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A Bill to amend the Income Tax Act, to lift the ceiling at which self-employed persons can contribute to pension benefits, was passed yesterday (Feb.15) in the Senate.
Minister without Portfolio in the Ministry of Finance and the Public Service, Senator Don Wehby, who piloted the Bill, said it seeks to allow for conformity with the Pensions (Superannuation) Fund and Retirement Scheme Act, which was passed in 2004.
The changes, he said, are in respect of allowable lump some payments, maximum pensions payable, and also to enable self-employed person and those in non-pensionable employment to effectively provide for their retirement by providing more attractive contributions under retirement schemes.
Under the existing Act, self-employed persons are subject to a dollar ceiling on salary contribution towards pension of $6,000 per annum. This level of contribution provides benefits that are insufficient to meaningfully supplement the benefits payable under the National Insurance Scheme.
The amendments provide that the maximum annual contribution in respect of a superannuation fund shall not exceed 20 per cent of the employee’s remuneration. This, Senator Wehby said, is made up of a maximum contribution of 10 per cent of the employee’s remuneration and 10 per cent by the employer. Where the employer contributes less than 10 per cent, the employee may contribute the difference.
“This would not have been allowable under the present regime,” the Senator informed, noting that the contributions made by the employer and the employee are allowable deductions under the Income Tax Act.
In respect of a retirement scheme, the maximum annual contribution allowable as a deductible expense is 20 per cent of the chargeable income of the self-employed person or 20 per cent of the emoluments of the employee inclusive of the employer’s contribution, should there be any such contribution.
In addition, the amendments will provide for the removal of the limit of $120,000 for lump some payments and the amount payable to dependents on the death of a member, to a new limit not exceeding the higher of two years remuneration, or the actuarial value of the member’s interest in the superannuation fund or retirement scheme, or the contributor’s contribution to the superannuation scheme accumulated with interest.
Senator Wheby noted that the amendments will go a “far way to encourage and sensitize self-employed persons to save towards their retirement schemes.”
“The Government is fully aware of the income tax implications in that income tax will be given up in allowing such generous contributions as deductible expenses, as well as improved lump some payments, which will be tax exempt,” he pointed out.