It often comes as a surprise to pensioners that they are still liable for tax. The bottom line is, if you receive an income above a certain amount, it will be taxed.
A retiree could be receiving an income from an annuity, a property they rent out, part-time work or even interest they earn. All of these are added to their taxable income.
There are few tax-relief measures available to retirees and it is important to ensure that, when you retire, you make the most of these and plan your finances accordingly.
TAX EXEMPTION ON RETIREMENT LUMP SUM
When you retire from a retirement fund, you qualify for a R500 000 tax exemption on any lump sum paid out by the retirement fund – if you have not used this previously, if you were retrenched, for example. It is important to be aware that withdrawal above this is taxable according to the retirement tax tables.
TAX REBATE FOR OVER 65s
The good news is that, when you turn 65 and again at 75, you receive higher tax rebates, which lowers your tax payable. For the 2022/23 tax year, an individual who is younger than 65 will pay tax if their taxable income exceeds R91 250.
An individual between the ages of 65 and 74 will only pay tax if their taxable income exceeds R141 250 and an individual who is 75 and older will only pay tax on an income that exceeds R157 900.
INTEREST TAX EXEMPTION
Many retirees invest in cash to provide an income in retirement, but interest income can also be taxable if it is not in a retirement fund structure. If you are younger than 65, any interest income received above R23 800 a year is added to your taxable income.This means that if you have more than about R460 000 invested in an interest account paying a 5% return, this could be taxable.
However, once you turn 65, the tax-free amount increases to R34 500, which means you could have nearly R700 000 invested before it is added to your taxable income.
MEDICAL TAX CREDITS
There are additional medical tax credits available for retirees from the age of 65. However, you only receive these if you submit a tax return, so it is important to keep your tax return up to date.