Unfortunately, the tax rebate does not directly affect the tax calculation on the lump sum and may not result in receiving a refund.
12 Jul 2023 00:45
I am 75, and I have no taxable income apart from interest and a small living annuity (LA). I really live off drawn-down capital.
- If I take a one-third lump sum from a preservation fund (having exhausted the R550 000 tax-free limit) and have tax to pay on it, will I be entitled in my tax return to deduct rebates off that tax paid and receive a resulting refund from Sars? This is important because it affects how much of the allowed one-third I shall take when converting the preservation fund to a LA.
- I presume the tax-free income level amount of R165 000 for over 75s has no bearing on the tax calculated and paid on the lump sum, and is due no matter if you have no taxable income.
- Or could I structure the payout in such a way that my tax rebates cover the tax I paid on the lump sum, so I could get a refund of the tax paid on the lump sum?
- If I sell shares and have a substantial capital gain, after annual exclusions etc., part of which must be included in the tax return, say about R250 000, and I am over 75 and my income which is tax-free is R165 689, will this kick in and I will only pay tax on the R250 000 minus R165 689? And then, will I be able to deduct rebates off the resulting tax payable? In other words, does that included part of the capital gain get treated as if it was ordinary income?
Dear reader,
Thank you for your question. While we do have knowledge of matters regarding tax, we cannot claim to be tax practitioners or specialists in this field, but we can provide some general information that might be helpful. Tax can be quite complicated, and we would suggest that you consult with a tax specialist or the South African Revenue Services (Sars).
After reading your question, we have concluded that you have asked two questions.
Regarding the one-third lump sum withdrawal from your preservation fund and the fact that you have already exhausted the R550 000 tax-free limit, any additional amount you withdraw would likely be subject to tax. The tax payable on the lump sum withdrawal is typically calculated according to the lump sum retirement tax table, which would take into account any previous withdrawals.
Unfortunately, the tax rebate does not directly affect the tax calculation on the lump sum and may not result in receiving a refund from Sars when submitting your tax return.
The following tax table will be applied when withdrawing one-third of your preservation fund at retirement.
| Retirement fund lump sum benefit – 2022/2023 tax year | |
| Taxable income (R) | Rate of tax |
| R1 – R550 000 | 0% of taxable income |
| R550 001 – R770 000 | 18% of taxable income above R550 000 |
| R770 001 – R1 155 000 | R39 600 + 27% of taxable income above R770 000 |
| R1 155 001 and above | R143 550 + 36% of taxable income above R1 155 000 |
In order to determine if you can use tax rebates to offset the tax paid on the lump sum withdrawal and potentially receive a refund, you must consider your overall tax situation, which includes any other taxable income, deductions, and excess contributions made to your retirement funds.
The portion that is not taken as a cash lump sum must be transferred to an income-generating annuity, which may affect your taxable income.
We would recommend that you discuss this with a tax practitioner familiar with your tax affairs.
Regarding the sale of shares and capital gains, if you have a substantial capital gain from the sale of shares, you may be required to include that gain in your tax return. The inclusion of capital gains in your taxable income may impact the amount of tax you owe. In general, capital gains are subject to tax, but each individual has an annual exclusion of R40 000 per tax year. The tax rate for capital gains depends on the taxpayer’s income tax bracket, which ranges between 0% to 18%.
It is recommended that you consult with a tax professional who can assess your specific situation and provide accurate advice.
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