Moonstone: The confusion continues & Rob Rusconi reports

We commented over the last few weeks on the revised lump sum commutation amounts envisaged in the revised Income Tax Act. It now appears as if this, as well as other announcements in the budget, has lead to widespread confusion in the market. While it appeared initially that it was merely a case of the systems at SARS not having been updated, it now seems that there has been a change of heart.

Marius Botha, editor of “Insurance and Tax”, a LexisNexis publication, advises that the latest draft regulation contains recommendations that the Income Tax Act should be amended to provide for inclusion of earlier lump sum payments in determining the maximum tax free portion. This would mean that the loophole provided in the current recommendation that each fund would qualify for its own maxima is now effectively closed.

Chris Booysen, another subscriber, shared his own experiences when maturing his own RA’s:

“When my own RA's were paid out in March 2007, I was "awarded" a tax directive with a R120 000 tax-free portion of my RA. When I enquired about the excess premiums not deducted in previous years I was told by a very senior official in the department that he did not know about such a rule/regulation. I had to wait until my tax return was finalized in January 2007 to deduct the tax illegally withheld on my RA lump sum.

FSP’s must therefore be aware thattheir clients are not always receiving the correct tax-free portions on their IRP3's from SARS.”

Another regular reader, Peter Lesley, writes as follows:

“The R50m allowance that businesses could use for, say development offshore, appears to have hit a snag as well. This was supposedly going to be the responsibility of the financial institutions to police and say yeah or nay to.

Following an absolute flood of requests for this R50m business allowance, SARS have done a complete about turn and have told my client that the whole thing was being misinterpreted and that they would make an announcement at some stage. When asked as to when exactly they would do this SARS were non-committal.

Perhaps you can ask around to see who has been trying to get this R50m authorised? My client was using Investec and has spoken to SARS personally.The bottom line is that SARS never envisaged the flood of money that would leave SA.

Perhaps you'll throw this one out for your readers to comment.”

It is imperative that these matters are fully clarified at the soonest possible opportunity. Financial and retirement planning is already a taxing enough business (pun intended) without constant shuffling of the deck chairs.

While we have come to expect this from some of our other government departments, SARS and Finance have been exemplary exceptions; let us pray that the malady has not affected them too.

ROB RUSCONI REPORTS

This latest report is aimed at trustees of retirement funds and aims to provide guidelines to them on how to conduct themselves in the light of the increased focus on their actions and responsibilities. Rusconi is at pains to point out that it is a discussion paper and should not be seen as criticism of current structures or conduct.

The paper is quite lengthy, but there is also a six page summary of what it contains. The following are some of the questions asked:

• Why is there such a strong emphasis on active asset management, as opposed to the index-linked alternative?
• Is the training provided to trustees independent and in the best interest of the trustees or does it tend to deepen their dependence on their service providers?
• Are fee models designed to align the interests of provider and customer?
• Is sufficient attention given to the fundamental principles underlying a socially responsibility investment approach?
• Do marketing activities enhance customer understanding or are they designed merely to attract a customer to a service, in aggregate moving retirement funds from one provider to another without adding significant value?
• Do performance surveys of asset managers provide a useful service and are they used responsibly?
• Are all asset managers executing all of their trades in the best interest of their customers?

Experience have learnt that when Rusconi speaks, the industry listens. Players in this sector of the financial services industry would be well advised to give some thought to these questions.