Tax Deductions (PAYE) on your Pension or Annuity

The following info is based on commentary from SARS dated 19 January 2022.

Where a pensioner has ONE source of income during a tax year, the SARS employees’ tax (PAYE) deduction system ensures that the correct PAYE deductions from their pension or annuity has occurred.

However, where a pensioner is in receipt of more than one source of income, the different sources of income are combined at the end of the tax year to determine the correct amount of tax due. By adding all the sources of income, they are placed in a higher tax bracket, which creates the tax due to SARS at year-end. This is not a new principle and it applies to everyone, not only pensioners.

Although pensioners can request their retirement fund administrator to deduct a higher amount of PAYE so that any tax due at year-end is adequately covered, not many pensioners are making use of this option, which then leaves them with an unexpected tax debt at year-end.

To assist pensioners with more than one source of income, recently introduced legislation makes provision for SARS to determine a more accurate PAYE deduction amount. SARS do this by using the latest data available to SARS. Your retirement fund administrator will then deduct a more accurate amount of PAYE from your pensions or annuities.

It is SARS’ intention to introduce this service with effect from 1 March 2022.

In practice, this will mean the following:

You do not have to do anything, because SARS will provide your retirement fund administrator with the PAYE deduction percentage.

For pensions or annuities payable during March 2022 and for the periods thereafter, your retirement fund administrators will use this rate to deduct PAYE from your pension or annuity.

The rate provided by SARS will be valid for the whole tax year, unless circumstances that influence your year-end tax liability change. In such a case, your retirement fund administrator may revert to applying the normal PAYE deduction rate, with effect from the month in which he/she becomes aware of the change in circumstances.

The PAYE deducted from your pension may be slightly higher, but in return, you are unlikely to be faced with an unexpected tax bill at the end of the tax year.

You may, at any time, request your retirement fund administrator or continue with an arrangement to deduct PAYE at a rate higher than the rate provided by SARS.

You may also request your retirement fund administrator to use the normal PAYE deduction rate, and not the one provided by SARS. This may put you back into a position where you can expect a high tax bill at year-end.

According to SARS, your retirement fund administrator is already aware of all the above.

A summary of the tax brackets for the tax year ending on 28 February 2022 is given below.

Tax Year 2022 (1 March 2021 – 28 February 2022)

Taxable income Rates of tax
R1 – R216 200 18% of taxable income
R216 201 – R337 800 R38 916 + 26% of taxable income above R216 200
R337 801 – R467 500 R70 532 + 31% of taxable income above R337 800
R467 501 – R613 600 R110 739 + 36% of taxable income above R467 500
R613 601 – R782 200 R163 335 + 39% of taxable income above R613 600
R782 201 – R1 656 600 R229 089 + 41% of taxable income above R782 200
R1 656 601 and above R587 593 + 45% of taxable income above R1 656 600

Rebates applicable for 01 March 2021 – 28 February 2022

Primary rebate – under 65 years.
Secondary rebate – between 65 and 75 years.
Tertiary rebate – 75 years and above.

Tables for tax rebates
Tax rebate type 2022 2021
Primary R15 714 R14 958
Secondary R8 613 R8 199
Tertiary R2 871 R2 736

Author CL Tonkin

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