JOHANNESBURG: The South African Revenue Service (SARS) have issued updated guidance on the taxation of interest on late payment of benefits by retirement funds.
SARS have issued a binding general ruling (BGR) to explain the tax treatment for the differing practices that exist in the retirement fund industry with regards to interest accruing on late payment of benefits. Some administrators include such interest within the lump sum benefit, with others paying the amount separately as interest.
SARS has ruled: “Interest on the late payment of benefits is any interest that is defined, as such, in terms of the rules of the fund.”
“Any interest that increases a fund’s benefit liability does not form a separate component from the benefit that is payable to the member and will be subject to tax under the provisions of the Second Schedule to the Act.”
“The full amount transferred (including fund growth) from one fund to another is considered to be a lump sum benefit and will be subject to the provisions of the Second Schedule to the Income Tax Act 58 of 1962. Interest that arises as a result of late payment of the benefit and therefore in addition to the benefit liability must be reflected separately and an IT3(b) certificate must be issued and submitted to SARS as per the prescribed processes.”
