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TXN 201 > 8. Retirement Benefits > Flashcards

8. Retirement Benefits Flashcards

1
Q

What kind of retirement fund do salaried persons usually use?

A

Provident or pension fund

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2
Q

Hw does retirement annuity fund differ from the others?

A

It does not relate to employment

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3
Q

In what forms can a person receive a benefit upon retirement ?

A

Via lump sum, annuity or combination of both

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4
Q

How could a person receive benefits from retirement fund besides retirement?

A

Withdrawal or upon death

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5
Q

When an employer contributes lump sums to any of these fund after termination, what are they known as?

A

Severance packages

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6
Q

What are pension/provident preservation funds?

A

Where employee can invest retirement saving after retiring

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7
Q

Provident and pension funds are linked to employer, what is retirement annuity fund linked to?

A

An insurance company

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8
Q

Are the monthly contributions to these funds allowed as deductions?

A

Yes

Subject to limitations though

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9
Q

What is the only way to receive lump sum from retirement annuity fund? And why?

A

Through withdrawal because it is not linked to employment

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10
Q

Why aren’t senior citizens exempt from tax?

A

It would put too much strain on the rest of the community

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11
Q

What can retirement benefits be divided into?

A
  1. Periodic payments

2. Once off payment

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12
Q

Are there difference tax implication when benefits are received through withdrawal and upon retirement?

A

YES

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13
Q

How much can a member of pension or retirement annuity fund take as lump sum upon retirement?

A

Only up to 1/3 of total

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14
Q

When can a member of pension or torment annuity fund take the entire amount as lump sum upon retirement?

A

If 2/3 does not exceed R50000

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15
Q

How much can a member of provident fund take as lump sum upon retirement?

A

They can take the full amount regardless of how much it is

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16
Q

What happens to the balance in the fund when a person retires?

A

It is transferred to a preservation fund

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17
Q

What are the advantages of a preservation fund?

A

Savings won’t diminish

No tax attracted to fund

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18
Q

Which pension annuities are taxable for residents?

A

Any from any source

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19
Q

Which pension annuities are exempt from taxable income for residents?

A
  1. Amounts received from social security from another country
  2. Pension from outside Republic because of past employment outside Republic
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20
Q

What if a pension is received and it’s party of exempt and partly not?

A

It can be apportioned

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21
Q

Which pension annuities are non-residents taxed on?

A

Pensions from source within the Republic

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22
Q

Concerning compulsory annuities received, how much will be exempt?

A

The amount that relates to past contributions that were not previously allowed

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23
Q

What sources could annuities come from?

A
  1. Retirement, pension, provident
  2. Employer
  3. Trusts (inter vivos and testamentary)
  4. Insurance policy
  5. Sale of business (cost price in from of annuity)
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24
Q

How much of the annuity received by employee by employer is taxable?

A

Fully taxable

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25
What are the characteristics of an annuity?
1. Fixed, annual amount, divided into instalments 2. Repetitive in nature 3. Obligation to pay it
26
Why is payment for sale of business in the form of an annuity disadvantageous?
Because annuity will be taxed at a higher rate than a capital gain
27
What exemptions do non-residents forfeit concerning annuities?
Interest and dividend exemptions
28
When a distribution complies with an annuity, what is and is not exempt?
Interest will,be exempt | Divided will not be
29
Where will government pensions be taxed?
In SA no matter where the service was rendered
30
What is the conduit pipe principal?
Portion of annuity that is interest will train nature and is exempt but dividends do not
31
What is a purchased annuity?
Where taxpayer invests in insurance company and purchases the annuity
32
What part of a purchased annuity is exempt?
The capital portion of the annuity, because it's capital in nature
33
What is the formula to calculate the capital portion of a purchased annuity?
Y = A/B x C
34
What is Y in the capital formula?
The capital element to be calculated
35
What is A in the capital formula?
Total cash price payable to insurance company
36
What is B in the capital formula?
Sum of all expected return from annuity
37
What is C in capital formula
Receipts during current year of assessment
38
What is done with the capital amount of purchased annuity once calculated?
Deducted from amount received and the balance is taxable
39
What if the annuity is purchased for the remainder of life?
Life expectancy as per table in Appendix C will be used
40
What if the annuity is purchased in a foreign currency?
First calculate the exempt amount in the foreign currency THEN convert the taxable amount to Rands
41
Where can lump sums be received from?
Either retirement fund or employer
42
What categories can lump sums be out into?
1. Withdrawal benefits | 2. Retirement benefits
43
What is a severance benefit?
A lump sum paid out by employer usually in terms of golden handshake
44
What else are lump sums paid from employer called?
Gratuities
45
What do gratuities include?
1. Severance packages 2. Accumulated leave 3. Bonuses 4. Golden handshakes (good work and loyalty)
46
Are gratuities included in gross income?
Yes
47
Which gratuity is NOT included in gross income in full?
Severance packages
48
What is a severance benefit defined as?
1. Lump sum paid out 2. From employer 3. Because of termination
49
What are the requirements for a severance benefit?
1. Person over 55 or 2. Terminated due to illness of any kind or 3. Employee retrenched or became redundant
50
When will a severance benefit NOT be treated as a severance benefit?
Paid to employee who owned more than 5% of issued share capital
51
How are severance benefits taxed?
Same as retirement lump sums! | Yay!
52
How could lump sums received prior to retirement occur?
1. Divorce order 2. Transfer of funds 3. Withdrawal from fund 4. Dissolution of fund
53
What are the deduction allowed for lump sums regarding divorce order to transfer of funds?
The amount that is transferred to an approved fund is deductible from lump sum
54
What can be deducted from lump sum withdrawals?
Taxpayer's own contributions that were not allowed
55
What basis are lump sums received from retirement fund taxed?
Accumulated basis
56
What is an approved fund for retirement annuity fund?
Only another retirement annuity fund
57
What is an approved fund for pension/preserve fund transfer?
Another pension/preservation or retirement annuity fund
58
What is an approved fund for transfer from provident fund?
All of the above fund types
59
What are the allowable deduction from lump sum benefits besides circumstances NOT concerning divorced or transfer?
1. Previously disallowed contributions 2. Previously taxed divorce award transfers to approved fund 3. Previously taxed transfer to approved fund 4. Previously taxed unclaimed benefits transferred to preservation funds 5. Tax-free portions of transfers from state funds
60
What are the constraints of deductions?
They will be allowed if 1. They haven't previously been used as deduction 2. They are limited to benefit recieved
61
What is step 1 in calculating withdrawal benefits tax?
Taxable withdrawal benefit = current benefit - allowable deductions
62
What is step 2 in calculating withdrawal benefit tax?
Add together taxable amounts of: 1. Previous withdrawal benefits received on or aft 1 March 2009 2. Previous retirement fund lump sum benefits received after 1 March 2007 3. Severance benefits received on or after 1 March 2011
63
What is step 3 of calculating withdrawal benefits tax?
Calculate tax on total benefit (step 1+ step 2) as per tables
64
What is step 4 to calculate withdrawal benefit tax?
Calculate tax on previous benefits (step 2)
65
What is step 5 in calculating tax on withdrawal benefits?
Tax in step 3 - tax on step 4 = tax on current lump sum withdrawal benefit
66
What date will retirement fund benefits accrue from?
1 March 2009
67
What happens when a person dies and has not yet retired?
They receive a lump sum benefit to their estate
68
In what circumstances will a retirement fund pay a lump sum benefit?
1. Retirement 2. Death 3. Termination due to employer ceasing or redundancy
69
What age can people usually retire from retirement annuity fund?
55
70
What happens if someone dies before they retire?
The lump sum is deemed to accrue to them before they died and is taxed as such
71
How is involuntary retrenchment treated?
Retired from fund
72
When is involuntary retrenchment NOT treated as retired from fund?
If the person was a director or owns more than 5% of the capital share
73
What are the deduction allowed for benefits of lump sum upon retirement?
1. Disallowed contributions 2. divorce order 3. Amounts transferred to approved funds 4. Unclaimed benefits 5. Lump sums from government funds
74
What must be taken into account when deducting contributions?
Current year contributions
75
Are contributions to provident funds ever deductible?
Nope
76
What is taken into account for deductions of provident fund?
All contributions ever made
77
What date does lump sum benefits accrue when from government fund?
1 March 1998
78
What is the formula for lumps sums received from government funds?
A = B/C x D
79
What is A in the formula for government lump sums?
A is the amount to be calculated
80
What is B in government formula when Rules of funds take into account number of years of employment completed?
Total years completed of employment after 1 March 1998
81
What is B in government formula when fund rule DON'T take into account completed years of employment?
B = completed number of years after 1 March 1998 during which had been a member of fund
82
What is C in government formula where fund rule take into account employment years completed?
Total years completed of employment
83
What is C in government formula when fund rules DON'T take into account completed year's of employment?
C = number of years competed during which person had continuously been member of any public sector fund
84
What is D in the lump sum formula?
Lump sum benefit that is payable
85
Is the tax on retirement lump sum affected by annual rebates or assessed losses?
No
86
What is done with the tax on retirement lump sum benefits that is calculated
It is added to net normal tax
87
What are the steps to calculate retirement lump sum?
Same as withdrawal benefits but different table

TXN 201 (9 decks)

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