Tax on pension 'salary'

A Fin24 user is concerned about his widowed mother having to pay a huge amount of tax on her "salary" from his late father's pension fund. He writes:

My father died in 2001, and since then my mother receives a monthly "salary" from his pension fund.

Every tax season, she has to pay an exorbitant amount of money to Sars because of what they refer to as a "secondary income". That's not a problem, as we are law-abiding citizens. Unfortunately, it is taxed at 22% (last I checked)!

When we spoke to the Pension Fund, they said there was nothing they could do. Then we have tried getting a tax directive from Sars, but nobody would explain it. They don't explain anything! What I would like to know is:

1. If they treat the Pension Income as a separate entity, are we not entitled to a rebate?

2. If they combine mom's salary with the pension, why are they taxed at different rates? 

3. But most importantly, what should be done about this?

There are plenty of suddenly-single-parent-households in the same predicament. If my father was still alive, he would not be taxed so much, and this only a fraction of his income!

I really hope you can help. I am grateful for any assistance.

Hein Daffue, legal adviser at Sanlam responds:

If your mother is younger than age 65 years she will only pay tax if her total taxable income exceeds the threshold of R63 556 per year due to the primary rebate of R11 440.

If she is 65 years or older she will only pay tax if her total taxable income exceeds R99 056 per year due to the secondary rebate of R6 390 in addition to the standard rebate of R11 440.  

If she is age 75 or older she will only pay tax if her total taxable income exceeds R110 889 per year due to a further tertiary rebate of R2 130. 

The first R60 000 of pension income from a pension fund has been subject to Standard Income Tax on Employees (Site) as defined in the 4th Schedule of the Income Tax Act. 

Site, as a final tax assessment, is currently being phased out over 3 years. Also, Site, as a final tax in respect of the first R60 000 of pension income, would have been paid if the person's total taxable income has exceeded the relevant threshold mentioned above.

In other words if tax has been paid in respect of the first R60 000 of pension income it will from 1/3/2014 be taxed with other taxable income against which tax deductions can be claimed in an annual tax return.

Your question 2 refers: If they combine mom's salary with the pension, why are they taxed at different rates? As mentioned above, it will be taxed the same from 1/3/2014.

Your mother should consider to seek the assistance of registered tax practitioner to assist her with submitting a tax return for the relevant tax year. 

Unfortunately the last individual tax returns for  the previous tax year that ended February 29 2012 had to be submitted by November 23 2012, but for the tax year that started on March 1 2012 and the one that starts on March 1 2013 she can still seek the assistance of a registered tax practitioner to submit the respective tax returns when they are due.

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