Is a taxpayer entitled to challenge the contents of a Lump sum Tax Directive? Which is the correct source code for a taxpayer over 55 - 3915 or 3920 and who decides this - SARS or the Fund/employer? Mr D resigned from employment at a University. He thus a
Important:
This answer is based on tax law for the year ending 28 February 2017.
Answer:
In terms of paragraph 9(3)(a) of the Fourth Schedule to the Income Tax Act, the “amount to be deducted or withheld in respect of employees' tax from any lump sum to which paragraph (d) or (e) of the definition of 'gross income' in section 1 … shall be ascertained by the employer from the Commissioner before paying out such lump sum, and the Commissioner's determination of the amount to be deducted or withheld shall be final.” In other words, no right of objection and appeal is possible. The determination of SARS must, however, be made on a reasonable basis in the circumstances. The taxpayer would be able to take the matter on review.
From the information provided it doesn’t appear to be an instance where a severance benefit was received by or accrued to that person. You state that the individual ‘resigned’. What needs to be determined in this instance then is whether the individual concerned received the lump sum on ‘normal retirement age’. The tax rates provided for in paragraph 9(b)(i) of Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2017 (not yet promulgated) only applies to a retirement fund lump sum benefit which accrues to a person in any year of assessment commencing on or after 1 March 2017.
The age of 55 years is only relevant if the amount is in fact a ‘severance benefit’ as defined in section 1(1) of the Income Tax Act or if it appears in the rules of the fund.