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Budget 2024 and financial planning: What you need to know

Budget 2024 and financial planning: What you need to know

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South African Finance minister, Enoch Godongwana, delivered the country’s 2024 budget speech yesterday, 21 February 2024. The minister’s budget speech outlined key changes that may affect you, and it is important to be aware of what these changes are and their implications.

Firstly, it is important to note that there were no changes to personal income tax brackets, rebates and medical tax credits. Essentially, this means that taxpayers will be paying more tax when their income increases.

One of the changes that will have a profound effect on the retirement fund industry is the Two-Pot retirement system. The minister announced in his speech that the implementation of the Two-Pot retirement system, which will go live on 1 September 2024, is a necessary reform that allows pre-retirement access to a portion of retirement assets, while preserving the rest for retirement.

Contributions made to retirement funds will be split into a savings component (one-third) and a retirement component (two-thirds). The savings component can be withdrawn before retirement but will be taxed at your marginal tax rate. The retirement component is protected until retirement.

A once-off seed capital amount will be transferred from the accumulated retirement savings to the savings component on 1 September 2024. The amount you will be allowed to access from the savings component in terms of the seed capital is the lower of 10% of the fund value or R30 000, and it can be withdrawn in the case of a financial emergency.

It is estimated that the introduction of the Two-Pot retirement system will raise R5 billion in the 2024/25 financial year due to tax collected from withdrawals. Contributions will remain tax deductible and tax-free while growing in the fund. The amount remaining in the savings component on the year of retirement, and taken as cash, will be taxed according to the retirement lump sum table.

The reform will be implemented through amendments in the Revenue Laws Amendment Bill and the Pension Fund Amendment Bill, both currently before Parliament. This will enable the process of making changes to the fund rules of retirement funds. However, there is a concern regarding the proposed implementation date: whether the retirement fund industry, regulators and SARS will be able to make all the necessary changes prior to the proposed date.

The minister also spoke about the introduction of the global minimum corporate tax. The global minimum tax is a framework to limit the profit shifting of multinationals to low-tax countries and to ensure that any multinational with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where its profits are located.

It proposes to introduce two measures to implement the global minimum tax from 1 January 2024: an income inclusion rule and a domestic minimum top-up tax.

The income inclusion rule will allow South Africa to apply a top-up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15%. The domestic minimum top-up tax will enable SARS to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15% in South Africa.