individual wishes to withdraw the full lump sum out of his Provident preservation fund totalling, R 3 236 325. But wishes to know how the tax will be dealt with. He transferred into the fund in 2012 at the age of 55 and also took a severance package using
Important:
This answer is based on tax law for the year ending 28 February 2017.
Answer:
We accept that the employer made the contributions to the provident fund. The first being that it is not relevant whether the employer deducted the contributions. What is relevant is whether the employee deducted the contributions. It is only in respect of contributions made after 1 March 2016 that the employee was deemed to have made the contribution and the amount contributed by the employer was a taxable benefit. The contributions before will not have been allowed as a deduction against the taxpayer’s income.
We accept that the comment that the taxpayer “transferred into the fund in 2012 at the age of 55” means that he transferred the fund interest at the time from another provident fund into the current one. But we are not sure as you mention that the taxpayer “only belonged to one provident fund”.
The R315 000 is not a “tax free portion” – we accept that the tax rate was 0% and was applied to the amount withdrawn. As a severance benefit it is not a withdrawal from the fund, but it must be taken into account when the current lump sum is taken, but only for purposes of determining the tax on the current lump sum.
The same comment is relevant to whether or not the lumps sum was taken at ‘normal retirement age’.
With regard to the contributions made before 1 March 2016, both paragraph 5(1)(a) and 6(1)(b)(i) allows “the person's own contributions that did not rank for a deduction against the person's income in terms of section 11(k) to any pension fund, pension preservation fund, provident fund, provident preservation fund and retirement annuity fund of which he or she is or previously was a member” to be deducted from the lump sum.