You may get the cash lump sum tax-free since the tax-free portion is an accumulative total over your lifetime.
12 Apr 2023 00:32
I retired and commuted part of my pension, taking a tax break on the lifetime lump-sum tables. The first R500 000 was taxed at 0%, and so on. But in the 2023 budget, the finance minister changed those limits – now the first R550 000 is taxed at 0%.
Suppose I still have active retirement annuity investments from which I could still withdraw the one-third lump sum. Could the next R50 000 of lump sum withdrawals be taken out at 0% tax in terms of the new tables?
As per our understanding, you may get the R50 000 cash lump sum tax-free since the tax-free portion is an accumulative total over your lifetime. Since you have already withdrawn R500 000 as a lump sum from your retirement fund before 1 March 2023, the next time you retire from a retirement fund, your benefit will be taxed according to the new tax tables, therefore you may receive the R50 000 tax-free portion. For the benefit of our readers, we discuss the general rules of taxation at retirement below.
When you retire, you are allowed to take one-third of your retirement benefit as a cash lump sum, and the other two-thirds must be invested in a compulsory annuity. You are also allowed to invest the full retirement benefit in a living or life annuity. The third option would be to take your full retirement benefit as a cash lump sum, only if your retirement fund is R247 500 or less, subjected to tax.
Before the 1 March 2023, you were allowed a R500 000 tax-free portion on the cash lump sum. However, the finance minister changed legislation on 1 March 2023, and you are now allowed a R550 000 tax-free portion. If you have withdrawn from any pension fund savings prior to or after retirement, it will reduce the tax-free portion available to you now.
Retirement tax tables prior to 1 March 2023 (2022/2023)
Retirement tax tables after 1 March 2023 (2023/2024)
It is important to note that the R550 000 tax-free portion is a cumulative total for your lifetime. This means if you have multiple retirement funds and you retire from one of them, taking your full tax-free portion, the next time you retire from another retirement fund, you will be taxed on the full cash lump sum benefit.
The revised retirement tax tables introduced in the 2023 budget speech apply to all lump-sum retirement benefits paid or payable on or after 1 March 2023. This means the cash lump-sum benefit that you withdrew prior to 1 March 2023, would have been taxed based on the previous tax tables as you retired before the implementation of the new legislation.
We recommend that you generate a tax simulation of all your retirement products through e-filing, or request one from the relevant product provider to get accurate tax figures. Tax laws and regulations can change, so it’s always a good idea to consult a tax professional to understand the tax implications of your retirement fund withdrawals and investments in-depth.
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