The South African Revenue Service (SARS) says it is aware of incorrect tax calculations that impacted some pension fund members, but insists that the issue was limited and originated from fund administrators.
Several pension fund members flagged communication from their fund managers last week instructing them to delay filing their tax returns or file corrections if they have already done so.
According to the funds, a “technical error” had incorrectly flagged transfers between pots in the two-pot retirement system as taxable events, when they should have been exempt.
Transfers between the ‘pension section’ and the ‘provident section’ were incorrectly added as a taxable lumpsum in the tax assessment. This resulted in an outstanding tax balance owed to SARS.
Under the two-pot retirement system, withdrawals from the ‘savings pot’ would trigger a taxable event. However, the transfer of funds between the pots should not.
In addition, any retirement fund member who has reached the normal retirement age but has not elected to retire can transfer their retirement fund to another approved pension or provident fund without incurring any tax liability.
The administrators said that this was a “technical error” that had been flagged at other multiple funds, and that SARS was working with these admins to resolve it.
Following the publication of an article on the matter, SARS responded to clarify what happened, noting that the issue originated with the administrators themselves.
“The tax calculation was incorrect as the amounts transferred from one retirement fund to another were incorrectly regarded as taxable on assessment,” SARS said.
“This came about due to the fund administrator of a private sector fund selecting a tax directive reason that was only applicable to transfers and payments from public sector funds.”
According to SARS, its systems responded “correctly” to the declared information and provided assessments made on directive applications.
“The resulting error on assessment was primarily driven by administrators using the incorrect income code and erroneously selecting the tax-directive reason ‘Two-Pot-Par applicable to public sector funds only’,” it said.
You might have to correct your tax return
The revenue service also denied that the issue was widespread, as had been claimed in communication to clients, noting that to date, only one fund (Alexforbes) has reported the error to SARS.
“Due to the nature of the error, only the fund administrator would know whether the application was in error or not,” it said.
Regardless, SARS said it is in the process of assisting the fund administrator to resolve the issue.
“Once this is resolved, the fund administrator will communicate with the affected individuals,” it said.
“Where the underlying data has changed and the affected individual was already assessed by SARS, the individual is advised to request a correction of their return.”
Any taxpayers who have been impacted by the error still have until 20 October to correct and finalise their tax returns for the year.
Notably, this applies even if a taxpayer has been auto-assessed and already had their tax affairs finalised for the year.
There are multiple options available to correct or dispute a submitted assessment, including auto-assessments.
Taxpayers can submit a Request for Correction (RFC) on eFiling to amend a return if it was filed with errors.
SARS allows taxpayers to apply for an extension up to 3 years from the assessment date, provided there are valid reasons.
If the tax correction isn’t allowed or accepted, or the tax deadline has passed, taxpayers can file a Notice of Objection (or dispute).
This involves filing a Notice of Objection (NOO) to the assessment. This is a more involved legal process and is usually a last resort.
