Dear reader,
Thank you on your query.
For common data, I am quoting Law Insider’s definition of what being medically boarded means:
“Medically boarded is the inability of an insured to continue working for any form of an income due to poor medical health that will continue and be irreversible, regardless of any treatment or medication and will continue for the rest of the insured’s life.”
To qualify for the particular tax charges relevant to severance advantages resulting from retrenchment, your employer should have paid you a lump sum as a results of your employment having been, amongst different issues, terminated or misplaced.
In addition to the above, you will additionally solely qualify for the tax incentive if:
- You have attained the age of 55 years on the time you’re retrenched; or
- Your retrenchment or lack of employment is as a results of you having develop into completely incapable of holding an workplace or employment resulting from, for instance, illness, accident or damage; or
- Your employment has been terminated or misplaced resulting from your employer having stopped (or aspiring to cease) buying and selling, or as a results of your employer embarking on a common discount in personnel.
- You will not qualify for the tax concession in respect of severance advantages if you at any time held greater than 5% of the issued shares or member’s curiosity within the firm paying you the severance profit.
Being medically boarded requires varied medical evaluations adopted by a specialist report confirming that the insured will not be match to carry out their day by day work.
The Income Tax Act 58 of 1962 Section 12M Note 121 states:
“In the absence of insurance policies and procedures specifying the circumstances below which an worker could qualify for retirement on the grounds of sick well being or infirmity, the particular medical situation affecting the worker should be thought of objectively.
“The medical situation will be assessed in relation to the kind of work the worker is required to carry out, for instance, if an worker, who’s required to function heavy equipment as a requirement of the employment, suffered a stroke and loses the usage of his or her limbs, they can retire resulting from ill-health or infirmity relying on the detailed insurance policies and procedures.
“It should be noted that ill health is not only confined to a physical disability but can also be the result of a mental condition,” in line with the observe.
“The employee must have retired due to old age, ill health or infirmity. This requirement will not be met if, for example, the employee is granted extended sick leave but returns to work after that extended sick leave or if the employee for some reason resigns from the taxpayer’s employment.”
Taxable in sure cases
This lump sum cost is nonetheless taxable in sure cases. It relies upon on the kind of fund the month-to-month contributions had been made to – an accredited or an unapproved fund.
An accredited profit is one that’s offered by the fund and is paid out along with the member’s financial savings within the fund. An unapproved or self-standing profit is offered by way of an insurance coverage coverage issued to the employer and doesn’t type a part of the fund advantages.
It in the end all comes right down to the contributions.
With unapproved group threat funds, contributions will not be tax-deductible, and the profit payout is tax-free, so in a manner, you will nonetheless save on tax ultimately.
With accredited threat funds the contributions are tax-deductible, subsequently the lump sum funds are absolutely taxable.
Assuming you haven’t acquired every other money lump sums from earlier withdrawals, the estimated tax (utilizing the retirement tax desk) will be within the area of R117 000, however this isn’t particular.
You could contact Sars or your HR division to help with a simulation calculation that’s finished towards your revenue tax quantity and historic knowledge to be extra correct.
Wishing you all the very best and hope I answered your query.
