Even if you are no longer working, you might still continue paying tax. Tax is treated differently before and after retirement.
Any cash lump sum over and above the R 500 000.00 threshold is taxable:
R 500 – R700k @18%
R 700k – 1050 @27%
R 1 050K+ @ 36%
This is also assuming that you have not previously drawn a lump sum. All lump sum payments are taxed on a cumulative basis, which means you cannot claim your tax-free thresholds in each year.
Retirement Annuity tax thresholds are more attractive over the long term.
If you are under 65 you can earn R 79 000.00 per annum tax free
Between 65 and 74, you can earn R 122 300.00 per annum tax free
And 75 and above R136 500.00 per annum is tax free
All in all, you can save tax if you do not cash in your lump sum and rather opt for an annuity over time
From age 65 – 74 = R 711 000.00 annuity income is tax free.
From age 75 – 85 = R 1 365 000.00 annuity income is tax free.
As illustrated below.
There are other tax implications to consider, so we always recommend you consult with your Tax and Financial Advisor when calculating how much tax you can expect to pay when you no longer earn a salary.