The word “tax” conjures up a variety of emotions in people. Nothing unites South Africans like their collective dislike of taxation. Few things are as stressful as receiving a letter from SARS at the end of the year telling you that you owe them money, especially when it has not been budgeted for.

For pensioners with one income source during a tax year, the taxation process is relatively simple because the deduction system ensures the correct PAYE (Pay As You Earn) deduction from their pension or annuity income. However, when a pensioner has more than one source of income, the different income sources are only combined at the end of the tax year to determine the correct amount of tax due. This often places them in a higher tax bracket than what they were treated as on their pension or annuity income, hence resulting in a tax shortfall at the end of their assessment. In other words, each income source is treated in isolation of the other. Pensioners can request that their living or life annuity administrator deduct a higher amount of PAYE to adequately cover any tax owing at year-end. However, not many pensioners use this option, which leaves them with an unexpected tax expense at year-end.

To assist pensioners with more than one source of income, SARS recently introduced legislation (effective 1 March 2022) that makes provision for them to determine a more accurate PAYE deduction amount. They do this by using the latest data available to them. Your living or life annuity administrator will then deduct a more accurate amount of PAYE from your pension or annuity incomes.

So, in practice, what does this mean for you and is there anything you need to do?

1. No, you do not have to do anything because SARS will provide your living or life annuity administrator with the PAYE deduction percentage.
2. For pensions or annuities payable during March 2022 and for the periods thereafter, your living or life annuity administrator will use this rate to deduct PAYE from your pension or annuity.
3. 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 living or life annuity administrator may revert to applying the normal PAYE deduction rate, with effect from the month in which they become aware of the change in circumstances.
4. 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.
5. You may, at any time, request your living or life annuity administrator to deduct PAYE at a rate higher than the rate provided by SARS.
6. You may also request your living or life annuity administrator to use the normal PAYE deduction rate and not the one provided by SARS. Take note that this may put you back into a position where you can expect a high tax bill at year-end.

Hopefully, this new legislation will provide pensioners with peace of mind that they won’t be receiving any surprises from SARS. If you have any questions, we encourage you to speak to your tax advisor.