Amendment to Income Tax: Cancellation of Tax Directives October 2015 | PN No. 27
Dear Client,
This practice note is to inform taxpayers on the change on the dealings of tax directives.
The purpose of a tax directive is to enable SARS to instruct an employer / fund administrator how to deduct employees' tax from certain payments to a taxpayer such as lump sums paid by pension, provident or Retirement Annuity fund on resignation / withdrawal / winding up or transfer.
As stated in the Second Schedule to the Income Tax Act, a lump sum benefit accrues to a member of a fund on the date on which an election is made in respect of the benefit (which can only be made by the member). This accrual date cannot be changed.
After the election has been made, an application for a tax directive can be applied for by the fund. Once a tax directive has been applied for, the accrual event cannot be retracted.
Following the election made by the member it is the obligation of the fund to make the member aware of the income tax implications before applying for a tax directive – not the SARS' Tax Directive System however information relating to lump sums previously received is provided by SARS if requested by the taxpayer.
The cancellation of tax directive applications' will only be permitted in circumstances where:
- The reason for the tax directive application was incorrect, i.e. if withdrawal was ticked as opposed to retirement; or
- The taxpayer details completed on the directive application form were incorrect, for example, the tax directive was applied for in the name of the wrong spouse in the case of a divorce.
Please note when cancelling a directive application this will negatively impact the aggregation principle applicable to lump sum benefit payments.
Should you have any further questions or require additional information please do not hesitate to contact us.
Kind Regards,
Jaye Spence
HOD - Technical
jaye@globallocal.co.za
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