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.
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