Question:
I'm a 52-year-old with a retirement contribution amounting to R402 000. How much will I be taxed if I withdraw now?

Answer:
When dealing with retirement funds, it is important to distinguish between a withdrawal and retirement as these two scenarios hold different implications in terms of lump sums and taxation.

Taxation on withdrawals has come under the legislative spotlight recently and has brought with it much confusion and conflicting reports. Essentially the impending changes can be broken into three parts:

1. The tax free amount

2. How the taxable amount will be dealt with

3. Future impacts

The tax free amount has increased from R1800 to R22 500. This was dealt with in the Revenue Laws Amendment Act and SARS has implemented this change with effect from 1 March 2009.

What is still under comment in the Taxation Laws Amendment Draft Bill 2009 is the intention of the new law to tax withdrawals according to a simple taxation table (see below) as opposed to the current average rate of taxation (which includes more complex formulas) as well as include the R22 500 amount in the table as it is currently a 'stand alone' tax free amount.

Table 1 (at the end of this article) is the latest available and differs from previous versions (much like the table published in the SARS Tax pocket guide which caused the confusion) by virtue of the inclusion of the tax free amount as well as shifting of the scales.

Comments on the bill are still being considered and the final version has not yet been released. According to SARS, 'the revised system is only likely to be effective towards the middle of the year.'

In light of this, the status quo regarding current practice is that SARS will include the R22 500 tax free amount and utilise the old average rate of tax for the taxable portion. In an interim attempt to lessen the impact of this the 2010 tax year assessment will consider this withdrawal and, depending on the taxation difference between the old and new system, you may find yourself with either a tax refund or tax due.

So, until this is clarified, it is impossible to conclusively evaluate what tax you would ultimately pay. However, should the above come into effect and your benefits became available to you after 1 March 2009, by applying the above table you could expect to pay somewhere around R68 310 in tax (R402 000 – R22 500 x 18 percent). Depending on how your average rate tax is applied in the interim will determine whether you will enjoy a refund or not come assessment time.

But wait, there’s more…

What is being proposed (and in all likelihood will go ahead), is that all withdrawals previously taken will affect the taxation of lump sums taken in the future. Previously each lump sum (whether by withdrawal or retirement) was treated in isolation, but all amounts will in future be treated on a cumulative basis and taxed accordingly.

In essence what will happen is that all amounts (previously and current) will be calculated according to either the proposed withdrawal table (Table 2) or the proposed retirement/death table (see below).

Once calculated, previous tax paid would be deducted in order to arrive at a final tax liability. As with most legislative changes, the devil is in the detail and only once the draft bill has been finalised and promulgated as law will the industry be in a position to accurately interpret the exact outcomes.

Of course, with all the focus placed on the taxation of a withdrawal, one cannot ignore the philosophical argument that one should always opt for the preservation of funds. Understandably, many people are left with little choice but to withdraw (especially in the case of retrenchment). However, it is always prudent to consult with a financial planner to explore the impacts of withdrawing as well as a clear plan to get your retirement savings back on track.

Table 1

Proposed WITHDRAWAL tax table
Amount of lump sum	Rate of tax
Less than R22,500	0 percent
R22,500 – R600,000	R0 + 18 percent on amount exceeding R22,500
R600,001 – R900,000	R103,950 + 27 percent of amount exceeding R600,000
R900,001 plus	R184,950 + 36 percent of amount exceeding R900,000

Proposed RETIREMENT/DEATH tax table
Amount of lump sum	Rate of tax
Less than R300,000	0 percent
R300,001 – R600,000	R0 + 18 percent on amount exceeding R300,000
R600,001 – R900,000	R54,000 + 27 percent of amount exceeding R600,000
R900,001 plus	R135,000 + 36 percent of amount exceeding R900,000

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