Tax on SA pension withdrawal - advice please!

[JK in Brissie]

My question: Do the after-tax proceeds of a pension fund lump sum withdrawal get added to ones annual income and then the total re-assessed as income? Or is the tax on the withdrawal a "stand alone" tax?

I am tax resident in Aus & have a rental property in SA. I declare the rental/expenses in both countries and get a tax offset in Aus for tax paid in SA. So far so good, no problems.

I had an SA pension invested in a capital preservation fund in the 10 years since I left. The amount grew to be quite a handsome sum and I with \drew it all last year and sent it out (with cash cows - all went well). Of course, at withdrawal, the pension was heavily taxed in accordance with that sliding scale formula for taxing lump sum withdrawals.

Last month I was in SA and decided do my 2013-14 return at the tax office (as I get endless problems with efiling). They entered my rental income and the after tax pension lump sum, also as income in that tax year. Lo & behold, it comes up with me owing a huge amount in tax (plus a 20% penalty plus interest!!).

And yet the lump sum had already been taxed on withdrawal.

I have trawled the web and it seems to me that a pension fund withdrawal should not be added to your income, in which case has SARS has messed up the return? (I sure do hope so!!)

Anyone have experience of this situation?

Many thanks

Edited July 6, 2014 by JK in Brissie

[RitaE]

Hi,

you are correct.

Pension fund pay out are taxed separate.

It should not be added to income.

should show under a different tax code on your tax return.

But let me dubble check this in the office today then I will sent you a pm

[Hugo2]

JK

I specialise in the topic and you can inbox me or find me on taxmigration.com

Your lump sum is not added to rental income for tax rate calculation but it is added to past lump sum benefits and this is where the under collection of PAYE came in

You are tax resident Australia, but that is not the criteria as ATO does NOT tax all tax residents on lump sums from SOuth Africa. Furthermore if they tax they tax in part only yet the tax paid in SA can be claimed as a tax credit. I am not an expert on Super but dumping some in Super (say the tax assessed portion) may reduce your rate. speak to your Australian adviser or I can link you.

I need your personal profile to answer and explain the ATO taxation rules re your specific lump sum. Inbox me.

Also send me the IT34 and I can check for you. A full quote will be given before I proceed.

I live in SA, but you can call my Australia office and the call will be diverted to me in SA.

Greetings

Hugo

[Brad76]

Were you issued an IRP 5 by the preservation fund and was the tax amount withheld taken into account on your 2014 assessment?

[JK in Brissie]

Thank you for the helpful and encouraging replies. The preservation fund did issue an IRP5 and the tax amount was withheld. I checked the calculation of the tax amount withheld and it was (very nearly) correct per the SARS formula for withdrawals. The tax amount was taken into account but it is less than the marginal rate hence the extra tax if it is added to income. But it seems quite clear that it should not be added to income, even though this was done by the clerk who I sat with at SARS. So it looks like the task will be to get them to reverse this - I guess I just need to do an amended return with the pension not added to income but stated as "non-taxable".

The source code given on the IRP 5 for the pension is 3920. It is the only withdrawal I have ever made on a pension fund.

I think I have the Aus side of it sorted - the gain since becoming Aus tax resident will be added to my income as a form of CGT but full tax credit will be given for SA tax so it should be approximately tax neutral, depending on my Aus earnings. There is a small advantage in that the SA tax is over the whole value whereas the Aus tax is on the growth portion since becoming resident.

Thanks once again for taking the time to read this and to reply - much appreciated

[MrandMrsK]

HI.

We have a similar problem to JK and are horrified.

Hubby paid out a fortune in tax for his provident fund withdrawal. Now, we see that Alexander Forbes has issued an IRP5 and appears on his tax form as an employer, employed by them for one day, where he got a "huge" amount of money (in our eyes) in that one day.

As it appears that he was employed by them, does that not incur different fees or maybe make him fall into a high tax bracket?

So his Tax return now says that he owes SARS a massive R25 000!!!!!!! It was over R100K that he has paid in tax already!!

I am too scared to even look at mine, as I suspect that I will be in the same boat.

We cannot contact SARS (they say phone or appear in person for queries)

How on earth do we go about investigating this, to determine where this new tax comes from, and to lodge an appeal??

We really do not understand the language and implications of what is written on the documents, and dont know where to start.

Any help (in laymans terms) would be much appreciated.

Thanks

[miraclebabycaw]

definitely incorrect. Sounds like there is an issue with the statements sent by the Insurance companies to the tax office. We withdrew my preserver fund in 2012 before we emigrated. It was listed under lump sum payments from pension and tax was listed. I actually got a couple of thou back. It should not be listed under salary income. I would contact the insurance companies and check with them what they sent (you should have a copy of the IRP5 and the code of the income should be different to normal salaried income)