The tax-free threshold for lump-sum payments from retirement funds will be set at R300 000 as from 1 October, chief director of tax law at the National Treasury Keith Engel told Members of Parliament on Tuesday.

He said the new dispensation would be included in a Revenue Laws Amendment Bill expected to be put to Parliament in September this year. The second R300 000 will attract an 18 percent tax rate — after which the tax rate would be 36 percent beyond R600 000.

"The schedule can be applied over a lifetime," he said.

Engel told MPs serving on the National Assembly's finance portfolio committee that if an individual took out two lump sums, say for example, of R200 000 each, the first 200 000 would be tax free.

The next payment of R200 000 would have a R100 000 tax-free component while the next R100 000 would attract an 18 percent tax rate.

He said under the new system people who were at present doing advanced tax planning would not benefit. "Those abusing the system before won't be able to do so (in future)."

At present the effective tax-free threshold stands at R120 000, but this was subject to three complex formulas based on such matters as average income and years of service — which had been open to manipulation by wealthier people.

I-Net Bridge, www.business.iafrica.com