When an employer’s failure to upload an IRP5 brings SARS to a grinding halt.
One of my clients has recently retired—and like all retirees, they went through the whole rigmarole of completing the numerous forms required by their employer retirement fund so that the fund can calculate their lump sum entitlement and monthly pension. Now one would think that given that a retirement fund exists solely for one purpose—that of receiving retirement contributions and investing them in order to provide retirement benefits—the administrative process would be part of a well-oiled machine, staffed by individuals who are so used to the procedures that they can do them blindfolded. Apparently not. In my client’s particular case, it took the fund the best part of six months to calculate their benefits, finalise the lump sum entitlement, and pay it out to my client. It was also six months before their monthly pension benefit kicked in.
What a retiree is meant to do in a situation such as this where they haven’t taken up new employment or don’t have other means of support, is beyond me. Are they expected to simply stop eating while the institution untangles their mess? Of course, while my client was trying to sort out this whole mess with their retirement fund, the end of a tax year had come and gone. When Filing Season for that year got underway, naturally it was time for me to complete and submit my client’s tax return—just as I’ve been doing for a number of years. When I opened up a new return for the tax year in question, the IRP5 certificate from my client’s employment had been uploaded, as were the IT3(a) certificates from their various investments. Information relating to their medical scheme contributions and unrecovered expenses was also prepopulated on the form. I duly captured the IT3(c) (capital gains) information into the return (SARS has not yet got around to automating this part of the process), compiled the income statement for their rental property, checked the uploaded information again-st the certificates for correctness—and once my client gave me the go-ahead, I clicked ‘Submit to SARS’.
However, instead of seeing the customary “Your return has been successfully submitted” screen, a message popped up indicating that the return could not be submitted since SARS had a directive on record which could not be matched to an IRP5 certificate. Given my client’s circumstances, this directive could have only come from one source—the retirement lump sum.
Now I need to add at this point that we weren’t too surprised to see that no IRP5 had been uploaded for the retirement lump sum. We simply assumed that since the pay-out had only been finalised after the end of the tax year in question, the IRP5 would be included in the following year’s tax return.
The run-around begins:
In November 2020, December 2020, and January 2021 I wrote a three-part series of articles about the added pain caused during a retrenchment process when employers submit incorrect IRP5 information to SARS. In that particular instance, my client’s former employer had entered the incorrect SARS tax code on the tax deduction directive that had been submitted to SARS. The result was that my client was over-taxed by around R200 000 on their retrenchment gratuity. What followed was a game of ping-pong between the former employer and SARS. The employer maintained that since they are legally bound to deduct the tax amount stated on the directive, there was nothing that they could do to rectify the situation, and referred their (now former) employee to SARS.
Meanwhile, as far as SARS was concerned the mistake made was by the employer, and thus it is incumbent on the employer to make the necessary corrections and resubmit everything to SARS. Only once SARS received the revised directive and IRP5 from the employer, could they then issue a revised assessment showing the correct tax treatment, followed by a refund of any over-deducted tax. The entire process took two years to untangle. So imagine the feeling of dread in my gut when we found out that notwithstanding the fact that the retirement lump sum was paid out after the tax year in question, the amount had actually accrued as at the date of my client’s retirement, i.e. within the tax year.
After many telephone calls and e-mails, the retirement fund eventually issued the IRP5. However, since such IRP5 had not been uploaded (notwithstanding a refresh of the return), I had to capture it manually. To my surprise, e-filing actually allowed me to enter the missing information, and once I had done so, I genuflected a few times, clicked ‘Submit to SARS’, and voila! The return went through. SARS then issued an assessment, which I checked and found to be correct. All that was now left for me to do was to upload my client’s supporting documents, and wait.
Waiting for Godot(gwana):
For those who are unfamiliar with the reference, Waiting for Godot is a play written by Samuel Beckett, in which the two characters (Vladimir and Estragon) engage in a series of discussions and encounters while awaiting the titular Godot, who never arrives. The -gwana suffix makes it a derivative of Godongwana, a reference to Finance Minister Enoch Godongwana—although technically SARS falls under the oversight of its Commissioner, Edward Kieswetter, who reports to the Finance Minister.
Either way, I have not heard a thing from SARS since submitting said return in early November last year. At the time of writing it is now the end of January, which means that just short of three months has passed since the return was submitted. To add insult to injury, the delays on the part of the retirement fund in getting the IRP5 issued meant that the return was submitted late—and although it went in a mere 10 days after the deadline, SARS still saw fit to impose an administrative penalty. We immediately submitted a ‘Request for Remission’, but once again we’ve not had so much as a peep out of SARS. What’s surprising about all this is that we’ve not had any letters of demand from SARS for the unpaid penalty. We can only surmise that this is because my client is due a refund that exceeds the amount of the penalty—and seeing as the refund is being held back pending the finalisation of the review, SARS is clearly unconcerned that the penalty won’t be paid. As for the reason for the delay? At this point, we have no idea what has caused it. The fact that we’ve not had any feedback on either the review or the request for remission suggests that there’s something that is damming the flow of both processes.
That said, the fact that my client has retired from what is probably the largest retirement fund in South Africa leads me to suspect that there could be a significant number of their members who are in a similar situation as my client—in which case until they get the information submitted to SARS in the correct format, we will continue to play the waiting game.
WRITTEN BY STEVEN JONES
Steven Jones is a registered SARS tax practitioner, a practising member of the South African Institute of Professional Accountants, and the editor of Personal Finance and Tax Breaks.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes and should not be construed as financial advice.