Article by Regina Viljoen ~ 19 October 2018

I recently watched a webinar made available by the South African Institute for Tax Professionals (SAIT). The webinar was prepared and presented by Hugo van Zyl (www.hugovanzyl.com).

I learnt and realised that many retirees might be in a situation to be taxed and/ or fined expectantly due to taxes often overlooked during their financial planning. When adjusting their portfolio at / during retirement they might also trigger unexpected taxes on assessment. Very few retirees plan for top-up taxes on assessment.

The following might trigger top-up taxes for retirees:

1. Remuneration / allowance from an employer not registered for Employees Tax (for example an embassy or a foreign pension fund)
2. Multiple sources of remuneration (for example income from a pension fund and from a life annuity fund)
3. Sale/ donation / cessation / loss of an asset (like an investment or a holiday home) triggering taxable capital gain
4. Cashing in an existing retirement fund as gross income when it falls below R50 000
5. Lump sum pay outs (a directive is not an assessment and a lump sum pay out triggers an ITR12 income tax return to be filed)
6. Medical tax deduction has been replaced with medical tax credits for tax payers of all ages
7. Provisional tax on rental income of a primary residence (old age home costs are not deductible against rental profits)
8. Interest earned on retirement lump sum benefits and on a medical aid savings account can trigger a provisional tax obligation in aggregate (on their own it seldom will)
9. A part time or piece job can trigger tax filing if there is more than one employer
10. Donations sent to children living abroad (sec 7(8) anti-avoidance and attribution rules)

Retirees sending ZA Rand to their children or grandchildren in foreign countries, directly as single discretionary allowances (SDA) or be it a beneficiaries of SA trust, should consider the impact of the following Income Tax Act sections, not only in tax filing but also in determining their provisional taxpayer status: Sec 7, Sec 31, sec 7(8).

11. Foreign assets in excess of R250 000 can trigger ITR12 tax filing obligation for pensioners earning pension only

A retiree should inform a financial planner and tax practitioner timely about the above (when applicable) to avoid unexpected taxes and / or fines on assessment.

 Provisional tax

There is no longer a registration or deregistration process to be a provisional taxpayer. The onus is on the taxpayer to determine if he or she is liable for provisional tax, and to request and submit an IRP6 provisional tax return via eFiling before the end of August (1^st period) and before the end of February (2^nd period) annually.

 Who is liable for provisional tax?

A natural person (irrespective of age) who derives income

• other than remuneration / an advance / an allowance other than sec 8(1)

Remuneration means any amount of income which is paid or is payable to any person by way of any salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered.

• from an employer not registered as an employer for employee’s tax (for example a foreign pension fund that is no longer exempt or an embassy)

CGT and Provisional tax

The taxable portion of the aggregate capital gain for the current year of assessment must be included in both the first and second provisional tax calculations for provisional tax payers.

The late payment and underpayment of provisional tax triggers tax penalties and interest.

Currently capital gains tax events do not trigger provisional tax status (because capital gain is taxed not as income but as taxable income). Yet it is normally the associated income that may trigger provisional tax status i.e. occupational rental income, interest earned on the proceeds invested.