Unit 2 - Individuals - Retirement

Question 1

What are the lump sums received from an ER?

Answer 1

1. Annuities
2. Lump Sums on termination of services
3. Severance Benefits & Insurance proceeds.

Question 2

Lump sums received from an ER:

• Annuities

Answer 2

• Tax in full in hands of resident included in GI.
• Fact that they are of a capital nature = Irrelevant.

Question 3

Lump sums received from an ER:

For who does s11(m) apply and what deductions are allowed ito s11(m)?

Answer 3

Apply - ER

Deduction - All annuities pd to former EE/ dependents & partners who have retired due to:
- Ill health
- Old age
- Infirmity.

Question 4

Lump sums received from an ER:

On termination of services

Answer 4

Any termination of services lump sums fall into GI ito Par (c), (d),/(f).

E.g
Accumulated leave pay (c)
Notice pay(f)
Bonus (c)

Question 5

Lump sums received from an ER:

Severance Benefits & Insurance Proceeds

Answer 5

Included in GI ito Par (d)(i)

Taxable ito a separate tax table.

Question 6

What is the definition of a Severance Benefit?

Answer 6

Any (lump sum) amount
(a) Other that a lump sum
(b) from a retirement fund
(c) and other than insurance proceeds
(d) Received by/accrued to a person
(e) from/by arrangement w/ ER/AI in relation to that ER
(f) iro relinquishment, termination, loss, repudiation, cancellation/variation of person’s office/employ.

IF

ONE of the following applies:
- Person is 55 years =<
- (f) is due to person being permanently
incapable of holding his employ./office
due to sickness, accident, injury,
/incapability through infirmity of
mind/body
- (f) is due to ER retrenching a person due
to ceasing to carry on the trade iro which
the person was appointed, or the person
is retrenched due to a reduction in
personnel generally/ of a particular class.

Question 7

When does the retrenchment provision not apply?

Answer 7

Where the person being retrenched held 5%< of issued share capital/members’ interest in ER.

Question 8

When does an amount accrued to a person which becomes payable in consequence of/following upon their death

Answer 8

Immediately prior to their death

Question 9

Amounts that are excl. from the definition of a severance benefit.

Answer 9

• Amounts received by/accruing to a person, dependant/nominee, iro proceeds from a insurance policy of insurance held by ER/company which person is/was EE/Director
• Amounts received by/accruing to a person, dependant/nominee, iro insurance policy which was ceded to that person by their ER/company of which they is/ was director (provided policy was not a risk policy w/ no cash/surrender value).

Question 10

Severance benefits tax implications for the EE

Answer 10

Use Severance benefits tax table.

Calc:
Tax on Severance Benefit = Tax on Aggregate 1 per the table - Tax on Aggregate 2 per the table.

Aggregate 1=
1. SB
2. SB >= 1/3/2011 & PRIOR TO SB1
3. RLS WB >= 1/3/2009 & PRIOR TO SB1
4. RLS B >= 1/10/2007 & PRIOR TO SB1

Aggregate 2=
2. SB >= 1/3/2011 & PRIOR TO SB1
3. RLS WB >= 1/3/2009 & PRIOR TO SB1
4. RLS B >= 1/10/2007 & PRIOR TO SB1

This applies to RLS B & RLS WB as well, ALL ARE JUST TAXED IN DIFFERENT TABLES.

Question 11

When is severance benefits taxed @ 36%

Answer 11

Once the total of the previous severance benefits >= 1/3/2011 > R1,155,000.

Question 12

What are the lump sums received from a fund?

Answer 12

• Pension/pension preservation
• Provident/provident preservation
• RA Fund

Question 13

Events that give rise to lump sums received from funds?

Answer 13

• Retirement of member
• Death of the member
• Withdrawal from fund
• Termination/loss of employment
• The commutation of annuity to lump sum
• The commutation of a lump sum to an
  annuity

Question 14

Taxation of annuity?

Answer 14

1/3 = lump sum commuted as a single
payment (lump sum).
2/3 = Lump sum commuted to annuity

If the total value of a person’s retirement interest in a fund:
- =< R165 000, or
- EE is deceased, or
- EE elects to transfer retirement interest to
another qualifying fund,
received as a lump sum (single pmt)

Transferring from 1 approved fund to another approved fund, the member’s interest must => R371 250.

These limitations do not apply to provident/provident preservation funds.

Question 15

Taxation of lump sums?

Answer 15

Included in GI:
- RLSB
- RLS WB

Excluded in GI:
- Any benefit from Pub. Sec Fund.

Question 16

What is included in GI ito a retirement lump sum withdrawal benefit?

Ito Par 2(1)(b) of 2nd Schedule

Answer 16

• Any amount assigned ito of a divorce
  order granted on/after 13/9/2007, to
  the extent that the amount was part of
  the pension interest of a member of the
  retirement fund, that is due and payable
  to the member’s former spouse.
• Any amount transferred, for the benefit
  of the member, directly from 1 retirement
  fund to another retirement fund
• Any other amount received as a lump
  sum benefit, from/in conseq. of a
  membership of a retirement fund, such
  as the amount on withdrawal/resignation
  from the fund, or winding up of the fund.

Question 17

What is the deemed time of accrual of RLSB on the death of a member?

Ito Par 3 of 2nd Schedule

Answer 17

Immediately prior to his death

Par 3 of 2nd schedule has the following provisos:

• Tax payable by member’s estate =
  recoverable from the person to whom/in
  whose favor lump sum benefit accrues.
• If an annuity becomes payable, and the
  an annuity is a commutation from a lump
  sum = lump sum deemed to have
  become recoverable in member’s hands
  immediately prior to his death
• Where dependents/nominees of the
  deceased elects an annuity instead of
  all/part of lump sum = no LSB will be
  deemed to have been accrued unless LS
  is used to purchase the annuity
• LSB pd to pension/provident preservation
  fund as unclaimed benefit = No LS shall
  be deemed to have accrued to
  member/past member prior to his death.

Question 18

What is the amount included in taxable income ito RLSB from a fund?

Answer 18

Calc:

• Retirement/death/commutation of
  annuity taxable amount
  = LSB received - Par 5(1)(a)-(e) deductions
• Termination of services taxable amount
  = LSB received - Par 6(b)(i)-(iv)

Question 19

What are the 2nd Schedule deductions on a RLS due to retirement/death & commutation of annuity?

Answer 19

Deductions under Par 5(1)(a)-(e)

• TP’s own contribution to any fund not
  allowed as a deduction previously s11F
• An amount transferred to another fund
  as a result of an election made ito a
  divorce order (only relevant in the year it
  was transferred) - which TP received from
  his/her ex-spouse
• An amount transferred to another fund of
  the member (only relevant in the year it
  was transferred)
• Transfer of an amount to preservation
  fund as an unclaimed benefit (only
  relevant in the year it was transferred)
• Certain amounts transferred from Pub.
  Sec. fund to private retirement fund.

None of the above must have been allowed as a tax deduction under the 2nd Schedule before.

These deductions are limited to the amount of LSB
- Excess is carried forward to future years

Question 20

What is the 2nd Schedule deduction on a RLS due to Termination of services?

Answer 20

Deductions under Par 6(1)(i)-(v)

• TP’s own contribution to any fund not
  allowed as a deduction previously s11F
• An amount transferred to another fund
  as a result of an election made ito a
  divorce order (only relevant in the year it
  was transferred) - which TP received from
  his/her ex-spouse
• An amount transferred to another fund of
  the member (only relevant in the year it
  was transferred)
• Transfer of an amount to preservation
  fund as an unclaimed benefit (only
  relevant in the year it was transferred)
• Certain amounts transferred from Pub.
  Sec, fund to private retirement fund.

None of the above must have been allowed as a tax deduction under the 2nd Schedule before.

These deductions are limited to the amount of LSB
- Excess is carried forward to future years