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Periodic Payments From Road Accident Fund to be Tax Free

31 October 2011   (0 Comments)
Posted by: Author: Neville Sweidan
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Periodic Payments From Road Accident Fund to be Tax Free

This departure from the general rule relating to tax on annuities is expected to take effect from 1 March 2012

Legal advisors for claims against the Road Accident Fund need to be aware of an important amendment proposed to be made to the Income Tax Act.National Treasury proposes that compensation currently paid as a lump sum by the Road Accident Fund to victims should where possible be paid in periodic amounts spread out over several payments.In addition, it is proposed that these periodic compensation payments from Road Accident Fund be tax free and not subject to the same taxation as is applied to annuity payments which are deemed to be gross income for tax purposes.

As a general rule, annuity or periodic payments are subject to tax, but this will be waived for Road Accident Fund payments going forward.This is because National Treasury is of the opinion that the spreading of compensation in the form of several annual payments often operates as a better method of funding financial security for victims seeking to recover or survive serious vehicle accidents.

This periodic method of payment over an extended periods pares victims from the risk of mismanagement of lump sum payments so as to cover victims and their families over long periods of hardship.National Treasury stated in a recent statement issued in conjunction with the 2011 Taxation Laws Amendment Bill, that with effect from 1 March 2012,payments relating to claims against the Road Accident Fund with be fully exempt from income tax. It also expects that such payments made after this date will be treated in the same manner as workman’s compensation payments.

Legal practitioners should be aware of this provision in the settlement of claims prior to 1 March 2012.

Source: By Neville Sweidan (Tax breaks)


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