What is a tax directive and who qualifies?
A tax directive enables SARS to formally instruct employers, fund managers or insurers what rate of tax to deduct for a taxpayer’s PAYE or withholding tax. The reason why the tax rate that SARS puts forward will be different to the individual’s usual rate, is because SARS has reviewed the individual’s circumstances and decided that they will be unfairly taxed on earnings if the rate is not adjusted. This is especially the case where they receive larger, irregular lump sum payments.
Commission earners or sales staff
Commission-earners often find themselves in a position where their income can fluctuate dramatically, especially when they suddenly secure sales with a high commission threshold. A good example of a commission earner would be a real-estate agent specialising in elite property acquisitions, or a car sales executive who sells exclusive luxury car brands.
Where the estate agent worked tirelessly to sell a multi-million Rand mansion to a business executive, it would be unfair to assume that the sudden influx of commission should be taxed at their general income tax rate. The agent might only sell one or two houses a year, which means that their total taxable income can put them into different brackets at different times.
If charged at the normal income tax rate, it could be assumed that the agent sells a house every month, which is not correct. Subsequently, the agent’s employer can request a tax directive to accommodate for when a large sum is generated from a sale.
Expatriates and people who are emigrating
Expatriates who are in the process of financially emigrating to another country, often resort to encashing large portions of their pension funds to assist with their relocation. When this lump sum is withdrawn, the fund will deduct necessary taxes based on the individual’s current tax rate, which will not be fair. Through a tax directive, SARS can instruct the fund administrators at what tax rate the lump sum must be taxed before processing payment to the individual.
Pensioners and retirees
Where pensioners are drawing a remuneration, the retirement fund administrators will withhold PAYE contributions on behalf of the pensioner. If the individual earns another income, or their additional income ceases, their circumstances change and a directive could be sought to normalise their tax obligations without incurring debts.
Those facing unforeseen financial hardship
In rare cases where the taxpayer has encountered financial hardship through no control of their own, such as through the national lockdowns, taxpayers can submit a hardship directive application asking SARS to reconsider their rate of taxation to alleviate their hardship.
Tax directives can become incredibly technical depending on your unique circumstances. In order to minimise your exposure to tax, it is advisable to call on a tax specialist when requesting a directive from SARS. An experienced consultant can assist with the finer points when seeking tax relief from SARS in the form of a tax directive.