I have been asked a question by an associate of one of my clients, I don't deal with this side of things at all so have no idea whether this is correct.
My client has the following assets
Preserver policies - R842,095.00
Pension fund R 50,000.00(approx)
Severance Package R578,646.00
He is taking early retirement at age 60
He wishes to convert his preservers directly to a flexible annuity and would like his one third tax allowance applied to his severance package which in terms of the company agreement is due and payable in March 2013.
Q1. Is his one third entitlement based on his total package i.e. on the R1470,741 portion amounting to R490,247?
Q2. Assuming this to be the case, tax on this lump sum will be applied as per tax scale for retirement viz first R315000 tax free, next R315000 at 18%. There will however be an amount of R88,399 remaining from his package which is outside of his one third entitlement. How will this be taxed?
Any advise would be appreciated as I do not deal with this normally and do not want to give the wrong information.