Taxation of Benefits

It is important that you as a member understand the different tax implications when benefits are paid.

Disability Benefits

You will be taxed on your disability premium every month, but the disability benefit (should you become disabled) will be paid out tax free.
 
Tax on withdrawal benefit

As from 1 March 2014, the first R25 000 of a cash withdrawal will be tax free with the balance taxed according to the following scale:

Taxable income (R) Rate of tax (R) Taxable income (R) Rate of tax (R)
R0 – R25 000 0%
R25 001 – R660 000 18% of amount exceeding R25 000
R660 001 – R990 000 R114 300 plus 27% of the amount exceeding R660 000
R990 001 and above R203 400 plus 36% of the amount exceeding R990 000

Please note that retrenchment benefits are not taxed as other withdrawal benefits and are taxed the same as retirement benefits.

The tax-free amount applies to the aggregate of all withdrawal lump sums received over the member’s lifetime after 1 March 2009. This means that you cannot get R25 000 from the Fund and R25 000 from the next fund you join. It is very important to note that any withdrawal benefits previously received, as well as amounts paid out in respect of divorces or maintenance orders, after 1 March 2009, will also be deducted from the tax-free amount.

Use the Tax Calculator to assist you calculate the tax payable on a lump sum. 
Tax on retirement lump sum

The first R500 000 payable at retirement from a pension, provident or retirement annuity fund is tax free. The balance is taxed according to the following fixed scale below and is applicable from 1 March 2014:

Taxable income (R) Rate of tax (R) Taxable income (R) Rate of tax (R)
R0 – R500 000  0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000
R700 001 – R1 050 000 R36 000 plus 27% of the amount exceeding R700 000
R1 050 001 R130 500 plus 36% of the amount exceeding R1 050 000

This amount applies to the aggregate of all retirement lump sum payments received over the retiree’s lifetime. This means that you cannot get R500 000 from a retirement annuity and R500 000 from the Fund. Your retirement benefits will be added together and the first R500 000 will then be tax free. The balance will be taxed according to the scale above.

It is very important to note that any withdrawal benefits previously received, as well as amounts paid out in respect of divorces or maintenance orders, after 1 March 2009, or a severance benefit, after 1 March 2011, will also be deducted from the tax-free amount.

Use the Tax Calculator to assist you calculate the tax payable on a lump sum. 

Tax on death benefit

The death benefits paid by the Fund are taxed exactly the same as retirement benefits.

The first R500 000 payable at death from a pension, provident or retirement annuity fund is tax free. The balance is taxed according to the following fixed scale below and is applicable from 1 March 2014:

Taxable income (R) Rate of tax (R) Taxable income (R) Rate of tax (R)
R0 – R500 000  0% of taxable income
R500 001 – R700 000 18% of taxable income above R500 000
R700 001 – R1 050 000 R36 000 plus 27% of the amount exceeding R700 000
R1 050 001 R130 500 plus 36% of the amount exceeding R1 050 000

This amount applies to the aggregate of all retirement fund lump sums received over the member’s lifetime. This means that the member’s dependants cannot get R500 000 tax free from a retirement annuity and R500 000 from the Fund. The benefits will be added together and the first R500 000 will then be tax free. The balance will be taxed according to the scale above.

It is very important to note that any withdrawal benefits previously received by the deceased member, as well as amounts paid out in respect of divorces or maintenance orders, after 1 March 2009, or a severance benefit, after 1 March 2011, will also be deducted from the tax-free amount.

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