2015

Taxation 4
Silke chapter 12

The taxation of

RETIREMENT
BENEFITS
1

Lump sums vs. Annuity

Employee can
choose

Lump sum
paid out once
of

Fixed amount,
paid out
repetitively,
ito a contract

Second
Schedule

Gross Income
def par (a)

Types of lump sums

Lump sums
Received

Lump
Sums from
an
Employer

Paragraph
(c) or (cA)

Lump sum
from a
Fund

Paragraph
(d) or (f)

Paragraph
(e) and
(eA)

par (d) or (f)

Severance Benefits
Any voluntary reward or amount, received or accrued for, in
respect of

the
relinquishment,
termination,
loss,
repudiation,
cancellation or variation of any office or employment of any
appointment
AND

> 55 years OR
Employee sufers from ill heath, is incapable, or infirmity
of holding office OR
Termination due to

Employer ceasing to carry out trade for which the taxpayer

was employed for
Redundant (See later for additional checks!)

IF MET, TREATED AS A LUMP SUM FROM A FUND.

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Lump sums from funds

Lump sums
from funds

Preretirement
lump sum

Retirement
lump sum

Retirement

Resignatio
n

Death

Type of event = NB
5

Withdrawal

Pre-retirement lump sums

Taxable income from lump
sum benefits

Rate of tax

Not exceeding R25 000

0% of taxable income

Exceeding R25 000 but not

exceeding R660 000

18% of taxable income

exceeding R25 000

Exceeding R660 000 but not

exceeding R990 000

R114 300 plus 27% of

taxable income exceeding
R660 000

Exceeding R990 000

R203 400 plus 36% of

taxable income exceeding
R990 000

Retirement lump sums

Taxable income from lump
sum benefits

Rate of tax

Not exceeding R500 000

0% of taxable income

Exceeding R500 000 but not

exceeding R700 000

R0 plus 18% of taxable

income exceeding R500 000

Exceeding R700 000 but not

exceeding R1 050 000

R36 000 plus 27% of taxable

income exceeding R700 000

Exceeding R1 050 000

R130 500 plus 36% of

taxable income exceeding R1
050 000

Retirement

Retire = becoming entitled to annuity / lump sum benefit

Taxpayer retires when he/she dies or reaches the normal
retirement age

Pension Fund
Provident Fund

and Date on which the member becomes

entitled to retire from employment

RAF, Pension
Preservation Fund,
Provident
Preservation Fund

Date that the member attains 55 years

of age

Any fund

Date on which the member becomes

permanently incapable of carrying on
his / her occupation due to sickness,
accident,
injury
or
incapacity
through infirmity of mind or body

Termination of the taxpayers

employment
Amounts received due to termination of the taxpayers
employment due to

Employer having ceased / intending to cease to

carry on the trade in respect of which he or she was
employed; OR
Becoming redundant due to a general reduction in
personnel

Did the employee at any time hold 5% of the share

capital/ members interest?

Paragraph 5 deductions

Taxpayers own contributions to the fund which were disallowed in terms

of sections 11(k) or 11(n)

Divorce order: Amount transferred for the benefit of the taxpayer to

another fund as a result of an election by the non-member spouse

Amount transferred for the benefit of any person which is deemed to have
accrued to the person on the date of the transfer (from any fund to any fund)

Amount, to the extent that it was paid / transferred to a Pension Preservation

Fund or Provident Preservation Fund as an unclaimed benefit, if it was
subject to tax prior to that transfer or payment

Other amounts in respect of which formula C applies which have been paid
into a fund for the taxpayers benefit by a Public Sector Pension Fund
less the amount in symbol A in formula C which has not previously been
allowed to the taxpayer as a deduction in terms of the Second Schedule in
determining the amount to be included in that taxpayers gross income

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Paragraph 6 deductions

Taxpayers own contributions to the fund which were disallowed in terms

of sections 11(k) or 11(n)

Divorce order: Amount transferred for the benefit of the taxpayer to

another fund as a result of an election by the non-member spouse

Amount transferred for the benefit of any person which is deemed to have
accrued to the person on the date of the transfer (from any fund to any fund)

Amount, to the extent that it was paid / transferred to a Pension Preservation

Fund or Provident Preservation Fund as an unclaimed benefit, if it was
subject to tax prior to that transfer or payment

Other amounts in respect of which formula C applies which have been paid
into a fund for the taxpayers benefit by a Public Sector Pension Fund
less the amount in symbol A in formula C which has not previously been
allowed to the taxpayer as a deduction in terms of the Second Schedule in
determining the amount to be included in that taxpayers gross income

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Qualifying Transfer par 2(1)(b)(iB)

R
A
F
PENSIO

N
PROVIDENT
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All lump sums received

Step 1
Cumulative
lump sum
Step 2
Cumulativ
e tax
payable
Step 3
Tax on prior
lump sums
Step 4
Tax on
the
current
LS

Current lump sum or pre-retirement lump sum

Pre-retirement lump sums between 1March 2009 and
current lump sum
Retirement lump sums between 1October 2007 and
current lump sum

Severance benefits between 1 March 2011

Most recent lump sum = Retirement lump sum
Retirement lump sum tax tables

Most recent lump sum = Pre-retirement lump

sum
Pre-retirement lump sum tax tables

Tax on lump sums before current lump sum

The table used is based on nature of
current lump sum

Deduct this hypothetical prior year Lump sum tax

determined in Step 3 from the cumulative tax in Step
3, and you will get the tax payable on the latest lump
sum received.

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Comprehensive
Examples
Test your Knowledge- Silke
Example 12.8 Lump sum from an
employer and a fund combined.
Example 12.10 Retirement, Preretirement and other severance
benefits
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Lump sums received by Non

Residents

Services are rendered by the non resident taxpayer within

and out of the Republic
The amount to be included in Gross Income of the
taxpayer, must be apportioned. The net SA Lump sum paid
out to the NR taxpayer (after par 5/6 deductions), is
apportioned as follows:

Net lump sum x

period of service within SA

total period of service inside and

outside SA
= the amount included per Gross Income

The amount to be included in Gross Income above, must

then be taken out to be taxed separately as per the
respective tax tables, depending on the latest event.

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Public Sector Pension Funds (PSPF)

The Bigger picture
Tax-free
portion

Taxable portion
Attributable to pensionable
service after 1 March 1998
Reduced by deductions available
for private funds (paragraph 5 or
6 of the Second Schedule)
Paragraph (e) of the gross
income definition
16

Attributable
to
pensionable
service prior
to
1 March
1998

Calculation
Formula C
A= B x D
C
A = Taxable lump sum subjected to the 2nd schedule
(paragraph 5 and 6 deductions still applicable after this amount is
determined)

B = number of completed years after 1 March 1998

C = the total number of completed years of employment
D = Actual lump sum benefit received
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Inclusions in gross income par (eA)

Transfers from a PSPF to a Provident fund
Inclusion in GI in the year of transfer =
Amount transferred from a PSPF to any provident
fund
Transfer is not treated as a Lump Sum, and
therefore, qualify for any deductions ito par 5/6
Amounts remuneration for employees tax
purposes
No amount is actually paid to the employee when
an amount is transferred / when a fund is
converted

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Changes in taxing RB
(s10C)
1. S10C efective from 1 March 2014 for

compulsory annuities
2. Previously, all annuity income received
as a result was taxed in full, and no
deductions were ofset against this
income received.
3. S10C now allows for the non-deductible
portions of the contributions once made
toward these funds by the taxpayer, as
a deduction against this annuity income
received.
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Changes in taxing RB
1. S10C efective from 1 March 2014 for

compulsory annuities
2. Previously, all annuity income received
as a result was taxed in full, and no
deductions were ofset against this
income received.
3. S10C now allows for the non-deductible
portions of the contributions once made
toward these funds by the taxpayer, as
a deduction against this annuity income
received.
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RETIREMENT (FUTURE)
All

contributions deductible
27.5% (Remuneration or Taxable
Income)
Capped at R350 000
Disallowed contributions carried
forward

21

RETIREMENT (FUTURE)
Contributions to provident funds
Annuity for provident funds
55 years and over

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END.
QUESTIONS?

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