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Access upon emigration

National Treasury has issued a draft Explanatory Memorandum on the Draft Taxation Laws Amendment Bill 2020, dated 31 July 2020.

Under para 1.4 of the Explanatory Memorandum, the proposal is made to amend the definitions of a ‘pension preservation fund’, a ‘provident preservation fund’ and a ‘retirement annuity’ in s 1(1) of the Income Tax Act so as purportedly to align them with the new exchange control capital-flow management system coming into effect on 1 March 2021.

EXCON Relaxations

I canvassed this system in 203 tsh 2020. In essence, the new relaxed system will move from the current general prohibition imposed by the EXCON controls, subject to specific permissions, to an open system, under which EXCON controls are phased out, with certain, limited exceptions.

The concept of emigration will also be phased out, to be monitored through the tax system rather than the current EXCON system.

Proposed retirement fund access amendments

Currently, a lump-sum benefit from the these defined retirement funds can be accessed upon a member’s emigration recognized by the South African Reserve Bank for purposes of exchange control.

The new proposed tax test, to replace the emigration test, will be the cessation of tax-residency, with the further-criterion that the fund member remain non-tax-resident for at least three consecutive years before access is permitted.


It seems counter-intuitive to the stated intentions of relaxation of the EXCON rules to replace a fixed EXCON event, namely emigration, with a tax event, namely, cessation of tax residency, but then defer access to targeted retirement-fund benefits for three years.

Simply put, the proposed new system is more penal, in imposing a three-year waiting period.

The proposed restrictions are in addition futile, in that they can be easily circumvented. Under para (c) of the definitions of the preservation funds a once-off lump-sum withdrawal is permitted before retirement at a minimum age of 55; thus a member can access the relevant funds, provided the member acts before emigration or proposed cessation of tax-residency.

Such a withdrawal amount will be taxed under the withdrawal tax tables, which allow R25 000 tax free and then impose rates ranging on a scale from 18% to 36%.Unlike a preservation fund, however, a retirement annuity cannot be accessed before the attainment of the age of 55.

Treasury should reconsider its restrictive proposal.