On 17 April 2026, SARS implemented a number of system enhancements and Tax Directive changes, which accommodate for the changed de minimis announcements in the 2026 budget speech by Finance Minister Enoch Gondogwana.
As a reminder, there were a number of amendments made to the thresholds as it relates to retirement benefits, which includes the annual Rand cap for retirement contribution deductions being increased from R350 000 to R430 000 (the limit for contributions per tax year, remains at 27.5% of taxable income) and the de minimis thresholds were adjusted. The effect of the de minimis adjustments are discussed below.
De minimis lump sum on retirement
In the Budget Speech, the Minister announced that the retirement interest de minimis threshold for annuitisation will increase from R247 500 to R360 000.
In summary, the new rules for calculation of the de minimis reads as follows:
“that on retirement, not more than one-third of the member’s interest in the vested component may be commuted for a single payment, and that the remainder, calculated together with the total value of the member’s interest in the retirement component, must be paid in the form of an annuity (including a living annuity), a combination of annuities (including a combination of methods of paying the annuity) or a combination of types of annuities except where two-thirds of the total member’s interest in the vested component, calculated together with the total member’s interest in the retirement component, does not exceed R240 000, …”
The only amendment to the previous definition is the increased Rand value, with R240 000 being equal to two thirds of the R360 000.
As a reminder the general rules on retirement from a fund are that:
- The retirement component must be annuitized.
- The savings component may be withdrawn in cash.
- 1/3 of the (non-vested portion) vested component may be withdrawn in cash and 2/3 (vested portion) must purchase an annuity.
The de minimis applies where:
- two-thirds of the total member’s non vested portion in the vested component,
PLUS
- the total member’s interest in the retirement component, does not exceed R240 000.
In which case, the full amount in the fund may be taken in cash.
Living annuity commutation value
The Income Tax Act allows for a living annuity to be commuted and paid out as a lump sum if the value of the annuity falls below the prescribed de minimis limit.
The living annuity commutation value, prescribed by Government Gazette on 23 March 2026 is now set as R150 000 with effect from 1 March 2026 (increased from R125 000). SARS has now updated its tax directive system to account for this change.
It is important to note that this applies per insurer and not per living annuity. If a member has two living annuities of R100 000 each with the same insurer, the total value will be R200 000 for that insurer. No commutation will be permitted until the combined value is reduced to R150 000.
Article courtesy of :alexforbes
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