New regulations for pensioners in South Africa have been introduced by the South African Revenue Service (SARS). The regulations have brought about a rise in concern given the change in payments proposed.
What exactly are SARS’ new regulations?
Head of Corporate Consulting Strategy at Alexander Forbes Belinda Sullivan explained how SARS would be introducing its new regulations. According to Sullivan, a pensioner who receives their income from one source will have the correct PAYE deductions made by SARS from their monthly pension.
For pensioners who have more than one source of income, for example, rental income or other policies, the different sources are added together at the end of the tax year. This is done so the correct tax must be paid.
Due to this, pensioners with more than one source of income may be placed in a higher tax bracket.
“This may result in you being placed in a higher tax bracket compared to the amount of tax that has been paid to SARS at the end of the tax year. So what this effectively means is that the PAYE currently paid may not be in line with what is due to SARS – which means you will need to pay in additional money to SARS to meet your tax that is due,”
What can pensioners do to reduce this amount?
Sullivan explained that pensioners can ask the pension fund administrator to deduct a higher amount of PAYE. This deduction will better align the tax payment’s made with those that are due at the end of the tax year.
She further explained that a significant number of pensioners were not using this option and therefore faced a tax debt at the end of the year.
When was this new regulation put in place?
From 1 March 2022, SARS introduced the legislation that will allow it to determine a ‘more accurate’ PAYE deduction amount. SARS confirmed the fixed rates of PAYE that will be deducted from annuities or pensions.
Pensioners have the option to withdraw and maintain the current level of taxation. However, this option means the pensioner could pay additional tax at the end of the tax year. The opt-out approach can be done in writing, to the retirement fund administrator.
“Many pensioners have therefore seen an adjustment to their monthly pension now due to the change in their tax deduction, based on the fix rates of PAYE that have been communicated by SARS for the year – if they have not ‘opted-out’ of the revised tax adjustments to take into account more than one source of income,” said Sullivan.
On the other hand, administrators can apply the fixed rate as advised by SARS. This means that no additional tax would be paid at the end of the year, reports BusinessTech.
“If you are not sure how this affects you as a pensioner, it is important to contact your financial advisor and or your pension fund administrator,”
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