A taxpayer receives monthly payments on a compulsory annuity from Momentum. He invested R30 000 000 with Momentum in July 2020. He qualifies for section 11F (previously 11(k)) for “contributions not previously allowed as a deduction” of R30 000 000.00 (also s10(c)). Momentum is currently withholding PAYE on his monthly pay-outs unless we can submit a tax directive to them. This taxpayer is a HNWI with SARS. What is the process for this application and also which directive application form must be used? I used the IRP3C form as this taxpayer has an assessed loss, but SARS keeps on declining it. They also said Momentum must apply for the directive, but Momentum says that they only apply if it is a lumpsum, which it is NOT.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
It is paragraph 11(a)(ii) of the Fourth Schedule that allows for the taxpayer to apply for a directive, in this instance that no employees' tax is withheld because of the section 10C exemption. In terms of the current practice, the exemption is applied on assessment, and SARS doesn’t (as is Momentum's experience) issue the directive for a lower rate. For ease of reference we copied paragraph 11(a) here: The Commissioner may, having regard to the circumstances of the case, issue a directive – (a) to an employer authorising that employer – (i) to refrain from deducting or withholding any amount under paragraph 2 by way of employees' tax from any remuneration due to any employee of that employer; or (ii) to deduct or withhold by way of employees' tax from any remuneration in terms of paragraph 2, a specified amount or an amount to be determined in accordance with a specified rate or scale, in order to alleviate hardship to that employee due to circumstances outside the control of the employee or to correct any error in regard to the calculation of employees' tax, or in the case of remuneration constituting commission or where the remuneration is paid or payable to a personal service provider and that directive must be complied with; … SARS doesn’t see this as hardship, but that would be the only basis of making the request.