Tax
Directives

What are tax directives?

Standard income tax rates triggered in various events, from commission-based salaries to cashing out on retirement annuities, are calculated by adding the presented amount to additionally earned income and averaging this total to an annual period. As a result, the assuming amount is what SARS may construe the taxpayer to earn each month in the tax year, which may not be the case. Tax directives may be the best solution to avoid triggering high tax obligations in these situations.

Tax directives are official communication from SARS to employers and fund managers instructing a tax deduction at a set rate instead of the general tax rates. SARS predetermines this rate according to your unique circumstances rather than the general income tax rates to ensure you pay fair tax rates on your earnings.

Who qualifies for a tax directive?

Employees earning commission

Individuals with dramatically fluctuating income due to commission sales are good candidates for tax directives. Large sales that incur commission, such as those made by estate agents, may be subject to an unfair tax deduction if taxed according to the general income tax rate.

Emigrating individuals

Those in the process of financially emigrating often resort to the cash flow of pension funds to assist their move. When this lump sum is withdrawn, the fund is obligated to deduct income tax. With a tax directive, SARS can dictate which rate should be taxed on the lump sum, potentially resulting in a lower deduction.

Pensioners

Retirement fund administrators often withhold PAYE contributions on behalf of pensioners. However, should the pensioner earn another income, or their circumstances change, they can apply for a tax directive to normalise their obligations and avoid debt.

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Types of tax directives

Gratuities

Gratuity tax directives refer to when companies make a payment to an employee, or dependant, as a result of death, retirement, retrenchment or a share scheme.

Fixed percentage

This directive is used for employees earning commission, personal service companies and trusts. It instructs income tax deductions of set values each month, irrespective of the amount earned.

Fixed amount

Sole proprietors who are running at a loss can apply for fixed amount tax directives for relief. These taxpayers qualify if they cannot meet the minimum cost of living or are under circumstances out of their control. These cases are reviewed on an individual basis.

Deemed Remuneration

Deemed remuneration refers to a directive that instructs a company to calculate tax liability based on a specific tax bracket that differs from their actual one. This is typically done for taxpayers facing unique financial hardships or company directors with unclear tax liability formulas.

Lump sum withdrawals or payments

Tax directives can be issued for the withdrawal of provident or pension funds, as well as payments to retirement annuities, pension or provident funds. This directive is applicable for various situations but most likely occurs after retirement or death.

Applying for a tax directive

Tax directives are only valid for the tax year it was applied for and are an estimate according to the information SARS has available on their system. Should you find yourself in any of the above situations, the experts at MMS Group suggest seeking a tax directive from SARS to ease your tax obligation. Our tax practitioners can assist with accurate tax calculations and request directives on your behalf. For more information, please reach out to our team.

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