Here's how to treat the tax on your employees' retirement annuity so SARS doesn't hit you with 200% penalties
It's your legal duty to handle your employees' taxes correctly and pay them over to SARS.
But this duty doesn't just apply to your employees' salaries and fringe benefits.
You also have to tax your employees correctly on any retirement annuity they have.
You must do this correctly, or you could face 200% penalties from SARS.
Here's how to do it the right way to ensure you avoid this problem...
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Know the Law on Avoiding Tax: You Are Now Presumed GUILTY
Dealing with SARS and acing your SARS Audit
SARS has been dealt a better hand in dealing with you if you try to avoid tax. SARS knows where it stands. The question is: do you?
Do you plan on obtaining an 'innocent' tax benefit? If your main or only reason for entering into any arrangement is to receive a tax benefit, SARS will brand you guilty of avoiding tax...and guess who has to prove their innocence… YOU!
Correctly tax your employee's retirement annuity by doing this
You must ensure you correctly apply the right limitations on the deduction of current and arrear retirement annuity contributions to your payroll. The amount you will withhold as your employees' tax liability is the amount of the actual contribution, limited to a maximum of the greatest of:
15% of income from non-retirement-funding employment sources. This is income the Income Tax Act doesn't define, but includes all sources of employment income you don't take into account when you determine your contributions to a pension or provident fund. (Remember this amount is after deducting all admissible deductions and setting off all assessed losses. Just don't forget to exclude any permissible medical aid deductions when you determine the maximum deductible contribution to a retirement annuity fund (Section 11(n)(aa)(A)));
R3 500 less any amount allowed in terms of section 11(k) of the Income Tax Act for current pension fund contributions (Section 11(n)(aa)(B));
The amount of R1 750 (Section 11(n)(aa)(C).
Work out which of these three is in the highest tax rate and use that to work out your employee's tax on your retirement annuity contributions.