[Question] Should i have been taxed?

[AngelinaM]

Good day;

I just got retrenched, I received my severance pay which was not what i expected. I then learnt that I was taxed, I was surprised because I thought I would be exempt since it is lower that R315 000, but i was taxed at 30%. And the severance pay was calculated on my 1 week salary for number of years... but only calculated on basic salary, they left out the travel & cellphone allowance, is that right ?

Please help me solve this..
Thanks in advance

[Rafael]

Did you have a Provident or Pension fund and if you did, did you do a withdrawal?

[AngelinaM]

Hi Rafael;

No, I am yet to make a withdrawal. and yes i had a provident & pension fund.

Angel

[tax$$$]

Hi Angelina

If you're talking about your assessment which you received after submission of your tax return, can you check on the assessment next to which code this severance benifit is depicted.

Your employer should have gotten tax directives for any lump sums paid to employees. SARS then calculates what tax should be deducted and paid to them. You however state that the tax was calculated at 30%, which means that it is possible that the lump sum was treated as normal income.

Don't want to jump to any conclusions - when you say "I then learnt that I was taxed", where did you learn this? From your IRP5 or Assessment?

As for the question about the calculation of the severance pay - don't think I'm the person to answer that. I'm unsure as to which benifits are included and excluded. Might want to refer that one to the Labour Relations category.

[AngelinaM]

HI. Thanks for the response.

I was made aware of the tax because I asked my previous employer why the funds i received where not what I had expected. I do not think my employer got the tax directive from SARS. I know I was taxed because I actually asked for the calculations and that is what I was told. "The lump of your cash went to TAX, because the payout was a lot", that rang a few bells for me because I was aware of the R315000 tax free lump.

[CLIVE-TRIANGLE]

Angelina, it is likely that they did not obtain a tax directive, as you surmised. Obtaining a directive is an obligation, not a choice. You might want to take your payslip and your retrenchment documentation to SARS. Also, if your IRP5 is available make sure they used the right code, because at the least the overpayment will be refundable on assessment.

According to the determination issued by the Minister of Labour in Government Notice 691 of 2003 the following payments are included in an employee's remuneration for the purpose of calculating severance pay (amongst others):

• Car allowance or the value of provision of a company car. This does not apply in those instances where the employer provides a vehicle to the employee so as to allow the employee to travel to and from work, with no other private usage of the vehicle by the employee.

I am not sure about the cell phone allowance, because:
"The following items do not form part of the employee's remuneration for the purpose of these calculations:
any cash payment or payment in kind that is provided in order to enable the employee to work (for example, equipment, tools or a similar allowance, or the provision of transport or the payment of a transport allowance to enable the employee to travel to and from work only."

[Dave A]

What is the correct code to use for severance pay on the IRP5?

[CLIVE-TRIANGLE]

It's the 3901 Gratuities code.

[dellatjie]

Isn't there a lifelong exemption for severance pay Clive?

[CLIVE-TRIANGLE]

Hi Dellatjie. No, it's a once in a lifetime R300,000 exemption.

[Mike Simmonds]

From the 1 March 2011 the Tax Free lump sum benefit was increased from R 300 000 to R 315 000. This applies to both Retirement Fund lump sums and Severance Benefits aggregated.

Code 3901 is the correct code for Gratuities in respect of retirement, retrenchment or death.

Code 3907 would be the code for Gratuities in respect of resignation or retirement below age 55.

[dellatjie]

Angelina,

What has the outcome of this situation been?