Income Tax (Superannuation and Life Assurance) Regulations, 1994

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Number of SL: 
24
Date of promulgation: 
10 March 1994
In-force: 
Yes

 

LEGAL NOTICE NO. 24 OF 1994

INCOME TAX (SUPERANNUATION AND LIFE ASSURANCE)REGULATIONS, 1994

 

Pursuant to section 212 of the Income Tax Order, 1993, I,

SELOMETSI BAHOLO

Minister for Finance and Economic Planning, make the following regulations -

 

PART I PRELIMINARY

Citation

1.   These regulations may be cited as the Income Tax (Superannuation and Life Assurance) Regulations, 1994.

Commencement

2.   (1) Pursuant to section 212(3) of the Order, and subject to sub-regulation (2), these regulations are deemed to have come into effect on 1 April 1993.

(2) Regulation 12 shall come into operation on 1 October 1994.

PART II SUPERANNUATION FUNDS

Interpretation

3.   In this Part,

"defined benefit fund" means a superannuation fund the governing rules of which provide that -

(a)           one or more members of the fund are entitled, on retirement, to be paid a benefit defined wholly or in part, by reference to either or both of the following -

(i)  the amount of the member’s annual salary -

(A) at the date of the member’s retirement; or

(B) at a date before retirement; or

(C) averaged over a period of employment before retirement; or

(ii) a specified amount; and

(b)       some or all of the contributions to the fund (out of which, together with earnings on those contributions, benefits are to be paid) are not paid into a fund, or accumulated in a fund, for any individual member but are paid into and accumulated in a fund in the form of an aggregate amount;

"dependant", in relation to a member of a superannuation fund, includes the spouse and any child under the age of 18 of the member;

"in-house asset", means an asset of a superannuation fund that is a loan to, or an investment in, an employer who contributes to the fund or an associate of such employer but, in the case of a public sector fund, does not include an investment in securities issued by the Lesotho Government;

"Lesotho asset" includes -

(a)       an interest in immovable property located in Lesotho; and

(b)       shares in a company resident in Lesotho; and

(c)       an interest in a resident trust; and

(d)       securities issued by a resident of Lesotho or the Lesotho branch of a non-resident;

"member-financed benefits" means -

(a)       where the amount of benefits that are vested in a member of a superannuation fund on withdrawal from the fund is calculated on the basis of contributions to the fund or contributions and income derived from those contributions - the sum of -

(i)            the contributions made by the member to the fund; and

(ii)           the net earnings of the fund attributable tb thbse contributions allotted to the member in accrordance with the governing rules of the fund; or

(b)       where the amount of benefits that are vested in a member of a superannuation fund on withdrawal from the fund is calculated on the basis of the benefits purchased under an endowment or whole of life policy - the amount of the benefits purchased by contributions made by the member to that policy; and

(c)       where the amount of benefits that are vested in a member of a superannuation fund on withdrawal from the fund is defined in terms that include the member’s salary at the date of withdrawal, or an earlier date, or averaged over a period of employment prior to withdrawal - the amount of benefits calculated in accordance with regulation 4 together with the net earnings of the fund allotted to the member in accordance with the terms of the governing rules on the basis of such of those benefits as have been preserved in the fund;

"minimum requisite benefit", in relation to a member of a superannuation fund, means the minimum benefit to be preserved for the member under the superannuation conditions;

"non-defined benefit fund" means a superannuation fund that is not a defined benefit fund;

"Order" means the Income Tax Order, 1993;

"public sector fund" means a superannuation fund established by a law of Lesotho for the benefit of employees or dependants of employees of the Lesotho Government;

"reporting period" means the accounting period of the superannuation fund being a period of twelve months;

"resident trust" means a trust that is organised in Lesotho or has its management and control in Lesotho;

"superannuation conditions" means the superannuation conditions specified in regulation 7.

Member-financed benefits

4.   For the purposes of paragraph (c) of the definition of member- financed benefits in regulation 3, benefits are calculated as follows -

(a)       where the member’s rate of contribution has not changed during the period of membership - the amount calculated in accordance with the formula -

R x N x S 12

where -

R is the rate, expressed as a percentage of the member’s salary, at which contributions are, or have been, made to the fund by the member; and

N is the number of months that the member has contributed to the fund at that rate; and

S is the amount of the member’s salary at the date of withdrawal from the fund, or at a prior date, or averaged over a period of employment prior to withdrawal, as the case requires; and

(b)       where the member’s rate of contribution has varied during the period of membership - the sum of the amounts calculated by applying the formula in paragraph (a) separately to each period of different rate contribution.

Employer Superannuation Fund

5.   For the purposes of section 94 of the Order, a resident superannuation fund is an employer superannuation fund for a year of assessment if -

(a)       the fund is an indefinitely continuing fund established and maintained by an employer solely for either or both of the following purposes -

(i)            the provision of superannuation benefits for employees in the event of their retirement or in the case of severe personal hardship; or

(ii)           the provision of superannuation benefits for dependants of employees in the event of the death of an employee; and

(b)       the fund is only authorised by its terms and conditions to accept contributions in respect of employees of the employer; and

(c)       the fund satisfies the superannuation conditions specified in regulation 7.

Self-Provided Superannuation Fund

6.   For the purposes of section 94 of the Order, a resident superannuation fund is a self-provided superannuation fund for a year of assessment if -

(a)       the fund is an indefinitely continuing fund established and maintained solely for either or both of the following purposes -

(i)            the provision of superannuation benefits for members of the fund in the event of the retirement of the member from any business, trade, profession, vocation, occupation, or employment in which the member is engaged or in the case of severe personal hardship; or

(ii)           the provision of superannuation benefits for dependants of members of the fund in the event of the death of the member; and

(b)       the fund satisfies the superannuation conditions specified in regulation 7.

Superannuation Conditions

7.   A superannuation fund satisfies the superannuation conditions if it satisfies -

(a)  the security of members’ rights condition; and

(b)       the vesting condition; and

(c)       the preservation and portability condition; and

(d)       the minimum funding condition; and

(e)       the investment condition; and

(f)       the reasonable benefits condition; and

(g)

the reporting condition.

Security of Members’ Rights Condition

8.   A superannuation fund satisfies the security of members’ rights condition if the rights of members and their dependants to receive benefits from the fund are set out in the governing rules of the fund and are fully secured.

Vesting Condition

9.   A superannuation fund satisfies the vesting condition if -

(a)       member-financed benefits; and

(b)       benefits arising directly or indirectly from contributions made in respect of a member by an employer,

vest in the member or their dependants on the day on which the benefits accrue.

Preservation and Portability Condition

10.  (1) A superannuation fund satisfies the preservation and portability condition if -

(a)       the benefits vested in the member in accordance with the vesting condition in regulation 9 (including benefits transferred to the fund from another complying superannuation fund) are preserved until -

(i)            the member has -

(A)                retired from the workforce in a full-time capacity; and

(B)                attained an age of not less than 55 years; or

(ii)          the benefits become payable in one of the following circumstances -

(A)                the retirement of the member from the workforce before attaining the age of 55 years on the ground of permanent incapacity; or

(B)                the death of the member; or

(C)                the permanent departure of the member from Lesotho; or

(D)                in the case of severe personal hardship; or

(iii)          the benefits are transferred to another complying superannuation fund nominated by the member; and

(b)       on withdrawal from the fund otherwise than in the circumstances specified in sub-regulation (a)(i) or (ii), all benefits that a member is entitled on withdrawal can be -

(i)           retained in the fund; or

(ii)          transferred directly to another complying superannuation fund nominated by the member.

(2)  In the case where benefits vested in the member are less than M1,000, a superannuation fund will satisfy the preservation and portability condition notwithstanding that it does not comply with sub­regulation (1).

Minimum Funding Condition

11.  A superannuation fund satisfies the minimum funding condition if-

(a)       in the case of a defined benefit fund - the trustee of the fund or the fund manager obtains a certificate from an actuary that states that for a period of not more than 4 years, having regard to the minimum rates of contribution to the fund by the employer, that the assets of the fund are sufficient to meet the following liabilities if the fund is terminated -

(i)            the minimum requisite benefits for all members; and

(ii)           any liability of the fund that ranks equally with a liability referred to in subparagraph (i); and

(iii)          the administrative and other costs of operating the fund; or

(b)       in the case of a non-defined benefit fund - the amount of net earnings of the fund which vest in a member for a year of assessment do not exceed the amount which, if the fund was terminated immediately after the vesting, would leave the fund with insufficient assets to pay the minimum requisite benefit for other members of that fund.

Investment Condition

12.  (1) A superannuation fund satisfies the investment condition if-

(a)       at all times during the year of assessment, the cost of Lesotho assets of the fund is at least 20% of the cost of all assets of the fund; and

(b)       at all times during the year of assessment, the cost of in­house assets of the fund does not exceed 10% of the cost of all assets of the fund; and

(c)       the fund does not lend monies to a member of the fund or to a dependant of a member of the fund.

(2)    Where an asset is acquired by a superannuation fund in a non-arm’s length transaction, the cost of the asset for the purposes of sub-regulation (1) is the market value of the asset at the date of acquisition.

Reasonable Benefits Condition

13.  A superannuation fund satisfies the reasonable benefits condition if the benefits that an employee or a dependant of an employee are entitled to receive from the fund are not excessive having regard to -

(a)       the remuneration paid to the employee for services rendered to the employer; and

(b)       the period of service of the employee; and

(c)       the particular circumstances of the case.

Reporting Condition

14.  (1) A superannuation fund satisfies the reporting condition if the trustee of the fund or the fund manager reports in respect of each reporting period in accordance with this regulation to a person who was a member of the fund on the last day of the period.

(2)   A report must set out the following information -

(a)  if the amount of benefits that are vested in the member on withdrawal from the fund is determined on the basis of contributions made to the fund or on the basis of those contributions together with earnings based on those contributions - the following particulars -

(i)        the amount of benefits vested in the member at the beginning of the reporting period; and

(ii)       the amount of benefits vested in the member at the end of the reporting period; and

(iii)      the method of determining the amount of benefits referred to in subparagraph (ii); and

(iv)       that part of the amount of benefits referred to in subparagraph (ii) that must be preserved in relation to the member to satisfy regulation 10; and

(v)        the amount of contributions made by the member in the period; and

(vi)       the amount of net earnings allotted to the account of the member in the period or the rate at which those earnings were allotted or both the amount and rate; and

(vii)      the amount of any current death benefit for the member used to determine the amount of benefits referred to in subparagraph (ii); or

(b)       if the amount of benefits that are vested in the member on withdrawal from the fund is determined on the basis of benefits purchased under an endowment or whole of life policy - the amount of -

(i)            the sum assured; and

(ii)           any bonuses that have accrued to the member at the end of the reporting period; and

(iii)          contributions made by the member during that period; or

(c)       if the fund is a defined benefit fund - the matters referred to in subparagraphs (a)(i), (ii), (iii), (iv), (v), and (vii).

(3)    The report must also set out the amount of any fees, charges, or other expenses deducted in the reporting period from the amount in the account of the member.

(4)    The report must also set out the estimated benefit to which a member will be entitled if he or she remains a member of the fund until retirement at age 55 years, or later age if provided for in the governing rules of the fund, calculated -

(a)       in the case of a defined benefit fund, on the assumption that the member’s annual salary in the current reporting period is his or her final salary; or

(b)       in the case of a non-defined benefit fund, on the assumption that contribution levels in the current reporting period are maintained.

(5)  The report required by this regulation must be provided to the member within twelve months after the end of the reporting period.

Non-Resident Superannuation Fund

15. (1) A non-resident superannuation fund will only be an employer superannuation fund for the purposes of section 95 of the Order in the case where, if that fund was a resident superannuation fund, it would comply with the conditions prescribed for an employer superannuation fund under section 94 of the Order.

(2)     A non-resident superannuation fund will only be a self­provided superannuation fund for the purposes of section 96 of the Order in the case where, if that fund was a resident superannuation fund, it would comply with the conditions prescribed for a self-provided superannuation fund in section 94 of the Order.

(3)     For the purposes of determining whether sub-regulation (1) or (2) is satisfied, it is not necessary for a non-resident superannuation fund to satisfy the superannuation conditions in regulation 10 or 12(1)(a).

PART III LIFE ASSURANCE COMPANIES

Interpretation

16.  In this Part,

"calculated liabilities" of a taxpayer at the end of the year of assessment means -

(a)  where an actuarial valuation of liabilities is made as at the end of the year of assessment and -

(i)       the basis of the valuation is compound interest at the rate of 4% per annum or more - the amount of the valuation; or

(ii)      the basis of the valuation is compound interest at a rate less than 4% and not less than 3.5% per annum - 95 % of that valuation; or

(iii)    the basis of the valuation is compound interest at a rate less than 3.5% and not less than 3% per annum - 90% of the valuation; or

(iv)      the basis valuation is compound interest at a rate less than 3% per annum - 85% of the valuation; or

(b)  where an actuarial valuation of liabilities is not made at the end of the year of assessment -the amount calculated according to the following formula -

AxB/C

where,

A is the value of all assets of the taxpayer at the end of the year of assessment; and

B is the last preceding actuarial valuation of liabilities; and

C is the value of all assets of the taxpayer on the date that the last preceding actuarial valuation of liabilities was made;

"valuation of liabilities" means a valuation of the amount that, together with the future premiums payable, if accumulated at the rate of interest stated as assumed in the taxpayer’s actuarial valuation, would provide the amount required to pay in full on the respective dates of their maturity, according to the rates of mortality assumed in such valuation, the liabilities under life assurance policies in force on the date the valuation is made.

Income of Life Assurance Business

17.  The income of the life assurance business of a taxpayer that is exempt under section 100 of the Order is calculated according to the following formula -

A x B/C

where,

A is the gross income of the taxpayer disregarding section 100; and

B is so much of the calculated liabilities of the taxpayer at the end of the year of assessment as, in the opinion of the Commissioner, are referable to life policies assumed by the taxpayer; and

C is so much of the calculated liabilities of the taxpayer at the end of the year of assessment as, in the opinion of the Commissioner, are referable to all insurance policies assumed by the taxpayer.

Dated: 10 MARCH 1994

SELOMETSI BAHOLO

MINISTER FOR FINANCE AND ECONOMIC PLANNING