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RA tax options if one lives abroad

I went to Canada in 2001 and planned to stay for about six months. Almost 15 years later, I am still in Canada. I did not emigrate, and I hold dual citizenship.

My retirement annuity (RA) will mature in a few months. Since I have been in Canada, I have contributed about R2 million to the RA. I did not submit tax returns to the South African Revenue Service (SARS) and did not claim any tax deductions. The RA was started 10 years before I left for Canada, and I claimed those contributions against tax.

Can I use the contributions that I did not claim since 2001 as part of my tax-free lump sum (R500 000) and invest the difference in a living annuity? What is the tax scale if I decide to take everything to Canada?

Name withheld on request

Marius Cornelissen, a financial adviser at PSG Wealth in Menlyn, Pretoria, responds: Your situation is complicated because you are a non-resident and did not claim the tax deductions from SARS.

An option is to emigrate formally, in which case you will have to obtain approval from the South African Reserve Bank to access the funds in the RA. This will be regarded as a withdrawal, which will be taxed according to the retirement lump sum withdrawal table. The first R25 000 will not be taxed, if you did not receive any previous benefits in the form a lump sum. Any amount between R25 001 and R660 000 will be taxed at 18 percent; any amount between R660 001 and R990 000 will be taxed at 27 percent; and any amount from R990 001 or more will be taxed at 36 percent.

If you decide to buy a living annuity, you can take up to one-third of the benefit in cash, while the balance will be invested in the living annuity, or you can use the entire amount to purchase a living annuity.

If you decide to take one-third as a cash lump sum, it will be taxed according to the retirement lump sum table. The first R500 000 will not be taxed, if you have not taken lump sums previously.

Unfortunately, in your case, you cannot use a portion of the contributions that you did not claim from SARS as part of your tax-free lump sum.

SARS allows taxpayers to deduct from the lump sum the contributions that SARS did not previously allow as a deduction. This has the effect of reducing the actual lump sum that is taxable, because any contributions that were not allowed as a deduction are deducted from the lump sum before it is taxed.

However, you did not claim these contributions as a tax deduction, as opposed to SARS not allowing the contributions to be deducted against tax. Therefore, SARS may disallow you from deducting the contributions you did not claim from the lump sum.

I would advise you to consult a South African-based auditor, tax consultant or financial adviser for advice on the best way to proceed.

Can I rely on assurer’s illustrated maturity values?

I have a retirement annuity (RA) that will mature in 2022. Its current value is R781 416. I contribute R4 268 a month. The annual premium escalation is 15 percent. The illustrated maturity values are R1 737 132 at growth of four percent and R2 492 870 at growth of 10 percent. Can I rely on these targets for financial planning purposes? Should the growth not be in line with market conditions – about 12 percent?

Kevin Martin

Pierre Puren, a financial adviser at PSG Wealth in Jeffreys Bay, responds: The product provider uses the illustrated maturity values merely as a guideline to indicate the future value of your investment if you pay the contracted premium and certain growth rates prevail. The actual return will not depend on the provider’s illustrations or assumptions, but will depend on the performance of the underlying fund, or funds, you chose.

Your financial adviser can help you to calculate the future value.

If you adhere to the contracted contributions to maturity, the following can be used as a guideline with your requested growth rate of 12 percent a year:

* Growth of underlying fund less costs: 12 percent a year compounded monthly

* Premiums compounded monthly with annual growth of 15 percent

* Term to maturity: Seven years (or 84 months)

* Future value of premiums paid therefore amount to R968 749.61

* Plus growth in current capital of R1 802 510.06

* Total illustrative value at maturity: R2 771 259.67

You should be cautious of assuming that past performance is an indication of future returns. Most financial products have ongoing costs – management fees, administration fees or adviser fees. The growth rate that is assumed must therefore be net of these fees when projections are made.

Ensure you are familiar with the relevant costs associated with your RA and that your underlying investment is allocated to funds that suit your appetite for risk.

Conversion from DB to DC retirement fund

Who can I contact to establish whether my employer has the right unilaterally to convert my pension fund from a defined-benefit (DB) fund to a defined-contribution (DC) fund?

Name withheld

Anton Prinsloo, a financial adviser at PSG Wealth in Silver Lakes, Pretoria, responds: Legislation does allow an employer unilaterally to change from a DB to a DC fund, as long as the employer has received prior approval from the Financial Services Board (FSB). Legislation does, however, protect members against unfair and unlawful acts by employers. If you have any concerns in this regard, you can contact the FSB to ensure that approval was granted.

Medical tax credits and PAYE

In Personal Finance on February 28, 2015, it was stated that, for over-65s, credits for medical scheme contributions must be taken into account when Pay-As-You-Earn tax is deducted. When I queried this with the administrator of my pension, I was advised that it is still awaiting an official instruction to implement the change. When will the enabling legislation be passed?

Peter North

Franz Tomasek, the group executive for legislative research and development at the South African Revenue Service, responds: The change will be included in the legislative proposals to be introduced in Parliament later this year. It is likely that the final legislation will be promulgated late this year or early next year.

Incorrectly listed in debt review

My debt counsellor issued me with a clearance certificate in December 2014. But I have subsequently been refused credit, apparently because my credit report states that I am still in debt review. How can that be, and where can I go for help?

Name withheld

Angelique Ardé, Personal Finance’s reporter who writes about debt, responds: You have the right to lodge a dispute with a credit bureau that is carrying inaccurate information about you. Credit bureaus are merely the hosts of information received from various sources; they are not responsible for listing the information. The information about you is listed by your creditors and other data sources, such as debt counsellors and debt collectors. The data supplier is ultimately responsible for listing accurate information.

When a dispute is lodged with a credit bureau, the bureau must investigate and report back to you within 20 business days. If the information is found to be incorrect, the bureau must remove it. When you are in debt counselling, this is noted on your profile, and you will be refused credit until you have been issued with a clearance certificate.

Personal Finance asked the National Credit Regulator (NCR) and the Credit Bureau Association (CBA) who is responsible for reporting to the credit bureaus when a consumer has “graduated” from debt counselling.

According to Lesiba Mashapa, the company secretary at the NCR, when a debt counsellor issues a clearance certificate to a consumer, the debt counsellor must notify the NCR and all the credit bureaus. The regulator must be notified online, on the NCR’s Debt Help System (DHS), which is a portal for debt counsellors to share information with the regulator about consumers in debt review. The credit bureaus must be notified via email and be sent the consumer’s clearance certificate. These actions should be done at the same time.

Jeannine Naudé Viljoen, the executive manager of the CBA, says the bureau removes the debt review flag from the consumer’s profile on receipt of the clearance code from the NCR (via the DHS portal). Once the bureau has received the clearance certificate from the debt counsellor, all relevant negative information is removed from the consumer’s profile.

In this case, once the consumer has lodged a dispute with the bureau concerned, the bureau will check the DHS for a clearance code from the NCR. If one has been issued, the flag will be removed.