The South African Revenue Service (SARS) has introduced new regulations for retirees in South Africa which have generated considerable concern due to a change in payments.
For a retiree who receives their income from a single source, such as a pension fund or annuity that was purchased from a registered provider, SARS ensures that the correct PAYE deductions are made from the monthly pension, explains Belinda Sullivan, manager of Business Consulting Strategy to Alexander Forbes.
“But many retirees may have more than one source of income,” he said. For example, you may be receiving your monthly pension, rental income from one property, and perhaps other income you may have from another policy.
These different sources of income are added together at the end of the fiscal year to calculate the correct tax payable.
“Consequently, this could result in being placed in a higher tax bracket than the amount of tax that was paid to SARS at the end of the tax year. So what this actually means is that the PAYE currently paid may not be in line with the amount owed to SARS, which means that you will have to pay additional SARS money to meet your taxes due. “
Retirees can ask the pension fund administrator to deduct a larger amount of PAYE to better align the tax payments they make with the tax due at the end of the fiscal year, Sullivan said, adding that not many retirees were making use of this option, resulting in a tax liability at the end of the year.
Effective March 1, 2022, SARS has introduced legislation that allows this to determine a more accurate PAYE deduction amount.
A fixed rate is calculated based on the information SARS has available. the Revenue Agency has confirmed the fixed rates of PAYE to be deducted from pensions or annuities.
A retiree has the option to opt out and maintains the current level of taxation. This means that the retiree may end up having to pay additional tax at the end of the tax year.
Alternatively, the administrator can apply the SARS recommended flat rate, which should ensure that there are no additional tax liabilities at the end of the year.
A retiree can opt out of this approach at any time by confirming their choice, in writing, to the pension fund administrator. Retirees should be reminded that this could result in being paid into SARS at the end of the fiscal year.
“Many retirees have therefore seen an adjustment of their monthly pension now due to the modification of their tax deduction, based on the fixed PAYE rates that have been communicated by SARS for the year – if they do not have ‘opt-out’ adjustments. revised tax to take into account more than one source of income, “Sullivan said.
“If you are unsure how this affects you as a retiree, it is important to contact your financial adviser and / or your pension fund administrator.”