Pension Apportionment (Foreign Services Rendered)

Individuals may get the opportunity to work outside of South Africa and, while rendering these services, they will contribute to their occupational pension fund. This qualifies them for an exemption on a portion of their pension upon retirement, as stipulated in section 10(1)(gC) of the Income Tax Act No. 58 of 1962 (the Act).

Not all individuals will be aware of this provision, though, as retirement could still be decades away, and when it arrives many people forget about the foreign service rendered years ago.

What is pension apportionment?

Lump sums and annuities are deemed to be from a South African source if the services in respect of which these accrued were rendered in South Africa.

If services were rendered partly in and partly outside South Africa, an apportionment will have to be made. The portion which relates to services rendered in South Africa over the total service years will be deemed to be from a South African source. Section 10(1)(gC) will, however, exempt the portion that relates to the income from services rendered outside South Africa.

How it works

To qualify for the exemption, certain supporting documentation will be required and individuals are urged to keep sufficient records of any time spent working abroad while contributing to an occupational pension fund.

The supporting documentation for the foreign service exemption must therefore be kept until retirement or withdrawal.

Tax paid on the foreign sourced pension portion will have to be refunded if the requirements are met. An individual who is currently in such a position, or has been in this position, may qualify for a refund on the overpaid tax.

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