South Africans who have utilized the new Two-Pot Retirement System may face unforeseen tax requirements when filing their annual tax return.
Start of Tax Season
IOL previously reported that the tax season officially began on July 1st with the start of the automatic assessment period, which will last until July 12th. During this time, eligible taxpayers will receive their tax assessments automatically, while those not on the list can file income tax returns starting from July 13th.
Tax Authority Operations
The South African Revenue Service (SARS) has already conducted an automatic assessment for over 1.9 million taxpayers, issuing approximately 8 billion rand in refunds within the first 72 hours of the reporting period.
Two-Pot System Mechanism
The system, implemented in 2024, allows individuals to access funds from their retirement fund before retirement. Members can withdraw funds from the accumulation fund once per tax year, provided the amount is at least 2000 rand. However, such withdrawals are treated as taxable income.
Implications for Taxpayers
According to Nessie Kotterny-Clark from TaxTim, 'the withdrawal of funds from your accumulation fund is considered income by SARS, meaning the withdrawn amount is added to your annual income.' This may necessitate an additional payment to SARS if sufficient tax was not withheld upon withdrawal. Furthermore, the withdrawal can increase a person's total income and move them into a higher tax bracket.
Structure and Documentation
The Two-Pot system divides retirement savings into three parts: the accumulation fund, which can be accessed once a year; the pension fund, which is locked until retirement; and the fund accumulated before the introduction of the new system. The expert emphasized: 'If you withdrew funds from Two-Pot in the tax year, you must include the details of this withdrawal in your annual tax return. The fund should have issued you an IRP5/IT3a tax certificate reflecting the withdrawal amount (source code 3926), the related tax, and the tax directive number issued by SARS. This tax certificate must be attached to your annual tax return.' It was also noted that if such a certificate has not been received, one should contact the fund administrator to request it, as failure to do so could result in discovering the need to pay more to SARS when filing the return.
