SARS TAX CALC PENSION FUND WITHDRAWAL LUMP SUM

[prineesha]

Received an irp 5 for lump sum withdrawal benefit which shows paye as a deduction using code 4115. When completing the tax return on sars efiling, SARS Does not pick up the 4115 code rather shows the same amt as a liability owing on its TAX CALC. Has anyone experienced similar scenario?

[dellatjie]

@prineesha, they usually tax lump sums seperately on the assessment. The PAYE should be equal to the amount payable under retirement tax, and should have no effect on the assessment.

[dellatjie]

On the same subject, I now have a client who earned her monthly pension as well as interest and her salary for part of the year, and received a retirement fund lump sum during the year.

As far as I understand, the calculation of the tax payable should be simple, as it the lump sum is less than R500k. But now, SARS has assessed her at a rate of 18,15% instead of 18%. As far as I remember, rating percentages relate to the old way of taxing retirement fund lump sums.

Does anyone have info on this?

[EAB]

You will have to take into account lump sum payments received in previous years. Remember the R500k is not per year.

[dellatjie]

@Werner,

How does this influence the rating percentage?

[EAB]

No the rating percentage is as you said on the old way.

Example. The client received R600 000 lump sum in a previous year. This year the lump sum is R200 000. You will have to add the two together and the tax on the total and then work it back again to the current year by subtracting the prior years.

Previous lump sum is R600 000 and the tax was R18 000 ( (600 000 - 500 000) x 18%). Now we add the current lump sum to that so it will be R800 000 lump sum and the tax will be R63 000 ( (800 000 - 700 000) x 27% + R36 000). So to get to the current years tax you will deduct the tax previously paid from the R63 000, which is R45 000. The average rate on this years lump sum will then be 22.5%.