Page 21 - P6 Slide Taxation - Lecture Day 6 - Retirement Benefits Lump Sums
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12.3.3. Lump sums from Public Sector Pension Funds (PSPF)
12.3.3.1. Gross income, par (eA)
After members of a PSPF became aware of the fact that PSPF will be
taxable from 1 March 1998, some decided to convert their PSPF into a PrF
in order to avoid tax.
How?
- Replace annuities (under PSPF) with a lump sum(LS) under PrF.
- Thus, replace tax on annuities @ 41% with tax on LS @ 36%.
In order to prevent the above par (eA) determines that ⅔ of the funds
transferred to the PrF will be included in gross income as if it is a lump sum.
See Homework Question: Rose & Ranger: Part (b)
What are the implications?
→ The Second Schedule is not applicable to par (eA) inclusions. This
means that no par 5 or par 6 deduction will be allowed!
How will you identify it?
→ Member converts its PSPF to a PrF before retirement and effectively
remains in the employment of the same employer; OR
→ The dependants or nominees of a deceased member do the conversion.