Pensions exempt from normal tax [section 10(1)(g), (gA), (gB) and (gC)]
The following amounts are exempt from normal tax in South Africa:
• War veteran’s pensions [section 10(1)(g)].
• Compensation relating to diseases contracted by persons employed in mining
operations [section 10(1)(g)].
• Disability pensions paid under section 2 of the Social Assistance Act 59 of 1992
[section 10(1)(gA)].
• Compensation paid under the Workmen’s Compensation Act 30 of 1941 or the
Compensation for Occupational Injuries and Diseases Act 130 of 1993
[section 10(1)(gB)(i)].
• Pension paid on death or disablement caused by any occupational injury or disease
sustained or contracted by an employee before 1 March 1994 in the course of
employment, if that employee would have qualified for compensation under the
Compensation for Occupational Injuries and Diseases Act 30 of 1993, had that injury
or disease been sustained or contracted on or after 1 March 1994
[section 10(1)(gB)(ii)].
• Compensation paid by an employer in addition to the compensation mentioned in
section 10(1)(gB)(i) on the death of an employee, which arose out of and in the course
of employment, to the extent that the additional compensation may not exceed
R300 000 [section 10(1)(gB)(iii)].
• Compensation paid under section 17 of the Road Accident Fund Act 56 of 1996
[section 10(1)(gB)(iv)].
• Any amount received by or accrued to any resident under the social security system
of any other country [section 10(1)(gC)(i)].
Any lump sum, pension or annuity received by or accrued to any resident from a source
outside South Africa as consideration for past employment outside South Africa or any
amount transferred to a South African retirement fund or insurer from a source outside
South Africa as consideration for past employment outside South Africa
[section 10(1)(gC)(ii)].
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(b) Pensions that are taxable
The following pensions are taxable in South Africa, unless one of the exemptions mentioned
above applies:
• A pension or annuity received by a resident from a pension, provident or retirement
annuity fund.
• A pension or annuity received from the South African government.
• Any lump sum, pension or annuity payable to any person (whether a resident of South
Africa or not) for services rendered inside and outside of South Africa. It is taxable in
the ratio of years of service rendered inside South Africa to the total years of service
rendered. The taxability of the pension may be affected by a tax treaty. Tax treaties
generally make provision for a pension to be taxed in the country where the pensioner
resides, except for government pensions which are taxable in the country paying such
pension. However, the country which has the right to tax the pension may, in its
domestic tax legislation, exempt the pension from income tax, for example,
section 10(1)(gC).
2.4.10 Annuities
Annuities which are normally received from retirement annuity funds, insurance companies,
trusts and estates are taxable. The capital element of a purchased annuity is exempt from
normal tax under section 10A. The insurance company will issue a certificate reflecting the
capital element. Annuities are subject to the deduction of PAYE when the source is from
South Africa.
Annuities received by residents from a source outside South Africa are also taxable in
South Africa. The taxability of the annuity may, however, be affected by a tax treaty.