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What are the tax implications for Voluntary Severence Package?

Posted 13 August 2015 under Tax Questions



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Paul says:
13 August 2015 at 13:27

What is the tax implication for Voluntary severence packages? Does it qualify for any severence benefits. According to general opinion, the first R500 000 is tax exempt?

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TaxTimTaxTim says:
13 August 2015 at 15:47

To qualify for this special ā%u20AC%u0153severanceā%u20AC tax rate and the first R500,000 exemption as you mention, the employer must pay a lump sum as a result of your employment having been terminated or lost. Examples include:

- the employer stops (or intends to stop) trading or,
- the employer enforces a general reduction in staff

This is not applicable however to a "restructuring" of the workforce.

It therefore depends on how SARS views the scheme. If it is part of a formal retrenchment programme then the exemption and special rates would probably apply. If it is more of a "restructuring" then the special rates won't apply and the severance package would be included in your income and taxed at normal PAYE rates for individuals.

It would be best to check with your HR department for further clarification.


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