As a rule the tax on lump sum should be covered by SARS by way of tax directive issued before the lumpsum is paid out. In order to have a correct assessment you have to fill in the form below on SKY Tax to get the correct calculation. Reason for this is that a lump sum could have been paid out years ago and the details do not come down when a tax return is retrieved but will suddenly appear on assessment. Whether you are using Sky or efiling the same situation will apply.
The first indication that there is a lump sum is where you retrieve the tax return from SARS and there is an IRP5 with PAYE deducted. This is the first indication that there is a lump sum and is a warning sign. As a rule taxpayer clients forget about lump sum withdrawn in the past. The data on lump sums may only come down as an IRP5 but there there is nothing to tell you that a lump sum was paid out years ago. If you dont fill in the screen below your tax calculation will be wrong as compared to the SARS calculation.
It is very important to know that in all instances there is a directive issued by SARS where there are adjustments to the Retirement or the lump sum payment. In this instance it is very important that the adjustment is made on Sky Tax on the screen below as the system does not get this on retrieve. In the example below there is an amount of R795175 being the amount paid out and SARS have made an adjustment of R156659 for reinvestment. Please note where this has been entered (under Re-Invested) this will affect the calculation of tax on the lump sum.
There should be a rule in your office that whenever income is received in respect of a lump sum that the client is required to provide the directive. It should be noted that the lump sum will not be paid unless SARS gives a directive, so therefore in all cases there will be a directive and the necessary tax will be deducted from the lump sum and should be reflected as PAYE in the system.
A retirement or retrenchment will look as follows.
