The client gave instructions to his employer to transfer the full amount into an approved preservation fund. He did not withdraw any part of the money/funds. The pension fund and provident issued an IRP5 which reflect reason for non-deduction of employees
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We can’t comment on the result determined by the SARS calculator or whether the assessed result will be in agreement with this. It is advisable to do your own calculation here.
The principle, as we mentioned in our first response, is that the amount received by way of a lump sum following upon the taxpayer’s retirement can be reduced by a deduction permitted under paragraph 5 (or 6) of the Second Schedule. In this instance, paragraph 5(1)(c) permits a deduction of the paragraph 2(2)(a) (of the Second Schedule) amount.
Code 4150 (employees’ tax deduction and reason codes) provides for a code “04 or 4” and applies to “Non-taxable earnings (including nil directives)” – see the SARS guide for codes.
As a theoretical matter, a tax-free movement takes place if the savings being moved move to the same or higher level of restrictiveness (see paragraph 6 of the Second Schedule). Consequently, for example, taxpayers may move savings from a retirement annuity fund to another retirement annuity fund. Savings within pension funds (and pension preservation funds) may be moved to other pension funds (and pension preservation funds) as well as to retirement annuity funds. Savings within provident funds (and provident preservation funds) may be moved to any other form of retirement fund.