A tax directive indicates a certain amount that must be withheld or a certain rate that must be used to calculate the tax that must be deducted and paid over to the South African Revenue Service.
Why must a tax directive application be submitted?
Fund Administrators and Employers are required in terms of paragraph 9(3) of the Fourth Schedule of the Act to apply for a tax directive for any lump sum payable. SARS will calculate the prescribed amount of employees’ tax that has to be withheld from the specific lump sum payment, which must be paid over to SARS. The information the Employer or Fund Administrator provided on the application form is used to determine the tax payable.
Fund Administrators / Trustees / Long-term Insurers / Employers must submit a tax directive application, even if the lump sum amount payable is less than the allowable deductions in terms of the Second Schedule to the Act.
Employers must also submit other tax directive applications for lump sum payments such as Gratuities, Fixed amounts, leave payments on retirement, etc.
Reasons for employers, Fund Administrators to apply for a tax directive irrespective of lump sum amount
Applicants (Employers, Fund Administrators) are normally not aware of:
• the lump sum benefits submitted by other Fund Administrators, Employers, or Long-term Insurers;
• the deductions that were previously allowed; or
• if the taxpayer will qualify for any deduction.
Where a lump sum benefit is payable, a tax directive application must be submitted to allow SARS to:
• consider lump sums, if any, received prior to the current lump sum;
• calculate the allowable deduction in terms of the Second Schedule to the Act;
• determine the tax to be withheld from the lump sum benefit payment; and
• issue a stop order where the recipient has any outstanding taxes.
Application for Tax Directive Forms
Income Tax Number
This number is also referred to as the income tax reference number and is allocated by SARS to the taxpayer when registering for income tax purposes. This number must be on the iRP5/IT3(a) tax certificate.
In the case of a divorce order granted after 13 September 2007 and a date of accrual after 1 March 2009, the income tax reference number of the spouse who will receive the benefit must be provided on the tax directive application form.
SARS has implemented a new function on eFiling that allows the Fund Administrator or Insurer to request the income tax reference number where only the ID number is known.
If the taxpayer/member is not registered for income tax, indicate one of the following reasons:
- Unemployed or
- Other (Supply Reason)
The annual income must reflect all income received by or which accrued to the taxpayer during the year of assessment, e.g., salary, remuneration, earnings, emolument, wages, bonuses, fees, gratuities, commission, pension, overtime payments, royalties, stipend, allowances and benefits, interest, annuities, the share of profits, rental income, compensation, honorarium, etc.
This field is only mandatory if:
✓ The reason for the tax directive application is ‘Par (eA) Transfer / Payment’. This is only applicable to public sector funds.
✓ The application is for unapproved funds;
✓ Form B and Form E where the date of accrual is prior to 1 March 2009; or
✓ Form A&D and Form C, where the date of accrual is prior to 1 October 2007.
The following forms are available:
• IRP 3(b) – Employees’ tax to be deducted at a fixed percentage (e.g., commission agents / personal service company / personal service trust).
• IRP 3(c) – Employees’ tax to be deducted at a fixed amount (e.g., Paragraph 11 of the 4th Schedule (hardship) / assessed loss carried forward).
• IRP 3(f) – Doubtful Debts 11(j)(1)(2)
• IRP 3(q) – Foreign Tax Credit under paragraph of 10 of the 4th Schedule of Income Tax Act
• Form A&D – Lump sums paid by pension, pension preservation fund, provident, or provident preservation fund. (e.g., death before retirement/retirement due to ill health/retirement/provident fund – deemed retirement). The reason “Retirement” must be used is when the member has reached the retirement age according to the rules of the Fund and has either elected to take a portion in cash or purchase an annuity or annuities with the full benefit.
FORM A&D may only be used for certain lump sums paid by a pension or provident fund, including pension and provident preservation funds. This form cannot be used for a retirement annuity fund.
A member can transfer their member’s interest to a Retirement Annuity, pension preservation, or provident preservation fund before electing to retire. However, if the reason on the tax directive is ‘Retirement’ the member cannot transfer the remaining two-thirds to a Retirement Annuity Fund. The member can purchase an annuity from a registered long-term Insurer or can purchase an annuity from a registered long-term Insurer and have the annuity provided by the fund.
• Form B – Lump sums paid by a pension or provident fund prior to the retirement of the member (e.g. resignation/withdrawal/winding up/transfer/Section 1, Paragraph (eA) of the definition of gross income transfer or payment/future surplus/unclaimed benefit/divorce – transfer, divorce – non-member spouse/divorce – member spouse/housing loan/involuntary termination of employment (retrenchment) including withdrawals from a pension preservation or provident preservation fund).
• Form B directive requests must also be submitted where a pension fund or a provident fund is wound up. Note that Form B may not be used for withdrawals from retirement annuity funds, but must be used if there is a transfer from an Approved fund to an RAF.
• Form C – Lump sums paid by an RAF to a member (e.g. death before retirement/retirement due to ill health/retirement/transfer from one RAF to another/discontinued contributions/future surplus/divorce – transfer, divorce – non-member spouse/divorce – member spouse/emigration withdrawal/visa expiry/Cessation of SA Residence).
• Form E – Lump sums paid after retirement by an insurer or a fund (e.g., Death Member / Former Member after Retirement, Par. (c) Living Annuity Commutation, Death – Next Generation Annuitant, Next Generation Annuitant Commutation, and Transfer of an annuity to another registered long-term insurer).
How to obtain a tax directive application form
The tax directive application forms can be obtained through any of the following channels:
• eFiling: If not registered as an eFiler, please log on to sarsefiling.co.za to register and refer to the guide: ‘How to Register for eFiling and manage your user profile’
• Electronically (via an Interface Agent or eFiling).
Fund Administrators or Long-term Insurers can be registered as an Interface Agent or use established Interface Agents to capture the tax directive application forms online. The interface specification IBIR-006 and the INF001 form, to register to obtain access to the SARS Interface, are available on the SARS website.
For the following applications, no supporting documents are required:
✓ Form A&D,
✓ Form B,
✓ Form C,
✓ Form E;
✓ IRP3(a) and IRP3(s); and
✓ Part B of the ROT01 and ROT02.
For certain tax directive reasons, supporting documents are required e.g. Emigration withdrawal, Cessation of SA residence, Withdrawal due to Visa Expiry, Par.(eA) Living Annuity Commutation – Termination of a Trust, as well as for cases where any of the tax directive reasons are used for a non-resident taxpayer where the DTA (Double Taxation Agreement) must be taken into account. A certificate of residence must be provided to confirm the residence status of the person.
The Fund Administrators / Long-term Insurers can only submit tax directive applications, that require supporting documents through eFiling, for example, tax directives for non-residents that require the certificate of residence, ‘Visa expiry’, etc.
• For applications with no supporting document the response is the same day if submitted during working hours.
• Only applications with supporting documents where a case is created for a user to review the supporting documents can take up to 21 working days.