If a member of a PENSION Fund transfers benefits to a PROVIDENT Fund and withdrawal taxes are deducted, does that AFTER-TAX value then constitute MEMBER contributions to the PROVIDENT Fund (ie. allowed out tax-free in addition to normal lump-sum tax conce
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Under the current law, section 11(k) of the Income Tax Act, no deduction is available to an individual in respect of contributions to a provident fund. These amounts are accumulated and taken into account on retirement or withdrawal – refer to the Second Schedule of the Act.
Municipal funds are normally ‘public sector funds’ (as defined in the Act) and the lump sum on withdrawal will be taxed, if made after 1 March 2012, in terms of the formula provided for in paragraph 2A to the Second Schedule. It essentially allows the portion prior to 1 March 1998 to be untaxed.
The transfer of an amount from a provident fund, from 2009 onwards, to a pension fund (i.e. a paragraph 2(1)(b)(iB) transfer), would not have been subject to tax – see paragraph 6(1)(a)(cc) and the issue of a deduction would not arise.