Question:
If I receive a severance package of R650 000 on the 6th of August 2015 and then on the 12th of September receive a Provident fund lump sum of R620 000, how will I be taxed by SARS? How will the concept of hypothetical tax fit into this equation? And what if it was the other way around...
Answer:
Elwin, Please read our blog on the taxation of severance benefits. If SARS recognises this as retrenchment scheme, your severance package and fund pay-out will be taxed per the retirement lump sum tax table (as one lump sum): the first R500 000 is not taxed, the balance to R700 000 is taxed at 18%, the balance to R1 050 000 at 27% and any amounts above that at 36%. If SARS does not recognise the scheme, your severance package will be taxed as income and your retirement fund pay-out as per the withdrawal lump sum tax table: the first R25 000 is not taxed, the balance to R660 000 is taxed at 18%, the balance to R990 000 at 27% and the remainder at 36%. We have not heard of hypothetical tax. In this case, the order of the payments does not matter, the net outcome will be the same in each case. The key question is, how will SARS classify these pay-outs?
