Exit charge on retirement fund interest on cessation of tax residency

There is currently a proposal on the table whereby taxpayers that cease to be a tax resident will pay an exit charge on their retirement fund interest.

The retirement fund interest will form part of the individual’s assets the day before he/she ceases to be a tax resident and in terms of a proposed amendment will pay tax on that value. The proposed exit tax will however be deferred to the day that an actual withdrawal is made from the fund.

When the owner of the fund makes a withdrawal either by means of cessation of tax residency or on maturity date of the investment (which ever is the earliest) then the fund will apply for a tax directive from SARS at such time. SARS will then advise the tax to be withheld based on the prevailing lumpsum tax tables. There will also be a tax credit that will be provided that is based on the deferred tax amount that was calculated on the interest value on the day before residency was ceased.

The proposed implementation date for this proposal is the 1st of March 2022, but certain aspects of the proposal might still change as it has not been finalised as yet.