South Africans who dipped into their retirement savings through the new Two-Pot Retirement System could face unexpected tax bills
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South Africans who dipped into their retirement savings through the new Two-Pot Retirement System could face unexpected tax bills when filing their annual tax returns.
IOL previously reported that the tax season officially kicked off on July 1 with the start of the auto-assessment period, which runs until July 12. During this time, eligible taxpayers will receive their tax assessments automatically, while those who are not selected will be able to submit their income tax returns from July 13.
The South African Revenue Service (SARS) has already auto-assessed more than 1.9 million taxpayers, paying out about R8 billion in refunds within the first 72 hours of the filing season.
The system, which started in 2024, allows people to access money from their savings pot before retirement.
Members can withdraw from their savings pot once per tax year, subject to a minimum amount of R2,000. However, these withdrawals are treated as taxable income.
“Your savings pot withdrawal is treated like income by SARS, which means the amount you withdraw is added to your annual income,” Nicci Courtney-Clarke from TaxTim said.
This means some taxpayers may owe SARS more money if not enough tax was deducted when they made the withdrawal. A withdrawal could also increase their total income and move them into a higher tax bracket.
The Two-Pot system divides retirement savings into three parts: the savings pot, which can be accessed once a year; the retirement pot, which is locked until retirement; and the vested pot, which contains savings built up before the new system started.
"If you withdrew from your Two-Pot in the tax year, you need to include the details of this withdrawal in your annual tax return. The fund should have issued you an IRP5/IT3a tax certificate which reflects the withdrawal amount (source code 3926), related tax as well as the tax directive number issued by SARS. This tax certificate must be included in your annual tax return.
"If you have not received this IRP5/IT3a then contact the fund administrator to request it. You might be surprised when you file your tax return and find out you owe SARS money."
IOL Business