Under lockdown conditions, many taxpayers are required to work from home and have already seen a reduction in their earnings as companies deduct pay for days not worked and not covered by available leave balances, or limit the number of days worked.
This is creating financial hardship that requires urgent intervention.
The Democratic Alliance (DA) will propose changes to the Income Tax Act to allow deductions for home office expenses for all periods worked at home during the lockdown.
This would include expanding the definition of a home office to include any workspace used or a deemed portion of a home.
Expenses such as rent, interest on mortgage bond, repairs to the premises, rates and taxes, cleaning, wear and tear and all other expenses relating to the house, internet connectivity, telephone, stationery and repairs to printers should be permissible deductions.
Any capital gains tax implications on the sale of the house for which deductions are claimed during lockdown should be waived.
When an employee must work from home, they are unable to travel and therefore claim their usual travel allowance deductions. The Democratic Alliance will propose that, during any lockdown period, a deemed amount of travel should be added to the deductible kilometers travelled or that the deductible amount per kilometer travelled be increased for the period of the lockdown.
Although these tax relief measures will lighten the burden on our already overtaxed citizens, a much bolder intervention is required to enable Pension Fund members to access accumulated pension assets without requiring a disinvestment from the market.
Pension Fund (including Retirement Annuity) members must be enabled to leverage their accumulated financial asset as the crisis bites into household cashflows.
Disinvesting via a partial withdrawal at this time would lock in significant, most probably temporary, declines in value and would also attract punitive tax deductions. Accessing the funds at this time thus comes at a significant cost to members and puts their financial well-being in retirement at greater risk than it is already.
To leverage accumulated pension assets without making a withdrawal, the DA will propose a private members’ bill to amend section 19 (5) of the Pension Funds Act of 1956 to extend pension backed loans. Currently, Pension Funds are permitted to provide collateral for housing loans only.
The DA proposes the introduction of a pension backed Lockdown Loan, to be utilized for any purpose by fund members.
The Lockdown Loan facility would operate as follows:
- The Fund would partner with a banking institution to offer a Lockdown Loan to a member equal to not more than 75% of their current pension fund value. This would ensure that the balance in the fund provides enough collateral for the bank in the event that the member defaults on the loan.
- Banks would agree to offer a very competitive interest rate to these Lockdown Loans. The risk to the bank is minimal, given that sufficient collateral exists in the balance of the pension fund. It is also acknowledged that the banking sector needs to do more to assist our economy during the COVID-19 emergency. This contribution can include offering Lockdown Loans at rates well below the current 7.75% prime interest rate.
- To further ease the financial burden on households, the banks would offer the loan over an extended period – such as the member’s full remaining term to retirement date and defer the start of the loan repayment.
- Where a pension-backed Lockdown Loan is provided to a member, the agreement can include a once-off withdrawal from the pension fund during the period of the loan to fully settle the loan.
Designed this way, the loan provides urgently needed cash to members who will spend it into the economy, the banks make an additional contribution during the emergency, members do not need to disinvest from their pension funds at or near the bottom of the market and do not need to compromise their well-being in retirement.
The DA will ensure that government provides the necessary financial support to all of our citizens during this global crisis. Proposed tax relief measures and Lockdown Loans will help achieve this objective.