Taxpayers who owe money to the South African Revenue Service (SARS) may see the taxman take funds from their bank account or pension.
Written by – Neil Helps – Professional Accountant (SA)
SARS has the power, under the Tax Administration Act (TAA), to send a notice to taxpayers. This notice can also go to a third party who holds their money. The notice requires them to pay money to SARS to settle a tax debt.
This notice is sent after a final demand for payment is given to the taxpayer. It explains the recovery steps that SARS can take.
In this case, a third party that gets a notice from SARS must tell SARS why it cannot pay the money.
If the third party gives away the money against the SARS notice, they are personally responsible for payment.
Section 179 of the TAA states that money held by a third party for a taxpayer can include different types of payments. This can be a pension, salary, wage, or other forms of pay.
In a recent case, Piet v CSARS (27 August 2024), a taxpayer had R146,000 paid to SARS. This amount came from their Allan Gray Retirement Annuity Fund to settle a tax debt.
The taxpayer asked Allan Gray to withdraw their retirement benefit at age 55. They discovered that the total amount had already been sent to SARS under section 179.
The taxpayer went to the High Court to ask for an order. They wanted SARS to repay the amount. They argued that SARS broke section 37A(1) of the Pension Funds Act (PFA). They also claimed it violated their right to access social security.
The court noted that section 179 clearly includes “a pension” in what it covers.
If a taxpayer must still pay tax during an objection or appeal, SARS can collect the tax.
South Africa’s pension laws also make provision for this.
Section 37A of the PFA states that:
‘Save to the extent permitted by this Act, the Income Tax Act, 1962 (Act No.58 of 1962), and the Maintenance Act, 1998, no benefit provided for in the rules of a registered fund … or right to such benefit … shall, notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law…’
Section 37A aims to protect pension funds from being reduced, transferred, or taken by creditors. However, the Court noted that one exception allows deductions under the Income Tax Act.
Allan Gray’s payment was made under section 179 of the TAA, not the Income Tax Act. The Court noted that Section 37A was added to the PFA in 1976. This section remained until 2011 when it was moved to section 179 of the TAA. Before that, section 99 of the Income Tax Act allowed for third-party notices.
The court decided that the PFA allows SARS to name Allan Gray as the taxpayer’s third-party agent. This agent must pay the tax owed by the taxpayer.
The taxpayer argued that SARS acted unconstitutionally. The Court found that it did not consider the limits on rights in section 36 of the Constitution.
Section 37A limits the safeguard provided to pension benefits intentionally and meticulously. The Court determined that the authorities granted to SARS under section 179 represent a fair and justifiable restriction of the right to access social security.
Unless a higher court says otherwise, SARS can take a tax debt from the taxpayer’s pension money when it is due.
Another example of SARS recovering payments from a taxpayer’s pension is when a taxpayer withdraws money early. This happens under the two-pot system.
Before a final amount is paid to a taxpayer’s savings, the pension fund will deduct any unpaid tax debt. This deduction is done on behalf of SARS before any payment is made to the taxpayer.
Taxpayers are urged to ensure they sign up with a tax practitioner and ensure their compliance is maintained on a consistent basis, this is the best insurance policy to remain on the right side of SARS.
Contact Zeelie Professional Accountants SA – www.zeeliepasa.co.za or 021-180-4616 Nationwide
