Unit 2 - Individuals - Retirement Flashcards
What are the lump sums received from an ER?
- Annuities
- Lump Sums on termination of services
- Severance Benefits & Insurance proceeds.
Lump sums received from an ER:
- Annuities
- Tax in full in hands of resident included in GI.
- Fact that they are of a capital nature = Irrelevant.
Lump sums received from an ER:
For who does s11(m) apply and what deductions are allowed ito s11(m)?
Apply - ER
Deduction - All annuities pd to former EE/ dependents & partners who have retired due to:
- Ill health
- Old age
- Infirmity.
Lump sums received from an ER:
On termination of services
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)
Lump sums received from an ER:
Severance Benefits & Insurance Proceeds
Included in GI ito Par (d)(i)
Taxable ito a separate tax table.
What is the definition of a Severance Benefit?
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.
When does the retrenchment provision not apply?
Where the person being retrenched held 5%< of issued share capital/members’ interest in ER.
When does an amount accrued to a person which becomes payable in consequence of/following upon their death
Immediately prior to their death
Amounts that are excl. from the definition of a severance benefit.
- 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).
Severance benefits tax implications for the EE
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.
When is severance benefits taxed @ 36%
Once the total of the previous severance benefits >= 1/3/2011 > R1,155,000.
What are the lump sums received from a fund?
- Pension/pension preservation
- Provident/provident preservation
- RA Fund
Events that give rise to lump sums received from funds?
- 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
Taxation of annuity?
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.
Taxation of lump sums?
Included in GI:
- RLSB
- RLS WB
Excluded in GI:
- Any benefit from Pub. Sec Fund.
What is included in GI ito a retirement lump sum withdrawal benefit?
Ito Par 2(1)(b) of 2nd Schedule
- 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.
What is the deemed time of accrual of RLSB on the death of a member?
Ito Par 3 of 2nd Schedule
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.
What is the amount included in taxable income ito RLSB from a fund?
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)
What are the 2nd Schedule deductions on a RLS due to retirement/death & commutation of annuity?
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
What is the 2nd Schedule deduction on a RLS due to Termination of services?
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
