Author: admin_kmos

Paragraph 2A (Second Schedule) – Amount to be included in gross income for lump sum benefit from public sector fund

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2A.    Where any lump sum benefit is received or accrues from a public sector fund, the amount to be included in the gross income of any person in terms of paragraph (e) of the definition of ‘gross income’ in section 1 shall be deemed to be an amount equal to the amount determined in accordance with the following formula:


A  =  B   x   D

        C

in which formula-

(a)       ‘A’ represents the amount which has to be determined;

(b)       ‘B’ represents-

(i)      where the number of completed years of employment of a person who is or was a member of a fund are in terms of the rules of that fund taken into account for the purpose of determining the amount of a benefit payable by the fund, the number of completed years of employment of the member after 1 March 1998, including previous or other periods of service approved as pensionable service in terms of the rules of any fund after 1 March 1998, other than completed years of employment representing-

(aa)   any benefit of a person who is a member of any public sector fund, which is after 1 March 1998 paid for the benefit of any person into another public sector fund in respect of any previous or other periods of service or membership accounted for prior to 1 March 1998 in terms of the rules of any public sector fund; or

(bb)   years of pensionable service recognised as such in terms of Rule 10.5 or 10.6 of the Rules of the Government Employees Pension Fund, contained in Schedule 1 to the Government Employees Pension Law, 1996 (Proclamation No. 21 of 1996), to the extent that those years are not taken into account under item (aa);or

(ii)     where the number of completed years of employment are not taken into account as contemplated in subitem (i), the number of completed years after 1 March 1998 during which the member had, until the date of accrual of any benefit, been a member of any public sector fund or funds;

(c)       ‘C’ represents-

(i)      where the number of completed years of employment of a person who is or was a member of a fund are in terms of the rules of that fund taken into account for the purpose of determining the amount of the benefits payable to any person by the fund, the total number of completed years of employment so taken into account; or

(ii)     where the number of completed years of employment are not taken into account as contemplated in subitem (i), the number of completed years during which the member had, until the date of accrual of any benefit, continuously been a member of any public sector fund or funds; and

(d)       ‘D’ represents the lump sum benefit payable to the person.

2B.    ……….

Paragraph 2 (Second Schedule) – Amount to be included in gross income

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2.

(1)     Subject to section 9(2)(i) and paragraphs 2A, 2C and 2D, the amount to be included in the gross income of any person for any year of assessment in terms of paragraph (e) of the definition of “gross income” in section 1 shall be—

(a)     any amount received by or accrued to that person by way of a lump sum benefit derived in consequence of or following upon-

(i)      his or her retirement or death;

(ii)     the termination or loss of his or her employment due to-

(AA)  his or her employer having ceased to carry on or intending to cease carrying on the trade in respect of which he or she was employed or appointed; or

(BB)  that person having become redundant in consequence of his or her employer having effected a general reduction in personnel or a reduction in personnel of a particular class:

Provided that this subitem does not apply to any amount received by or accrued to a person by way of a lump sum where that person’s employer is a company and that person at any time held more than five per cent of the equity shares or members’ interest in that company; or

(iii)     the commutation of an annuity or portion of an annuity,

less any deduction permitted under the provisions of paragraph 5 or 6;

[Words following subitem (iii) substituted by section 80 of Act 7 of 2010 and amended by section 62 of Act 17 of 2017 effective on 1 March 2018, applies in respect of years of assessment commencing on or after that date]

(b)     any amount –

(iA)    assigned in terms of a divorce order granted on or after 13 September 2007 under section 7(8)(a) of the Divorce Act, 1979 (Act 70 of 1979) or in terms of any order made by a court in respect of the division of assets of a marriage according to the tenets of a religion pursuant to its dissolution, to the extent that the amount so assigned-

(aa)   constitutes a part of a pension interest, as defined in section 1 of the Divorce Act, 1979 (Act No. 70 of 1979), of a member of a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund; and

(bb)   is due and payable on or after 1 March 2012 to a person who is the former spouse of that member by that pension fund, pension preservation fund, provident fund or provident preservation fund or retirement annuity fund;

[Sub-item (iA) substituted by section 80(1)(h) of Act 7 of 2010 and by section 92(1)(c) of Act 22 of 2012 and amended by section 29(1) of Act 5 of 2026 deemed effective on 1 September, 2024]

(iB)    that is transferred for the benefit of that person to any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund from any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund of which that person is or previously was a member; and

(ii)     other than an amount contemplated in item (a) or subitem (iA) or (iB), received by or accrued to that person by way of a lump sum benefit from or in consequence of membership or past membership of any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund,

less any deduction permitted under paragraph 6;

[Item (b) amended by section 62(1) of Act 17 of 2017 and by section 3(1)(a) of Act 12 of 2024 effective on 1 September, 2024 and applicable in respect of years of assessment commencing on or after that date]

(c)     any amount of a member’s retirement interest transferred for the benefit of that person on or after normal retirement age, as defined in the rules of the fund, but before retirement date, less any deductions permitted under paragraph 6A; and

[Item (c) added by section 62(1) of Act 17 of 2017 and substituted by section 3(1)(b) of Act 12 of 2024 and by section 30(1) of Act 42 of 2024 effective on 1 March, 2025 and applicable in respect of years of assessment commencing on or after that date]

(d)     any amount-

(i)      transferred on termination of membership in a fund to another fund for the benefit of that person as contemplated in paragraph 6B(a), (b) or (c); and

(ii)     contemplated in item (b)(iA), transferred for the benefit of that person to another fund as contemplated in paragraph 6B(a), (b) or (c),

less any deductions permitted under the provisions of paragraph 6B.

[Subparagraph (1) amended by section 92(1)(a) and (b) of Act 22 of 2012 and by section 48 of Act 34 of 2019. Item (d) added by section 3(1)(c) of Act 12 of 2024 and substituted by section 2(1) of Act 44 of 2024 deemed to have come into operation on 1 September, 2024]

(2)     An amount contemplated in subparagraph (1)(b) shall be deemed to accrue to a person –

(a)     in the case of an amount contemplated in subparagraph (1)(b)(iA), on the date on which the amount is due and payable as contemplated in subparagraph (1)(b)(iA)(bb); and

(b)     in the case of an amount contemplated in subparagraph (1)(b)(iB), on the date of its transfer.

“Retirement annuity fund” definition of Second Schedule

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“retirement annuity fund” in relation to any taxpayer, means a fund which has in respect of the year of assessment in question or any previous year of assessment been approved by the Commissioner as a retirement annuity fund as defined in section 1 of this Act or the corresponding provisions of any previous Income Tax Act, if during any such year the person was a member of such fund.

“Public sector fund” definition of Second Schedule

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“public sector fund” means a fund referred to in paragraph (a), (b) or (d) of the definition of “pension fund” or paragraph (a), (b) or (c) of the definition of “provident fund” in section 1(1);

[Definition of “public sector fund” inserted by section 91(1)(e) of Act 22 of 2012 and substituted by section 62(1) of Act 15 of 2016 and by section 38(1) of Act 23 of 2020 effective on 1 March, 2021 and applicable in respect of years of assessment commencing on or after that date]

“Provident fund” definition of Second Schedule

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“provident fund”, in relation to any person, means –

(a)     a fund which has in respect of the year of assessment in question or any previous year of assessment been approved by the Commissioner as a provident fund as defined in section 1 of this Act or the corresponding provisions of any previous Income Tax Act; or

(b)     a public sector fund, the rules of which provide for benefits in a lump sum exceeding one–third of the capitalised value of all benefits (including lump sum payments and annuities) to its members on retirement,

if during any such year the person was a member of such fund;

“Pension fund” definition of Second Schedule

Posted on by admin_kmos

“pension fund”, in relation to any person, means –

(a)     a fund which has in respect of the year of assessment in question or any previous year of assessment been approved by the Commissioner as a pension fund under paragraph (c) of the definition of “pension fund” in section 1 or a corresponding definition in any previous Income Tax Act; or

(b)     a public sector fund (other than a fund referred to in paragraph (b) of the definition of “provident fund”), the rules of which wholly or mainly provide for annuities on retirement to its members,

if during any such year the person was a member of such fund;

Paragraph 20 (First Schedule) – Determination of normal tax chargeable in terms of paragraph 6 election

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20.

(1)     If a taxpayer (other than a company) who derives income from farming operations makes an election as provided in subparagraph (6) and if –

(a)     the taxpayer’s income was in whole or in part derived from farming operations carried on on any land acquired-

(i)      by the State (including the Railways Administration and any provincial administration) or any local authority as defined in section 1 of the Expropriation Act, 1975 (Act No. 63 of 1975); or

(ii)     by any juristic person or body mentioned in section 3(2) of the said Act, if such juristic person or body acquired the land by expropriation or, where the owner of the land agreed to dispose of it, the Minister referred to in subparagraph (6)(b)(ii) has given a certificate as contemplated therein;

(b)     in consequence of the acquisition of such land as aforesaid the farming undertaking on such land (hereinafter referred to as the undertaking) has been or is being wound up; and

(c)     the taxpayer’s income for any year of assessment (being the year of assessment during which the said land was acquired as aforesaid or the first or the second year of assessment succeeding the first-mentioned year of assessment) includes any abnormal farming receipts or accruals referred to in subparagraph (2) which relate to the aforesaid farming operations,

the normal tax chargeable (as determined before the deduction of any rebate) in respect of the taxpayer’s taxable income for such year of assessment shall, notwithstanding any other provisions of this Act to the contrary, be determined at an amount equal to the sum of-

(i)      an amount equal to the taxpayer’s excess farming profits for the year of assessment (as determined in accordance with subparagraph (3)(a)) multiplied by the relevant rate of tax fixed for the year of assessment in terms of section 5(2) in respect of the first rand of taxable income; and

(ii)     an amount equal to the amount of normal tax (as determined before the deduction of any rebate) which would have been payable by the taxpayer in respect of the year of assessment if his or her taxable income for that year had been an amount equal to the balance of his or her taxable income for that year (as determined in accordance with, subparagraph (4)).

[Subparagraph (1) amended by section 31 of Act 103 of 1976, section 26 of Act 104 of 1980, section 30 of Act 91 of 1982, section 43 of Act 129 of 1991, section 45 of Act 8 of 2007 and section 271 of Act 28 of 2011, substituted by section 82 of Act 25 of 2015 effective on 8 January 2016]

(1A)  Where the land referred to in subparagraph (1) was acquired as contemplated in item (a) of that subparagraph within the period of twelve months after the owner accepted an offer to purchase the land, it shall be deemed for purposes of that subparagraph that such land was acquired on the date on which the offer was accepted.

[Subparagraph (1A) inserted by section 25 of Act 113 of 1977, substituted by section 82 of Act 25 of 2015 effective on 8 January 2016]

(2)     For the purposes of subparagraph (1)(c), the taxpayer’s abnormal farming receipts or accruals for any year of assessment referred to in subparagraph (1)(c) shall be deemed to be such amounts as consist of-

 

(a)     any amounts derived from disposals, in the course of the winding-up of the undertaking, of livestock normally held for the purposes of the undertaking; or


(b)     any amounts derived from the disposal of any plantation together with the land referred to in subparagraph (1)(a) or from the disposal in the course of the winding-up of the undertaking of any plantation on such land or any forest produce from such plantation.

[Subparagraph (2) substituted by section 82 of Act 25 of 2015 effective on 8 January 2016]

(3)

(a)     For the purposes of this paragraph the taxpayer’s excess farming profits for any year of assessment referred to in subparagraph (1) (c) shall be deemed to be the sum of the taxpayer’s excess livestock profits (if any) for such year, as determined under item (b), and the taxpayer’s excess plantation farming profits (if any) for such year, as determined under item (g): Provided that the amount of such excess farming profits shall not be determined at an amount exceeding the amount of the taxpayer’s taxable income for such year.

(b)     The taxpayer’s excess livestock profits for such year shall be so much of the sum of the amounts referred to in subparagraph (2) (a) which have been derived by the taxpayer during such year as does not exceed the taxpayer’s abnormal livestock profits for such year, as determined under item (c).

(c)     The taxpayer’s abnormal livestock profits for such year shall be the amount by which his livestock profits for such year, as determined under item (d) or (f), exceed his average livestock profits (as determined under item (e) or (f)) for the years of assessment (but not exceeding five years of assessment) which immediately precede the said year and during which the undertaking was carried on.

(d)     For the purposes of this subparagraph, the taxpayer’s livestock profits for any year of assessment shall be the amount by which the sum of the amounts included in his income from farming for such year in respect of disposals of livestock during such year and the value (as determined under this Schedule) of the livestock held and not disposed of by him at the end of such year exceeds the sum of the amounts allowed to be deducted from such income in respect of livestock acquired by him during such year and the value (as determined under this Schedule) of the livestock held and not disposed of by him at the beginning of such year, and the taxpayer’s livestock loss for such year shall be determined accordingly.

(e)     The taxpayer’s average livestock profits for the years of assessment referred to in item (c) shall be the sum of his livestock profits for the said years, as determined under item (d) (reduced by any livestock loss as determined under that item in respect of any such years), divided by the number of such years of assessment.

(f)     If by reason of disposals of livestock otherwise than in the ordinary course of farming or because of any unusual circumstances the taxpayer’s livestock profits or loss for any year of assessment cannot be determined in a satisfactory manner under item (d) or the taxpayer’s average livestock profits for the years of assessment referred to in item (c) cannot be determined in a satisfactory manner under item (e), such livestock profits or loss or such average livestock profits shall be determined by the Commissioner on application by the taxpayer.

[Item (f) substituted by section 82 of Act 25 of 2015 effective on 8 January 2016]

(g)     The taxpayer’s excess plantation farming profits for any year of assessment referred to in item (a) shall be so much of the sum of the amounts referred to in subparagraph (2) (b) which have been derived by the taxpayer during such year, as does not exceed the amount by which the taxpayer’s taxable income (as determined under subparagraph (3) of paragraph 15 before applying paragraph (ii) of the proviso to the said subparagraph) derived during such year from the disposal of plantations and forest produce exceeds the annual average taxable income (as determined under paragraph 15(3)) derived by him from that source over the three years of assessment immediately preceding the said year of assessment.

(4)     For the purposes of this paragraph, the balance of the taxpayer’s taxable income for a year of assessment referred to in subparagraph (1) (c) shall be deemed to be the amount remaining after deducting the taxpayer’s excess farming profits for that year (as determined under subparagraph (3) (a)) from the full amount of the taxpayer’s taxable income for such year, as determined under this Act.

(5)          ……….

(6)

(a)     Any taxpayer (other than a company) may elect for the normal tax payable by the taxpayer to be determined under this paragraph.

(b)     For purposes of such election the following records must be obtained and retained:

(i)      a certificate by the head of the department of State or the administration concerned in the acquisition by the State or such administration of the land referred to in item (a) of subparagraph (1), or where such land was acquired by a local authority, juristic person or body referred to in the said item, by the chief executive officer of such local authority, juristic person or body, to the effect that the State or such administration, local authority, juristic person or body, as the case may be, has acquired such land; and

(ii)     where such land was acquired by such juristic person or body, a certificate by a Minister referred to in section 3 (1) of the Expropriation Act, 1975, to the effect that the land was acquired by such juristic person or body by expropriation or, where the owner of the land agreed to dispose of it, to the effect that, if the owner had not so agreed, steps would have been taken for the expropriation of the land.