Good news, retirees! How the new tax rule affects you
Published on 25th February, 2022 at 04:29 pm
On 1 March 2022, the South African Revenue Service (SARS) will introduce a change to its system that prevents some retirees from being saddled with a large tax debt come tax year end. So, what’s the change, and how exactly will it impact you?
The new legislation
Until the end of the 2021 tax year, pensioners who received an income from more than one source (one being a retirement fund) would’ve been left with a large tax bill when declaring their income at the end of the tax year. This was because the pension, on its own, may have been under the tax-free threshold and therefore attracted no monthly PAYE (pay-as-you-earn). However, all income amounts, when totalled, amounted to more than the tax-free threshold for taxpayers 65 years and older. “These taxpayers then found themselves having to suddenly pay SARS on assessment,” explains Nicci Courtney-Clarke, chief operations officer and Head of Tax at TaxTim, an online tax tool that takes the work out of tax for you. “Many of these taxpayers, relying on their monthly income, didn’t have the money to pay the tax owed, so they found themselves in financial trouble,” she continues.
From the 2022 tax year, which starts on 1 March 2022, this will change. “New legislation now enables SARS to determine a more accurate PAYE deduction by using the latest available data at SARS, which will take into account all sources of income earned by the taxpayer,” says Courtney-Clarke.
Want to work out the tax deductions you’ll pay for the current tax year? Use this income tax calculator.
What you, as a pensioner, need to do
Nothing. “SARS will provide your retirement fund administrator with a more accurate PAYE percentage to use, which should hopefully ensure there’s no tax shortfall when you, as a taxpayer, file your tax return,” says Courtney-Clarke. One thing you may notice is the PAYE deducted from your pension will be higher than it was in previous years, but this means it’s unlikely you will have an unexpected tax bill to settle.
Worth noting, says Courtney-Clarke, is that if your circumstances change, you should notify your fund administrator, who can go back to applying the normal PAYE rate.
Wondering if you’re making the most of your tax-free investment plan? Read this to find out.
Unhappy with the higher monthly PAYE rate?
You can request your fund administrator go back to the normal rate, but this may put you in a situation where you have to pay in tax on assessment when you file your tax return.
Courtney-Clarke notes that this should not be confused with a tax break, but instead a more accurate way of deducting monthly PAYE from your income to ensure you aren’t hit with a huge tax bill come 28 February.
Use our free online income tax calculator to work out your monthly take-home pay in retirement.
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