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Tax directives - what exactly is it

A tax directive can be quite handy if you as the individual tax payer is going to earn a huge bonus or commission payment from your employer or will receive a retirement fund pay-out. A tax directive is an instruction from SARS to allow an employer or fund manager to deduct a different tax % of PAYE or withholding tax. The directive allows a different tax rate to be applied so if you are going to earn a lump-sum payment it would be beneficial not to be taxed at the marginal tax rate.

Employers or Fund managers are not allowed to adjust the payroll system or system calculation of PAYE when payments to individuals are calculated on a regular basis unless they have a tax directive from SARS. If they have a tax directive, the directive number and % is inputted and the PAYE/tax can only then be adjusted to a lower tax rate.

Employers and Fund administrator can request a tax directive from SARS for their employees but the individual can also apply for the directive themselves and instruct their employer of the directive when it is approved.

A tax directive should also be applied for when there are staff retrenchments or resignation packages at a company.

The information that should be included on the application form is:

  1. Individual tax number, name and surname
  2. Address of the individual
  3. Annual Income
  4. Reason for directive
  5. Name of employer or fund administrator

When the individual receives his IRP5 at the end of the tax year, the directive number should be included on the IRP5, IT3

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