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Income tax and PAYE consequences on a gratuity payment to a dismissed employee

01 July 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 01/07/2014.

Q: Please advise the PAYE consequences on a gratuity payment to an employer who was dismissed. Please also advise income tax consequences on assessment.

A: We assumed (based on the facts provided) that the amount paid (settlement) does not constitute a 'severance benefit' (as defined in section 1(1) of the Income Tax Act).  It therefore would be a paragraph (d)(i) (of the definition of gross income) amount.  As such it is 'remuneration' as defined in paragraph 1 of the Fourth Schedule of the Income Tax Act. 

In terms of paragraph 9(3)(a) of the same Schedule the "amount to be deducted or withheld in respect of employees' tax from any lump sum to which paragraph (d) or (e) of the definition of 'gross income' in section 1 or section 7A applies, shall be ascertained by the employer from the Commissioner before paying out such lump sum, and the Commissioner's determination of the amount to be deducted or withheld shall be final.”  


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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