My client is 47 years of age. He is being retrenched. He will receive a severance benefit? He also wants to make a withdrawal from his pension and provident fund as well. It is a little unclear as to how the withdrawal from pension and provident will be
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The same tax table are not used for a severance benefit. Whilst the same amounts and rates appear in the table for severance benefits as the ones for retirement lump sums, the amounts differ substantially from the retirement fund lump sum withdrawal benefit table.
All three of these tables are found in paragraph 9 of the and they are as follows:
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paragraph 9(a) applies in respect of a retirement fund lump sum withdrawal benefit;
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paragraph 9(b) applies in respect of a retirement fund lump sum benefit; and
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paragraph 9(b) applies in respect of a severance benefit.
In your instance there will be two of the above that will apply – it doesn’t matter in which order you apply them if the severance and lump sum benefit accrues in the 2020 year of assessment.
The term “severance benefit” is defined in section 1(1) of the Income Tax Act,1962 and means any amount that is received by or accrued to a person in respect of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s office of employment or of the person’s appointment to any office or employment, if-
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such person has attained the age of 55 years;
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such relinquishment, termination, loss, repudiation, cancellation or variation is due to the person becoming permanently incapable of holding the person’s office or employment due to sickness, accident, injury or incapacity through infirmity of mind or body; or
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such termination or loss is due to-
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the person's employer having ceased to carry on or intending to cease carrying on the trade in respect of which the person was employed or appointed; or
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the person having become redundant in consequence of a general reduction in personnel or a reduction in personnel of a particular class by the person's employer,
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unless, where the person's employer is a company, the person at any time held more than five per cent of the issued shares or members' interest in the company.
You are correct that, where the employee has not reached the age of 55 yet at the time his employment ceased, or he did not become incapable of holding the employment, the last bullet is relevant.
The employer and the fund must apply for a directive from SARS.