Tax deduction (PAYE) changes for Pensioners with more than one source of income
EFFECTIVE 1 MARCH 2022
Process for PAYE prior to 1 March 2022
Prior to 1 March 2022, PAYE is and was generally deducted by the Fund from your monthly pensions making use of the PAYE tables provided annually by the South Africa Revenue Services (SARS), without considering your other sources of taxable income.
However, where you are or were in receipt of more than one source of taxable income, the different sources of income will be and were combined by SARS at the end of the tax year to determine the correct amount of tax due and payable by you for a particular tax year. By adding all your sources of taxable income together, you may or might have been placed in a higher tax bracket, which may create or have created an additional tax payment due to SARS for a particular tax year when you completed and submitted your individual tax return. This is not a new principle and does not only apply to pensioners.
PAYE changes effective 1 March 2022
From 1 March 2022, SARS will provide the Fund or other similar administrators (including insurers) (hereinafter referred to as the administrator) with individual directives for pensioners with more than one source of taxable income, which will instruct the administrator to deduct a flat tax rate from their monthly pension (annuity) for a particular tax year. Since this flat rate will take into account other sources of taxable income, there should be no or a negligible shortfall in the tax paid for a particular tax year on assessment.
Where SARS does not provide a directive in respect of a pensioner, the administrator must continue to apply the normal PAYE tables.
Taxpayers still have a choice
SARS has indicated that a pensioner (where a directive has been issued to deduct a flat rate) may ask the administrator to:
- withhold tax at a rate higher than the rate provided by SARS; or
- withhold tax at a rate that is equal to the PAYE tables issued by SARS. In this case, the administrator must inform the pensioner of the possibility that the PAYE deducted may be insufficient to cover their total tax liability on assessment.
Where applicable, the above will mean the following in practice:
- You do not have to do anything. SARS will provide the Fund with a directive indicating the flat rate to be deducted;
- For pensions payable from 1 March 2022 and for the months thereafter, the Fund will use the flat rate to deduct PAYE from your pension (annuity), unless you have requested the Fund to deduct tax at a higher rate or a rate equal to the PAYE tables issued by SARS;
- The flat rate provided by SARS will be valid for a particular tax year (March to February), unless circumstances that influence your tax liability change. In such a case, the Fund may revert to applying the normal PAYE tables, with effect from the month in which the Fund becomes aware of the change in circumstances; and
- Once the Fund has received a directive from SARS, the Fund will communicate with you regarding the options available.