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Is my surplus tax free?

Jul 24 2012 08:27

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A Fin24 user asks:

I was an employee as well as a member of the Unitrans Retirement Fund. I was retrenched in 2007, and that fund was converted to early retirement. This was after 37 years of service.

In February this year, I was advised that the board of the fund had proposed an apportionment of the surplus fund, and that I will be due for a portion of this surplus.

In March this year, I received correspondence from Simeka Consultants & Actuaries advising me of the amount that will be due to me. As this is substantial, I will be liable for tax.

My concern is that at the time of leaving the company, I was advised that there was no surplus and I had my funds transferred to a living annuity, which of course is not taxed.

Surely if this amount was allocated to my fund at the time of my leaving the company, then I would not be liable for the tax that I will be subject to now, when I receive the surplus?

Don Richter, a financial planner at PSG Konsult, responds:

The simple answer is that the reader's apportionment surplus should be exempt from income tax. This is according to a directive made public by the South African Revenue Service in 2009.

If the reader had been an active member of the fund, the situation would have been different.

Any lump sum benefit received by or accrued to a person after his or her retirement or death, withdrawal or resignation from any pension fund, pension or preservation fund will not constitute gross income of that person.

This also includes resignation from a provident fund, provident preservation fund or retirement annuity fund and the winding up of any such fund.

 - Fin24

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