Retrenchment tax



Cheryl says:
11 December 2020 at 4:35

I have been retrenched because of the company cutting back on staff. My severance package is R107000 including R14000 leave pay. I am 57 years old female. I have been paid out R87000, is that correct?
I thought I did not have to pay tax if my lump sum was under R500 000? Please could you assist me with this as I am very much confused.

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TaxTim TaxTim says:
11 December 2020 at 12:14

Yes, the R500 000 tax free portion would be applied to your severance package. If it is less than R500 000, you should not pay any tax on the lumpsum. For more on voluntary retrenchments, please read our blog on Voluntary Versus Involuntary Retrenchment. Unfortunately, your leave pay and bonus do not form part of the severance package and are taxed according to normal income tax rates (just like your salary).

Did you receive any other lump sum in your lifetime, as this could also impact the tax free portion?

All lump sums received from a retirement fund, whether as a result of retirement or not (and from an employer in respect of a severance benefit) are taxed on a cumulative basis. The significant impact of this is that, when you eventually retire/retrenched, the total value of all the lump sum benefits received by yourself after 1 October 2007, will be taken into account when calculating the tax payable on your current retirement fund lump sum benefit.

That's correct you will be taxed according to the SARS tax rates 2021 on the notice pay received.




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