Guide on Gratuities and Savings Withdrawal Benefits - 11 April 2025 – Layman Version

Guidance for Gratuities and Savings Withdrawal Tax Directives

• • This guide comes from the “Completion Guide for IRP3(a) and IRP3(s) Forms: Gratuities and Savings Withdrawal Benefits (SARS External Guide),” which became effective on 11 April 2025.
  • Let’s break down the key parts of this guide for you:
  • What are IRP3(a) and IRP3(s) Forms?
  • Think of these forms as special applications you (or rather, the employer or fund) need to submit to the South African Revenue Service (SARS).
    • IRP3(a) Form: This one is for Gratuities (like special lump sum payments from an employer) and Two-Pot Savings Withdrawal Benefits (money you can take out of your retirement savings under a new system).
    • IRP3(s) Form: This form is used for amounts related to share options (gains from acquiring marketable securities or vesting of equity instruments) or certain dividends.
  • Important Note for You, Bot Trainee: This guide does not cover all types of tax directive applications. For example, it doesn’t apply to requests for tax deduction directives for pension/provident funds (Forms A&D, B, C, E; A), fixed percentage/amount directives [IRP3(b), IRP3(c), IRP3(pa)], or requests for a directive variation [IRP3(q)], or doubtful debt [IRP3(f)], or relief from tax for pensions/annuities for non-residents [RST01].

Who Needs to Apply for a Tax Directive?

• • Generally, it’s the employer or a fund administrator who must complete and submit these forms.
    • If an employer pays a lump sum to an employee, perhaps when their job ends, they need to get a tax directive.
    • From 1 September 2024, if retirement funds make payments from the two-pot retirement savings withdrawal component, they also need a tax directive.
    • Crucially, an employee cannot complete and submit an IRP3(a) or IRP3(s) form themselves. The employer is the one responsible for this.

Understanding the Two-Pot Retirement System (Very Important!)

• • This is a big change, effective 1 September 2024, that allows people to access some of their retirement savings. It divides retirement savings into three “pots” or components:
    • Vested Component: This is basically your retirement savings balance as of 31 August 2024, minus a small portion (10%, capped at R30,000) that gets moved to your Savings Component as “seed capital”.
      • Any remaining balance in this “Vested Component” can still be paid out as a lump sum and isn’t affected by the new two-pot system.
    • Savings Component: From 1 September 2024, one-third of new contributions go into this pot. This is the part you can withdraw from before
      • Withdrawal Rules: You can withdraw a minimum of R2,000 up to the full amount in your Savings Component.
      • How Often? You can make one withdrawal per tax year from pension/provident funds, or one per retirement fund/policy per tax year for preservation and retirement annuity funds.
      • Second Withdrawal Exception: You might be allowed a second withdrawal in the same tax year if your remaining balance in the Savings Component is R2,000 or less and your membership in that fund is ending.
      • At Retirement: Any money left in your Savings Component when you retire does not have to be used to buy a pension (annuity). You can choose to take it as cash, adding it to your retirement lump sum.
    • Retirement Component: Also starting 1 September 2024, two-thirds of new contributions go into this pot. This money is generally meant for your pension or annuity when you retire.
    • Cannot be taken as a lump sum: If you leave your job before retirement (e.g., resignation, dismissal, retrenchment), the money in this component cannot be taken as a lump sum and must be transferred to another fund.
  • Savings Withdrawal Benefits and Non-Residents: From 11 September 2025, funds can apply for a savings withdrawal benefit tax directive for members who are not South African tax residents but have a valid SA tax number and need a Double Taxation Agreement (DTA) considered. If this applies, you’ll need to provide details like total months services rendered while contributing to the fund, and how many of those months were inside/outside South Africa. Documents like a certificate of residence and a detailed employment history are required.

How Tax Directives Affect Payments

• • SARS tells the employer how much employees’ tax (PAYE) to hold back from the lump sum payment.
  • The date the money becomes due (accrual date), the employee’s annual salary, and the reason for the directive determine how the tax is calculated and at what rate.

Employers must submit a tax directive form regardless of the amount being paid.

• • Important Details for Completing the Tax Directive Forms
    • The guide helps you fill out both electronic and manual forms.
      • Taxpayer Details (Employee’s Information)
      • Taxpayer’s Reference Number: This is your 10-digit income tax number from SARS, starting with 0, 1, 2, or 3. It’s mandatory for “Savings Withdrawal Benefit” applications, even for minors or non-SA residents. If you don’t have one, you might need to register for tax.
      • Year of Assessment Ended On (Tax Year): This is the tax year the benefit “accrues” (becomes due). For example, if money becomes due on 25 April 2025, the tax year would be 2026-02-28 (which means the 2026 tax year).
    • Personal Details:
      • Surname, First name(s), Initials: These are mandatory and must match your official identity documents (ID or passport) and SARS’s records. Avoid nicknames.
      • Date of Birth: It must match the first six digits of your ID number or your passport/permit.
      • Identity Number: Mandatory for SA citizens. Must match the latest ID issued by Home Affairs.
      • Passport / Permit No.: Only fill this if you don’t have an SA ID. It must match the one SARS has on record for you. If it changed, you need to update it with SARS first.
      • Passport Country / Country of Origin: Mandatory if using a passport/permit number and completing electronically.
    • Annual Remuneration: This is mandatory, except for “Savings Withdrawal Benefit” where a “Nil” amount is accepted.
      • It means all your income from employment (salary, bonuses, leave pay, pension, etc.).
      • Do NOT include the lump sum amount you’re applying for (e.g., severance benefit, savings withdrawal benefit).
      • Incorrect annual remuneration can lead to wrong tax calculations and financial hardship.
      • If the employee has left, the employer should use the annual remuneration as of the termination date, annualised for the full year.
    • Employee Number / Policy Number: Policy number is mandatory for “Savings Withdrawal Benefit” applications. Employee number is mandatory for “Backdated Salaries/Pensions”.
    • Residential and Postal Address: These fields are mandatory on the IRP3(s) form. On the IRP3(a), the postal address is optional if the reason is “Savings Withdrawal Benefit”.
    • Particulars of the Employer/Fund
    • Applicant Type: Select either “Employer” or “Fund Administrator”.
    • PAYE Reference Number: This is the employer’s 10-digit Pay-As-You-Earn (PAYE) number (starts with a 7). This is how SARS tracks the tax payments.
  • Exception: For severance benefits paid by a non-resident employer not registered in SA, the PAYE number is not compulsory.
    • Name of the Employer / Fund: Mandatory field depending on the applicant type.
    • Contact Person, Telephone, Email, Business/Postal Address: Mandatory fields for communication.
    • Particulars of the Fund
    • FSCA Registration Number: If the reason is “Approved fund,” this number is mandatory. It needs to be in a specific format (e.g., 12/8/0000000/999999) and match the fund’s name on the FSCA website.
    • Fund Approval Number: Used by Public Sector Funds not registered with FSCA. Format is 18204 followed by 6 digits (e.g., 18204000909).
  • Reason for the Tax Directive (Very Important for IRP3(a)!)
  • You can only select one reason per application form. The chosen reason determines the tax rate.
  • Date of Accrual: This is the date the benefit becomes due (e.g., date of death, retirement date). It must be within the correct tax year.
    • For “Savings Withdrawal Benefit,” the accrual date cannot be before 01 September 2024.
    • If you need to submit multiple directives for the same employee, adjust the accrual date by one day (forward or backward) to avoid duplicates.

Let’s look at common reasons:

• • • Severance Benefit – Death: For lump sums paid due to termination of employment because of death.
      • Source Code for Tax Certificate: 3901 for gross amount, 4115 for PAYE withheld. Taxable at severance rates.
      • Note: Separate directives for leave pay/notice payments are needed; these are “Other”.
    • Severance Benefit – Retirement (Age 55 or older): For lump sums due to employment termination when the employee is 55 or older on the date the amount is due.
      • If under 55, it’s NOT this reason! It should be treated as “normal income” and use the “Other” reason.
      • Source Code: 3901 for gross amount, 4115 for PAYE withheld. Taxable at severance rates.
    • Severance Benefit – Retirement due to ill health: For lump sums due to employment termination because of ill health, injury, or similar incapacity, regardless of age.
      • Source Code: 3901 for gross amount, 4115 for PAYE withheld. Taxable at severance rates.
    • Severance Benefit – Involuntary Retrenchment: For lump sums paid because the employer is stopping trading or reducing staff, not for dismissals or restructuring. Regardless of age.
      • Source Code: 3901 for gross amount, 4115 for PAYE withheld. Taxable at severance rates.
    • Severance Benefit – Voluntary Retrenchment: For lump sums paid where an employee chooses to leave before involuntary retrenchments happen (e.g., due to restructuring).
      • Source Code: 3901 for gross amount, 4115 for PAYE withheld. Taxable at severance rates.
    • Section 10(1)(gB)(iii) Compensation: For lump sum compensation paid by an employer due to a work-related death (under Compensation for Occupational Injuries and Diseases Act), where the compensation doesn’t exceed R300,000.
      • Exemption: This compensation may be exempt up to R300,000. SARS determines the exemption.
      • Source Code: 3922 for gross amount.
    • Employer Owned Policy Proceeds – Taxable: For lump sums from an employer’s insurance policy for employees/directors.
      • Source Code: 3907 for gross amount, 4102 for PAYE withheld.
    • Employer Owned Policy Proceeds – Exempt s10(1)(gG): If the employer’s policy premiums were included in the employee’s taxable income as a fringe benefit, these proceeds can be exempt.
      • Source Code: 3908 for gross amount.
    • Severance Benefit – Paid by a non-resident Employer: Only for non-resident employers not registered for PAYE in SA and not having an agent in SA, paying a lump sum due to termination of employment (excluding dismissal/contract end).
      • The taxpayer’s tax practitioner can submit this directive through eFiling, or in extreme cases, the employee can submit a hard copy with a letter from the non-resident employer.
      • Source Code: This amount is included in the taxpayer’s provisional tax payments. This code cannot be used by other employers on IRP5/IT3(a) certificates.
      • Note: Leave pay and notice payments from non-resident employers should not be included here; they are normal income declared on the ITR12 tax return.
    • Savings Withdrawal Benefit – Two-Pot Retirement System: As discussed, only pension, pension preservation, provident, provident preservation, or retirement annuity funds can use this reason when paying from the Savings Component.
      • Debt Deduction (IT88L): Be aware, bot trainee! If the taxpayer owes money to SARS (like assessed tax, provisional tax, or penalties), an IT88L stop order will be issued. This means SARS can deduct outstanding debt from the withdrawal, possibly leaving the taxpayer with nothing.
      • No Cancellations for Incorrect Amounts: Once a Savings Withdrawal Benefit directive is issued, it generally cannot be cancelled due to the member being unhappy with the tax or debt amount.
      • Calculators Available: Members or their tax practitioners can use online calculators (eFiling, SARS Online Query System, WhatsApp, Mobi-app) to estimate the tax and debt deductions before applying, to avoid surprises.
      • Tax Treatment: Savings Withdrawal Benefits are treated as normal employment income and taxed using the annual payment / bonus calculation method, including rebates. Retirement rates, exemptions, or tax-free amounts are not
      • Source Code: 3926 for gross amount, 4102 for PAYE withheld.
    • Backdated (Antedated) Salaries and/or Pensions: For amounts paid related to previous tax years, often from a settlement, arbitration, or court order.
      • Specific fields: Only the “backdated salaries/pensions” amount field should be specified.
      • Dates: Provide start and end dates for the accrual period.
      • Source Codes: 3623 for local income, 3673 for foreign income; 4102 for PAYE withheld.
      • Note: From 12 April 2025, you can no longer use “Other” for these amounts as there’s a dedicated reason.
    • Other – provide reason below: Use this for lump sums not covered by the specific reasons, like CCMA awards, leave pay, or bonus payments.
      • Tax Treatment: These amounts are treated as normal income and taxed using the annual payment / bonus calculation method.
      • Source Code: Generically 3907 for gross amount, 4102 for PAYE withheld. For Arbitration/CCMA Awards, it’s 3608.
      • Important: Source code 3901 (used for severance benefits) must never be used if the reason is “Other”.
    • IRP3(S) Application Form Details
    • This form is specifically for gains related to rights to acquire marketable securities (Section 8A) or the vesting of equity instruments (Section 8C), or certain dividends.
    • Date of Accrual: Mandatory, same principles as for IRP3(a).
    • Gross value of gain / amount: Mandatory field for the total value.
    • Employee a Tax Resident? You must select Yes/No. If Yes, then you provide the “source period” details related to the gain.
    • Exemption Section 10(1)(o)(ii) Applicable? This relates to foreign employment income.
      • If No: You’ll indicate if services were rendered abroad and if tax was withheld.
      • If Yes: You’ll provide qualifying 12-month periods where service was rendered outside SA within the source period. The total workdays outside SA during these periods must match the overall count.
      • Exemption Limit: For years of assessment after 1 March 2020, the exemption cannot be more than 25 million.

Processing the Tax Directive Application

• • • • SARS checks the application for errors and correct information.
      • If errors exist, the employer will be notified (electronically for eFiling/Interface, or the application returned for manual submissions).
      • Once successfully processed, SARS issues a Tax Directive (IRP3).
      • What is an IT88L (Stop Order)?
      • An IT88L is a notice attached to the tax directive that tells the employer to deduct and pay over any outstanding tax amounts the employee owes to SARS (like assessed tax, provisional tax, or administrative penalties).
      • This IT88L amount is in addition to the normal PAYE on the lump sum and must NOT be shown on the IRP5/IT3(a) tax certificate.
      • Payments for IT88L amounts must be made individually per taxpayer reference number to SARS.

Cancellation of Tax Directives

• • • • Once a tax directive is issued, the employer cannot simply cancel it to avoid hardship for the employee.
      • Cancellations are only considered in specific instances:
        • Incorrect “Severance Benefit” reason (e.g., Death instead of Retirement).
        • Using “Other” instead of “Severance Benefit – Voluntary retrenchment”.
        • Incorrect date of birth or income tax number.
        • Duplicate applications.
        • Employee declared insolvent with a date of insolvency before the lump sum’s accrual date, requiring a new directive under the post-insolvency tax number.
      • Crucial for Savings Withdrawal Benefits: No cancellations will be allowed if the reason is simply “incorrect amounts” because tools (calculators) are provided for members to make informed decisions beforehand.
      • If a tax directive is cancelled and a new one approved, the employer usually doesn’t refund the taxpayer (SARS does that). The employer must update the IRP5/IT3(a) certificate to reflect the correct details and resubmit it to SARS.

Handling Additional Amounts Payable

• • • • If an additional lump sum amount is payable, do not cancel the original tax directive.
      • Instead, submit a second tax directive application for the additional amount.
      • Remember to adjust the date of accrual by one day on the second application to avoid it being declined as a duplicate, ensuring it stays within the same tax year.

Statutory Rates of Tax Applicable to Lump Sums

• • • • For severance benefits, SARS applies an “aggregation principle”. This means when calculating the tax, SARS considers not just the current severance benefit, but also all previous severance benefits received since 1 March 2011, and retirement fund lump sum withdrawal benefits received since 1 March 2009, and retirement fund lump sum benefits received since 1 October 2007. This helps determine the correct tax rate based on all these accumulated lump sums.
      • For reasons like “Other,” tax is calculated using the annual payment/bonus method at normal tax rates.