EMPLOYMENT LAW
Dismissals and resignation should not be dressed up as voluntary retrenchment By Amanda Visser, Moneyweb
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outh Africa is experiencing its biggest unemployment crisis in decades and retrenchments are bound to continue this year. The tax dispensation on ‘severance benefits’ is purposefully lenient to assist those affected – but tax experts warn that employers who use the beneficial tax treatment of a retrenchment lump sum as a carrot to get rid of unwanted employees who receive a golden handshake, resign or are dismissed are committing tax fraud.
A submission relating to the unfairness of the beneficial tax treatment in the case of a ‘voluntary retrenchment’ lump sum payment was met with surprise during a National Treasury workshop at the end of last year. The submission was raised during discussions on technical tax proposals for possible inclusion in Annexure C of the 2022 Budget Review in February.
A participant in the workshop remarked that the difference between voluntary and involuntary retrenchment is the difference between jumping from a sinking ship, or being pushed.
The tax treatment of a severance benefit is based on the retirement lump sum tax table, where the first R500 000 of the retrenchment lump sum is tax-free. The maximum amount of tax payable is 36% compared to the top marginal personal income tax rate of 45% in the case of a resignation or termination.
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JANUARY / FEBRUARY 2022
The technical matters relate to current tax legislation that require correction. A participant in the workshop remarked that the difference between voluntary and involuntary retrenchment is the difference between jumping from a sinking ship, or being pushed.
