The Nil Assessment Red Flag
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Uncovering A R336,600 Overpayment Behind A Nil Assessment
- Client: Confidential - employee of an international mining company, total income of R10.37 million for 2026
- Matter: SARS nil assessment on retirement fund lumpsum payouts taxed as remuneration, 2026 tax year
- Duration: Ongoing - notice of objection lodged, awaiting SARS decision
- Provision: Tax Administration Act - Section 103 (Rule 6), Section 93 and Rule 9
The Challenge
Many taxpayers are happy with a nil assessment or a modest refund in terms of an auto-assessment. But often there are more benefits hidden in these numbers to which the taxpayer is entitled.
As in this case.
The taxpayer works for an international mining company with a local operational subsidiary in the form of a holding company.
She earned employment income of R7.7m for 2026, which included a bonus and other related fringe benefits. In addition, she received a pension payout of R1.2m, together with two other related payouts, bringing total income for the year to R10.37m. These payouts should qualify to be taxed on the retirement fund lumpsum withdrawal tables.
SARS assessed her at 0.00. That is always a red flag as it is highly unlikely that income of this size will miraculously balance at 0.00 on assessment. It was more likely a case where SARS obfuscated a possible refund in the hope that the taxpayer will be happy with a nil outcome.
On further inspection it was established that the three payouts were taxed as remuneration through PAYE, resulting in a significantly higher tax burden with possible overpayment calculated at R336,600 when the applicable retirement fund lumpsum withdrawal tables were used.
Support for this approach were found in the IRP3 tax directives from the third parties which labelled the lumpsums as “resignation”, or “withdrawal” or “savings withdrawal”. No ground existed for SARS to tax the amounts as PAYE. It became clear SARS confused the “savings withdrawal” as being remuneration from another employer.
This needed to be addressed.
The Solution
- Firstly, a request for reasons in terms of Rule 6 of S103 of the Tax Administration Act (TAA) was lodged as to why this was done in this manner. The response from SARS was highly unsatisfactory in that it was stated that the taxpayer received employment income from multiple employers in the tax year. This was clearly incorrect as the taxpayer worked for only one company in the year. However, the response did provide a clearer basis as to the reasons why the assessment was made by SARS in this way.
- Secondly, a notice of objection (NOO) was lodged with clear reasons on law and facts provided as to why the assessment was incorrect. All the required documentary evidence was included in the NOO, with the taxpayer requesting a reduced assessment in terms of S93.
The Results
The matter is still unresolved, as SARS has 60 days in terms of Rule 9 to make a decision, which may be extended by a further 45 days. It is expected that SARS will concede on this matter, failing which the matter could be taken on appeal and hopefully resolved through ADR to the benefit of the taxpayer.
- A nil assessment on R10.37 million of income identified as a red flag
- Possible overpayment of R336,600 once the retirement fund lumpsum withdrawal tables are applied
- Notice of objection lodged with full documentary evidence, requesting a reduced assessment in terms of S93