SARS recently introduced a system to increase the PAYE deduction from individuals who receive multiple annuities and/or pensions – or in some cases individuals who earn rental, and other income – in a bid to reduce the likelihood of underpayment penalties and interest being levied on assessment.

It has been found by SARS that several taxpayers may be unaware of the tax implications of receiving income from different sources. In the past, retirees in particular, could receive an unexpected shock come filing season, requiring a rather large sum of tax required to be paid on assessment due to income from all sources being added together to determine taxable income. The amount of PAYE deducted at source is sometimes insufficient to cover the tax liability on combined income. Generally, this would be mitigated by the provisional tax system, however, many of these individuals are not aware that they should be registered as provisional taxpayers.

This would place unnecessary financial strain on the taxpayer having to pay a substantial amount of tax on assessment. The fiscus has to recover such tax and interest from taxpayers who might not have budgeted for having to pay tax on assessment. It also places the taxpayer in a precarious situation as they generally might not be able to afford such lump sum tax payments demanded by SARS.

This has remained a significant issue for SARS hence it implemented a system which increases the PAYE deduction from pension an annuity income prior to payment to the individual, to cover any such liability. Taxpayers would receive a notice from their respective pension or annuity provider warning them of this additional deduction. The taxpayer is offered the opportunity to reject this. Generally speaking, one would opt to reject the deduction of additional PAYE if they are registered as a provisional taxpayer. The information available to SARS is based on the previous tax return and the taxpayer’s financial situation may have changed in the current tax year. The deduction of additional PAYE will cause financial hardship to a taxpayer who received less income in the current tax year compared to the previous tax year. An over deduction of PAYE can only be refunded on assessment.

It is advised that if any such request was submitted to you by your pension or annuity provider tax advice should be sought to determine the impact of the amended SARS system. Furthermore, individuals who earn income from multiple sources should register as provisional taxpayers, if not already registered, as such provided they meet the relevant criteria for registration.

Author:

Dreyer Smit
Senior Tax Consultant
PKF Port Elizabeth
dreyer.smit@pkf.co.za

No information provided herein may in any way be construed as legal and/or tax advice. Professional advice should be sought with reference to specific background facts before any action is taken based on the information contained herein. We hereby disclaim any responsibility should any person act upon the contents of this publication without due consultation.

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