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Tax implications when retirement annuity fund pays out

14 March 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

The answer to this query is based on legislation as at 2014/03/14.

Q: Currently we getting a tax deduction for Retirement Annuities. How does the tax work, when the individual retires, and receives the RA out?


A: When you retire and you are member of a pension fund, pension preservation fund or retirement annuity fund and you wish to take a portion of your retirement interest as a lump sum, you are allowed to take a lump sum (commute) up to a maximum of one-third of the retirement interest in that fund, unless the entire value of the fund does not exceed R75 000 in which case you take the full retirement interest as a lump sum. The tax free portion of the 1/3 portion should be calculated (2nd Schedule to the Income Tax Act) and the following preferential tax rates will apply on the taxable amount:

Retirement fund lump sum benefits or severance benefits (2014)

Taxable Income (R)

Rate of Tax (R)

0 – 500 000

0% of taxable income

500 001 - 700 000

18% of taxable income above 500 000

700 001 – 1 050 000

36 000 + 27% of taxable income above 700 000 

1 050 001 and above

130 500 + 36% of taxable income above 1 050 000


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