to code 3697 was defined as the taxable income sources used in the calculation of a pension or provident fund contribution.

From 01 March 2016, the RFI and Non-RFI totals when the tax certificate rules are changed for the 2016/2017 tax certificates (due for submission April/May 2017) have no relevance to the tax certificate.

The RFI amount used in the calculation is still the portion of the employee’s remuneration used to determine the fund contribution BUT includes only the taxable portion of a travel allowance or use of motor vehicle fringe benefit and 50% of public office allowance.

The new rules that must be applied to your payroll calculations can be explained as follows:

1. Any contribution paid by the employer towards an employee’s retirement fund – whether a pension, provident or retirement annuity – will now be taxed as a fringe benefit in the hands of the employee.
2. The calculation of the fringe benefit value will depend on whether the retirement fund is classified as a Defined Contribution (DC), Defined Benefit (DB) or Hybrid fund.
3. For a DC fund, the fringe benefit value is equal to the amount paid by the employer.
4. For a DB or Hybrid fund, the fringe benefit value is calculated as (X*Y)-Z
5. X is a contribution factor that will be provided to the employer in the form of a fund contribution certificate
6. Y is the taxable remuneration portion of the employee’s income used to determine the fund contribution or RFI
7. Z is the retirement fund contribution amount paid by the employee
8. The contributions made towards a retirement fund will also result in a tax deductible portion, which is calculated as the employee contribution plus the fringe benefit portion, limited to the lesser of R350 000 (as at 2016) per year or 27.5% of remuneration.