Example: If Nomsa receives a retirement fund lump sum withdrawal benefit of R39 000 on withdrawal from a pension fund. R12 000 is transferred to a retirement annuity fund. R20 000 of the taxpayer’s own contributions to the fund have not previously qualifi
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
I would change the facts to indicate why Nomsa becomes entitled to take a withdrawal benefit. This is because I think the withdrawal (or transfer) can only be made under certain circumstances. I’ll start with comments about that.
The requirement of a pension fund, and provident fund also, is that “(ii) that the rules of the fund provide … (bb) that membership of the fund throughout the period of employment shall be a
condition of the employment by the employer of all persons of the class or classes
specified therein who enter his employment on or after the date upon which --
(A) the fund comes into operation; or
(B) the employer becomes a participant in that fund; 18895203
Client was involuntary retrenched. He received and severance package of R 267904 and provident fund's value is R 890905. He opted for R 390905 to be transferred to approved fund at Old Mutual. According to Tax Directive he was taxed on the R 500000 lump portion and R 88348.26 was withheld for tax.
Any amount transferred to an approved ‘retirement’ fund qualifies as a deduction – see paragraph 5 of 6 of the Second Schedule to the Income Tax Act. This deduction means that the amount transferred is tax neutral. A transfer from a provident fund, except for a very short period, to a pension or retirement annuity fund, is not a tax neutral transfer – see the current draft Bills. We don’t have enough information to comment on this, but it may well have applied here. The other reason for the tax of R88 348.26 may be because of previous lump sums.