It is my understanding that the retrenchment was part of the employer embarking on a general reduction in personnel (not restructuring of employees) and that the employer continued to trade after the taxpayer’s retrenchment. The taxpayer has not attained
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
As the amount was assessed (the IT34) and the taxpayer is aggrieved with the assessment, an objection must be made – see section 104(1) of the Tax Administration Act and the rules.
We agree that, if there was an error on the IRP5, changing it would not have had an impact on the employees’ tax deducted.
It may be necessary to request reasons for the assessment – rule 6. The assessment was based on the information provided by the employer – on the IRP5 and we accept that it was not an additional assessment. From what you said, the IRP5 may then not need to be amended.
It would be interesting to know if the SARS directive was also not based on the severance tax table. SARS is, based on the assessment received by the taxpayer, certainly of the view that this is not a severance benefit.
Code 3901 is in fact, according to the guide to employers, the correct code to use for a severance benefit, as defined, paid/payable by an employer after 1 March 2011, if employee:
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Is 55 years or older;
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Became permanently incapable to be employed due to ill health, etc.; or
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Services terminated due to reduction of personnel or employer ceased trading.
Proving the first one is factual and doesn’t present a problem. All that the recipient will have to prove, in other cases, is that the termination (or loss) of employment was due to the employer having ceased to carry on (or intending to) the trade or that he or she has become redundant in consequence of a reduction in personnel. The fact that the recipient accepts the termination voluntarily is irrelevant as this provision doesn’t make that distinction.
The employer would have used the code 3907 for a lump sum paid/payable in terms of paragraph (d) of the definition of “gross income” which is not a ‘severance benefit’.