When two-pot withdrawals and tax debt collide

South African taxpayers who withdraw from their two-pot savings will only be paid after settling any outstanding tax debt, except where payment arrangements have been made with SARS.

“Taxpayers need to know how their two-pot withdrawals are treated in relation to their tax debt to avoid being caught off guard,” says Thomas Lobban, Director at Ibex Consulting, a division of the Latita Africa group.

This is in the wake of reports that some taxpayers have come away from their withdrawal attempt empty handed after SARS deducted outstanding amounts.

Two-pot and tax debt
When a fund administrator processes a savings pot withdrawal, they must request a tax directive from SARS that tells them how much tax to deduct.

That tax directive can include an instruction to also deduct any available amount needed to settle a taxpayer’s outstanding tax debt.

However, where they have already made arrangements with SARS to pay off or defer the debt, the pot will not be affected. Only the withdrawal amount itself will be taxed.

Where no arrangement exists, some taxpayers could return home without their withdrawal, with no savings left, and still in debt to SARS! And, if the money was meant for the kind of financial distress the savings pot was created to alleviate, the taxpayer will be worse off than before.

“This makes a debt arrangement with SARS highly desirable - it not only reduces the financial pressure on the taxpayer but also protects their emergency funds from being seized,” says Lobban.

Do you owe SARS money?
So, how does a taxpayer know if they are in debt to SARS? Like any debt, they will receive a letter of demand in the mail. Or, they can regularly check their eFiling profile online by:

• Clicking the Tax Status button on their homepage, then under the “Tax Compliance Status” tab, which may reveal arrears amounts
• Requesting a statement of account that will show arrears amounts in the 30-, 60-, 90- or 120-days ageing columns
• Reviewing SARS correspondence for any electronic letters of demand

Alternatively, they can make an inquiry through the SARS call centre, its USSD channel or via WhatsApp on their mobile device.

Available payment arrangements
When making payment arrangements to settle a tax debt with SARS, unless the amount can be legally challenged, taxpayers have two main options available to them: deferral of payment or debt compromise.

Deferral of payment is simply an arrangement whereby the full debt can be paid off in agreed upon monthly instalments or settled at a later date.

Debt compromise means the taxpayer can negotiate with SARS to settle a portion of the tax debt and have the rest written off, freeing them of the obligation.

However, in both cases, the taxpayer needs to formally prove their inability to make payment and must meet a shopping list of requirements. At its discretion, SARS can decline the request, which is more likely if the taxpayer represents themselves inadequately.

The low-risk approach
“It’s not enough to plead poverty or play the victim - you need to approach SARS with a professional regard for their procedural and legal constraints,” says Lobban, noting that this is a complex process most taxpayers have no experience in.

Engaging with a professional tax consulting firm - specifically one with a solid legal function - will increase the chances of being granted payment relief exponentially. 

“It’s always advisable to get guidance from a tax professional who has submitted many dozens of similar requests with a high rate of success,” says Lobban.
​
ENDS

 
MEDIA CONTACT: Idéle Prinsloo, [email protected], 082 573 9219, www.atthatpoint.co.za 
 
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