Taxation & Revenue Law Responses
Response to question 1
Retrenchment is an unfortunate occurrence and the individuals who undergo such an ordeal tend to face numerous challenges with regard to income taxation. Income taxation has been defined as the taxation imposed
on the earnings made by an individual. During retrenchment there option available may be a single pay out and one may therefore ask themselves the options available regarding taxation when one is retrenched. The
individuals who have been subjected to retrenchment are likely to gain severance benefits and which are calculated and determined per certain criterion before decisions are made. It is important to note that special
taxation rates are applicable to severance benefits and their calculations and estimations are based on the retirement lump sum taxation table (SARS, 2017, p.1) Additionally, pro-rata bonuses and leave pay paid during the period of retrenchment are not categorized under the severance benefits and thus they are subjected to income tax as per the normal procedures to taxation.
Sanchez would qualify for the special severance tax rate and which involves the employer paying him a lump sum amount due to the termination of his employment. The special tax rate is applicable when the employer
stops trading or embarks on a reduction of personnel needed for a firm. The special tax incentive is applicable if one is 55 years and above at the time of retrenchment and which Sanchez qualifies. For the purposes of
taxation, the severance pay is regarded as a retirement payment in lump sum amount. Consequently, the employer of Sanchez will have to submit a tax directive application and state the amount to be taxed as per the agreement of the retirement lump sum based on the lump sum benefits received in the previous years (IRAS, 2017, p.1). Moreover, Sanchez must realize that the lump sum benefit received will reduce the lump sum tax benefit available in subsequent withdrawals to be made. For Sanchez, the annual leave over the years as well as contributions to the superannuation fund will determine how the taxation is done. The superannuation fund is exempted from income tax payment and therefore the other earnings from the retrenchment package are the ones to be subjected to income taxation (Nathan, 2017, p.1). Regarding rebates available for Sanchez, any amounts made as compensation for the loss of employment are not subjected to taxation. Thus the bona
fide redundancy pay may not be subjected to taxation as well as the superannuation payments.
Response to question 2
Capital gains tax is a form of tax levied on profit from the sale of a property or from profits realized out of investments. The capital gains tax is part of income taxation and is realized on the disposal of assets for
which the proceeds from the transaction exceed the base cost. The taxation of …
