Tax Directive Form | When and how to apply – IRP3(a) and IRP3(s)

A Tax directive form is issued in accordance with paragraph 9(1) of the Fourth Schedule. The tax directives are always issued in relation to a specific tax year. The tax directive percentage already takes into account expense claims and deductions that may be claimed on assessment – therefore, the tax directive percentage must be applied to remuneration and not balance of remuneration (i.e. before deducting tax deductible deductions from remuneration).  Tax according to directives are not “final” tax, and is recalculated taking into consideration total income on assessment.

Tax directive form | Who must complete and submit one

• Employers who pay a lumpsum payment to an employee as a direct result of their employment or due to the employee being terminated.
• Employers are required in terms of paragraph 9(3) of the Fourth Schedule to the Income Tax Act No.58 of 1962, as amended (‘the Act’) to apply for a Tax Directive in respect of any lump sum payable by way of a severance benefit, gratuity or any other amount.
• In an instance where the employee exercises a share option (section 8A gain or section 8C amounts) or certain dividends, the amount must be included as remuneration in terms of paragraph (g) of the definition ‘remuneration’ in the Fourth Schedule to the Act.
• In terms of paragraph 11A(4) of the Fourth Schedule, the employer must ascertain from the Commissioner the amount to be ducted or withheld for section 8A gains and section *c amounts.

Directive Options that should be used:

• Severance Benefit – Death:
  • This option must be used for a lump sum amount paid as a direct result of termination of employment due to death.
  • Reason to be selected – Severance benefit – Death.
  • The source code to be used after 01/03/2011 for the gross amount is 3901 and PAYE to be withheld on source code 4115.
• Severance Benefit – Retirement (Age of 55 or older):
  • This is a lump sum paid as a direct result of termination of employment due to retirement.
  • If this option is selected then the person must be 55 years of age or older on the date of accrual.
    • If the person is younger than 55 the directive will be declined.
    • The payment must be treated as normal income and the reason ‘Other’ with the description on the tax directive application form must be used on the IRP3(a) application form.
  • Reason to be selected – Severance benefit – Retirement (Age of 55 or older)
  • The source code to be used after 01/03/2011 for the gross amount is 3901 and PAYE to be withheld on source code 4115.
• Severance benefit – Retirement due to ill health
  • Paid as a result of termination of employment due to ill health.
  • This option may be used regardless of the employee’s age.
  • Reason to be selected and the amount field to be completed – Severance Benefit – Retirement due to ill health
  • The source code to be used after 01/03/2011 for the gross amount is 3901 and PAYE to be withheld on source code 4115.
• Severance benefit – Involuntary retrenchment:
  • The Reason “Severance benefit – Involuntary retrenchment” must only be used where the employer is planning to stop trading or due to general reduction of staff. This reason cannot be used for dismissal or restructuring.
  • The application must be in terms of section 1(1) “severance benefit” paragraph (c) on the Act.
  • This option may be used regardless of the employee’s age.
  • Reason to be selected and the amount field to be completed – Severance benefit – Involuntary retrenchment.
  • The Source code to be used after 01/03/2011 for the gross amount is 3901 and PAYE to be withheld on source code 4115.
• Severance benefit – Voluntary retrenchment:
  • The reason ‘Severance Benefit – Voluntary Retrenched’ must only be used where a lump sum is paid as a result of restructuring or other termination of employment;and
  • This tax directive reason can be used if a retrenchment lump sum is payable but not in terms of the requirements of section 1(1) “severance benefit” paragraph (c) of the Act.
  • Reason to be selected and the amount field to be completed – Severance benefit – Voluntary retrenchment
  • The source code to be used for the gross amount is 3907 and PAYE to be withheld on source code 4102.
• IRP3(s) – Application for a tax directive: section 8A or 8C amount
  • The IRP3(s) must be used for gains made in respect of rights to acquire marketable securities; and amounts in respect of the vesting of equity instruments. A tax directive is not required for the new dividend amounts under para (g) of remuneration. Voluntary applications can be submitted.
  • Below is a detailed description of each available reason on the application form.
    • Revenue gain i.r.o rights to acquire marketable securities in terms of section 8A (gain under source code 3707 and PAYE under code 4102)
    • Revenue gain i.r.o the vesting of equity instruments in terms of section 8C (gross value under source code 3718 and PAYE under code 4102)
    • Amounts in terms of par (dd) of the proviso to section 10(1)(k)(i) dividends
    • Amounts in terms of par (ii) of the proviso to section 10(1)(k)(i) dividends
    • Amounts in terms of par (jj) of the proviso to section 10(1)(k)(i) dividends

Minimum Information Required for completing the tax directive:

• Tax Year
• Taxpayer Surname
• Taxpayer First names
• Taxpayer Initials (only applicable to electronic submissions)
• Taxpayer Date of Birth
• Taxpayer ID number or other unique number if the person is not a SA citizen
• Reason for non-registration (Unemployed or ‘Other’ specified) if no reference number entered.

                NOTE: The Income Tax Reference Number must be provided on the IRP5 certificate.

• Taxpayer’s physical address and postal code
• Taxpayer’s postal address and postal code
• Annual Salary
• The PAYE number of the Employer.
• The name of the Employer.
• The Employer’s postal address and postal code.
• Employer’s email address.
• One of the amount fields must be completed.
• Date of accrual.
• The reason for the directive.

Note that notice pay and leave payments that the employee is entitled to may not form part of the amount declared on the tax directive form.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)