Retirement lump sum benefit tax: where there was a withdrawal from a pension preservation fund
27 March 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
The answer to this query is based on legislation as at 2014/03/27.
Q: I have
a question regarding retirement lump sum benefit tax as well as withdrawal
lump sum benefit tax.
I know that withdrawal from a pension preservation fund
prior to retirement will be taxed according to the withdrawal lump sum
benefits tax tables, according to which the first R25 000 is tax free and or
everything over R990 000 gets taxed at 36%. My question is however regarding
the retirement lump sum benefit tax in a scenario where a client previously
had a withdrawal from a pension preservation fund and was taxed according to
the withdrawal lump sum benefits tax tables, as previously explained.
question is, should this amount that was previously withdrawn, and taxed, be
added to the tax calculations in the scenario where he later on retires from
his pension fund and receives 0% - 1/3rd retirement lump sum benefit? In
other words, to calculate the tax on the on the 1/3rd retirement lump sum
benefit, one add the previous withdrawal lump sum to the retirement lump sum,
calculate the tax according to the retirement lump sum benefits table
according to which the first R500 000 is tax free and everything above R1 050
000 gets taxed at 36% and then deduct the tax that the person previously paid
on the withdrawal lump sum benefit? To try and make myself clear I thought to
give an example depicting the two scenarios.
OF TAX ON A RETIREMENT LUMP SUM: In calculating the rate of tax on a RLB
(Retirement Lumpsum Benefits) the following process should be applied:
calculate the tax (hypothetical amount) on the aggregate of the RLB received
or accrued in the current tax year, the RLWB received or accrued on or after
1 March 2009 and RLB received or accrued on or after 1 October 2007
(severance benefits received or accrued on or after 1 March 2011 are included
in the aggregate calculation),
(2) calculate the tax on the aggregate of the
amounts as above but excluding the RLB received or accrued in the current tax
(3) the difference between the two tax amounts is the tax levied on the
RLB received or accrued in the current tax year. In your example below, the
hypothetical amount of tax already paid on past lump sums should be deducted
from the amount of tax payable on all lump sum amounts. The hypothetical
amount is the amount of tax calculated by using the tax tables in the year of
retirement and not the actual tax paid on past lump sums.
whether your client received any "severance benefits” on retirement or in the