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Tax consequences of transferring money from a pension to a provident fund

19 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Is there any tax implication on money transferred directly from a Pension Fund to a Provident Fund? My client contributed to a Pension Fund for last 5 years and upon leaving that employer is transferring those monies to the new employer’s Provident Fund.

A: Our guidance assumes that the transfer is done in terms of paragraph 2(1)(b)(iB) of the Second Schedule – in essence not on retirement or death or the termination of his or her employment due to his or her employer having ceased to carry on the trade or that person having become redundant (general reduction in personnel or a reduction in personnel of a particular class). 

We also accepted that the transfer will be made before 1 March 2015.  The amount that will be taxable is the full amount withdrawn less the deduction.  In this instance the deduction is allowed in terms of paragraph 6(1)(a)(ii)(aa) of the Second Schedule.  It reads as follows:

The deduction to be allowed for the purposes of paragraph 2(1)(b) is an amount equal to in the case of a lump sum benefit contemplated in paragraph 2(1)(b)(iB), so much of the benefit as is paid or transferred for the benefit of the taxpayer from a pension fund into any pension fund, pension preservation fund or retirement annuity fund. 

It is quite clear that the deduction does not apply in the case of a transfer from a pension fund to a provident fund and the full amount is taxed, unless the taxpayer’s own contributions that did not rank for a deduction against the taxpayer’s income in terms of section 11(n) in full. 

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision. 


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