The Tax Implications of Retrenchment

tax-retrenchmentFinding yourself retrenched is never a pleasant experience, and the frustration involved will only be heightened should you find yourself on the wrong side of SARS during the process. As an illustration of just how difficult this situation could become, let’s take the example of Wendy, a recently retrenched office manager who approached us recently for assistance:

Wendy had worked at the same office for 16 years, performing her duties and looking forward to a continued career. However, one day she was made aware that the business was in the process of retrenching several members of staff. Wendy waited in anticipation until the day when the retrenchment list was published – her fears were confirmed when her name appeared on the list.

The next few weeks went by faster than Wendy could have imagined. Before she knew it, she had signed her retrenchment forms and was completing her final days with the company. Though she was disappointed, Wendy was secure in the knowledge that her pension pay-out would be sufficient – or so she thought.

On retrenchment, Wendy received two large payments directly into her bank account. She was not entirely sure of the details behind these payments, but Wendy was expecting her pension pay-out and thought nothing of it until she received a shocking notification: SARS had seized R500 000 of her pension.

When Wendy approached us for assistance, we explained to her that she could have saved hundreds of thousands in tax had she come to us three weeks earlier.

Wendy’s unfortunate experience is a lesson for all salaried employees: before you sign any forms relating to pension or retrenchment pay-outs, it is vital to consult your financial advisor to ensure that no nasty surprises await you at the end of the process. By consulting with your financial advisor you’ll be sure to benefit from your years of hard work in the event that you are retrenched.

Leave a Reply

Your email address will not be published. Required fields are marked *