TAXATION OF RESIGNATION BENEFITS

If you take benefits from the Fund in the form of resignation benefits, the tax treatment of these depends on how you choose to receive your benefit.  If you transfer the benefit to another fund, you should not be subject to any tax at the time of transfer.  However, if you take your benefit (or any part of it) as a cash resignation benefit, it will be taxed.

Taxation of any cash resignation benefit

The tax-free amount in respect of resignation benefits (referred to as “withdrawal benefits” by SARS) is R25 000. However, the R25 000 is a 'once-off' cumulative value (a lifetime allowance), and once the limit of R25 000 is reached, all further resignation benefits will be taxed.

It is very important also to note that the tax-exempt resignation benefit amount of R25 000 reduces the once-off tax exempt amount of R500 000 at retirement.

SARS states that “the tax on a specific retirement fund lump sum withdrawal benefit (X) is equal to–

• “the tax determined by applying the tax table to the aggregate of that lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009 and all retirement fund lump sum benefits accruing from October 2007; minus

• “the tax determined by applying the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009 and all retirement fund lump sum benefits accruing from October 2007.”

The tax table is as follows: 

Taxable income (R) Rate of Tax (R)
R0 to   R25 000 0%
R25 001 to R660 000 18% of the benefit amount exceeding   R25 000
R 660 001 to R990 000  R114 300 + 27% of the amount above   R 660 000
R990 001 and above  R203 400 + 36% of the amount above   R 990 000

Legal disclaimer

In providing the material that follows, the Fund has tried to reflect the tax treatment of contributions and benefits accurately at the time of writing, but the Income Tax Act is very complicated and is subject to regular changes. In the event that the following material conflicts with the Income Tax Act, the Act will apply. Because the Income Tax Act is so complicated, it is very important that you seek specialist advice if you have questions about taxation of your retirement benefits and when you have to make decisions, for instance about the form of the benefit that you take after you leave office.