SARS has released a letter with regards to the Tax Deductions (PAYE) on Pension or Annuity in order to deal with the individuals who have Pensions and/or Annuity funds. According to the letter, these deductions will be effective from 1 March 2022.
Tax Deductions (PAYE) on your Pension or Annuity
Where a pensioner has one source of income during a tax year, our employee’s tax (PAYE) deduction system ensures the correct PAYE deductions from their pension or annuity.
However, where a pensioner is in receipt of more than one source of income, the different sources of income are combined at the end of the tax year to determine the correct amount of tax due. By adding all the sources of income, they are placed in a higher tax bracket, which creates the tax due to SARS at year-end. This is not a new principle and it applies to everyone, not only pensioners.
Although pensioners can request their retirement fund administrator to deduct a higher amount of PAYE so that any tax due at year-end is adequately covered, not many pensioners are making use of this option, which then leaves them with an unexpected tax debt at year-end.
To assist pensioners with more than one source of income, recently introduced legislation makes provision for SARS to determine a more accurate PAYE deduction amount. We do this by using the latest data available to SARS. Your retirement fund administrator will then deduct a more accurate amount of PAYE from your pensions or annuities.
It is our intention to introduce this service with effect from 1 March 2022.
In practice, what does this mean?
1. You do not have to do anything, because SARS will provide your retirement fund administrator with the PAYE deduction percentage
2. For pension or annuities payable during March 2022 and for the periods thereafter, your retirement fund administrators will use this rate to deduct PAYE from your pension or annuity
3. The rate provided by SARS will be valid for the whole tax year unless circumstances influence your year-end tax liability change. In such a case your retirement fund administrator may revert to applying the normal PAYE deduction rate, with effect from the month in which he/she becomes aware of the change in circumstances.
4. The PAYE deducted from your pension may be slightly higher, but in return, you are unlikely to be faced with an unexpected tax bill at the end of the tax year.
5. You may at anytime request your retirement fund administrator or continue with an arrangement to deduct PAYE at a rate higher than the rate provided by SARS.