Am I taxed for my portion of my ex-husband’s retirement fund?

Question:

In my divorce settlement I received 50% of my ex-husband's annuity gratification amount. He is now 64 and it pays out in a week. He is going to pay my share and the tax, if any, will already have been deducted. Am I going to be taxed again on this amount and do I have to declare it in my next SARS assessment next year? Is there a code or something that I can provide to SRS so that they will know that this amount was already taxed? My ex is going to get the whole amount deposited into his bank account directly from Old Mutual and he is going to deposit my share into my account. I'm not going to invest this amount into a retirement annuity because I need it to trade in my old car for a newer one

Answer:

Hanna,

You say your ex-husband will receive the proceeds from his retirement fund next week. If it is from a retirement annuity he can only take a third of this as cash; he must use at least two-thirds to buy an annuity. The same applies if the proceeds are from a pension fund. Only if your husband was member of a provident fund, can he receive the whole amount as cash.

Any cash lump sum paid out by Old Mutual will paid out after deducting the applicable cash lump sum tax (based on a tax directive from SARS). If he shares the net proceeds with you, you will not be taxed again on your portion. Any monthly annuity is paid out before tax. The onus is on the recipient to declare this as income, and to pay the relevant tax as per the prevailing PAYE tables. If your husband receives the full annuity, he will pay the full tax thereon. If he then shares the net proceeds with you, you will not be required to pay tax again on your portion. It is not SARS’ intention to double-tax income.

Using the appropriate categories in your income tax form will ensure that SARS treats these amounts correctly. If you have any problems you should consult a tax adviser, but it should be quite straight-forward.

As a word of caution, please remember that the purpose of a retirement fund is to cover your living expenses through-out retirement. You cannot fall back on the state or anyone else to help you when you run out of money. You should therefore think long and hard whether a large capital expenditure such as a new car is the most prudent way to spend these savings.