RETRENCHMENT AND TAX
HAVE YOU OR SOMEONE YOU KNOW RECENTLY BEEN RETRENCHED? PERHAPS DUE TO COVID?
Have a quick read about the tax implications upon retrenchment:
As from 1 March 2014, the first R 500 000 received for a severance benefit lump sum pay-out, is not subject to tax. This amount however may be less due to prior severance benefits received.
*Note: Leave pay and pro-rata bonuses are excluded from severance benefits, and are normal taxable income.
How to qualify for this exemption:
- The severance benefit must be a lump sum received from your employer due to retrenchment, AND;
- You have attained the age of 55 at the time you are retrenched, AND;
- your retrenchment or loss of employment is as a result of you having become permanently incapable of holding an office or employment due to, for example, sickness, accident or injury, OR;
- your employment has been terminated or lost due to your employer having stopped (or intending to stop) trading, or as a result of your employer embarking on a general reduction in personnel.
* Note: You will not qualify for the tax incentives in respect of severance benefits if you at any time held more than 5% of the issued shares or member’s interest in the company paying you the severance benefit.
How to declare a lump sum benefit:
Your employer will issue you with a IRP5 tax certificate reflecting the gross amount of the benefit, as well as the employees’ tax that was deducted. You will need to declare this IRP5 in your annual income tax return.