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Taxable Settlement agreement?

Posted 5 September 2013 under Tax Q&A


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Hi Tim,

Last year (this financial year though) I left a job and had a settlement agreement with my ex-boss for outstanding monies for overtime as well as for medical expenses as a result of my work. We have had no contact since the settlement. When going to file at SARS I noticed he has included the full amount as income on my IRP5, where as only a small portion was for income and the rest to cover my medical bills. Am I correct in thinking that I am not liable for income tax on the Settlement agreement?

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TaxTim TaxTim says:
5 September 2013 at 21:29

Please explain the medical expenses as a result of your work?

Nic says:
6 September 2013 at 8:52

To give a slight background I work in the events industry.
While working on an event I had an accident, unfortunately there was no medical at the event so I was not attended to until I returned to CT (home). When I returned I informed my employer immediately, after a week of pain I told him I needed to see a doc, I then went to the doc and then he told me I needed to see a specialist if it didn't heal after 3 weeks. I informed my employer and then about 2 months after that is when I received my settlement which I then used to see a specialist and get the injury attended to ( - 1/4 of the settlement for the medical expenses during that financial year).

TaxTim TaxTim says:
8 September 2013 at 23:56

Did your boss specifically say that you would be compensated for being injured, or just that you would be paid out for the remaining work time whilst you were away?

Nic says:
9 September 2013 at 9:19

"This agreement is without admission of liability and is in full and final settlement of all
claims, of whatsoever nature or howsoever arising, between the parties." - This is a direct extract of what was in the settlement agreement.

TaxTim TaxTim says:
9 September 2013 at 21:35

It would appear that your previous employer made you sign an agreement accepting a payout as part of a severance package and therefore has claimed no medical liability. If this is the case then the payout is taxed in your hands and there is no exemption or capital portion.


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