NO TAX REBATE

[Angelee]

Hi Everyone

Please help me understand.

1. In terms of a divorce settlement, a client who earns no other income was paid R40000 odd from her ex-husbands provident fund.
2. The fund managers deducted PAYE in terms of the changes applicable to these payouts for divorces granted after 13/09/2007 of about R3300
3. According to the changes, these lump sum benefits for divorce purposes are now considered "remuneration" and PAYE code 4115 is used
4. If this is remuneration, then surely if your income is below the threshold, as is this case of the R40000 odd, SARS should apply the rebate for under 65 years old taxpayer and refund the taxpayer the R3300 PAYE deducted?

Thanks,
Angie

[Beancounter]

The nature of the payment is a lump sum in terms of the Second Schedule of the Income Tax Act and is accordingly taxed. This is not linked to the threshold for individuals. For withdrawals from a retirement fund before the age of 65, the first R22 500 of all lump sums over a person's lifetime (received after 2007) is free from tax. Thereafter 18% tax is levied on the amount not exceeding R600k etc. Refer 2014 tax rates.

[Angelee]

The nature of the payment is a lump sum in terms of the Second Schedule of the Income Tax Act and is accordingly taxed. This is not linked to the threshold for individuals. For withdrawals from a retirement fund before the age of 65, the first R22 500 of all lump sums over a person's lifetime (received after 2007) is free from tax. Thereafter 18% tax is levied on the amount not exceeding R600k etc. Refer 2014 tax rates.

Thank you for your feedback. However, from the quote below from SAICA I thought to view this receipt differently and as "remuneration" and not a lump sum benefit it would follow that the rebate would be applied.... ???

"To the extent that an amount is deducted from the minimum individual reserve of the member ex-spouse in terms of a maintenance order, section 7(11) of the Act provides that such amounts are deemed to be have accrued to the member ex-spouse on the date of the deduction. These amounts do not constitute lump sum benefits but are defined as "remuneration" in terms of the Fourth Schedule to the Act and subject to the deduction of PAYE in the member spouse’s hands."

[Beancounter]

That is correct, the amount is deemed to be income earned by the non-member spouse. This only means that any pension amount received by a spouse in terms of a divorce order shall not be tax free in that spouse's hands. The nature of the income earned is that of a lump-sum as defined in the Second Schedule:

"lump sum benefit" includes-

a)any amount determined in respect of the commutation of an annuity or portion of an annuity-

i)payable by; or

ii)provided in consequence of membership of past membership of, a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund; and

b)any fixed or ascertainable amount (other than an annuity)-

i)payable by; or

ii)provided in consequence of membership or past membership of, a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund, whether in one amount or in instalments, but does not include any amount deemed to be income accrued to a person in terms of section 7(11);

Note the part that says "other than an annuity". If the pension is paid monthly (as an annuity), then an IT3(a) or IRP5 certificate will be issued and the amount will be taxed in terms of the tax tables for individuals. If the amount is paid in a lump-sum, then the Second Schedule applies. In this case R22 500 was tax free and the balance was taxed at 18%.