The South African Revenue Service (“SARS”) has powers under section 179 of the Tax Administration Act, 2011 (“TAA”) to issue a notice to a person who holds or owes money to a taxpayer to pay such money over to SARS to settle a tax debt. Such notice is issued after giving a final demand for payment to the taxpayer setting out the recovery steps that SARS can take.
The third party that receives such a notice from SARS must advise SARS of the reasons if it is unable to pay the money over to SARS. If the third party parts with the money contrary to the SARS notice, they become personably liable for payment.
Importantly, according to section 179 the money that is being held by a third party for a taxpayer can include a pension, salary, wage, or other remuneration.
In Piet v CSARS (27 August 2024) the taxpayer had R145,934.99 paid by his Allan Gray Retirement Annuity Fund over to SARS towards settlement of a tax debt. On 16 August 2023, he applied to Allan Gray for the withdrawal of his retirement benefit as he had reached the age of 55. He was informed a week later that the full amount due had been paid over to SARS following receipt of a notice in terms of section 179 from SARS. The taxpayer approached the High Court for an order that SARS repay the amount on the basis that it contravened section 37A(1) of the Pension Funds Act, 1956 (“PFA”) and violated his constitutional right to have access to social security.
The Court noted that section 179 explicitly includes ‘a pension’ in its ambit. Further, if a taxpayer’s obligation to pay tax pending an objection or an appeal is not suspended, SARS can actively take steps to enforce the collection of tax.
Section 37A of the PFA states that:
‘Save to the extent permitted by this Act, the Income Tax Act, 1962 (Act No.58 of 1962), and the Maintenance Act, 1998, no benefit provided for in the rules of a registered fund … or right to such benefit … shall, notwithstanding anything to the contrary contained in the rules of such a fund, be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgment or order of a court of law…’
The purpose of section 37A is to protect pension funds from reduction, transferability or executability. However, the Court pointed out that one of the exceptions is a deduction permitted by the Income Tax Act. But the payment made by Allan Gray was under section 179 of the TAA and not the Income Tax Act. In this regard the Court pointed out that Section 37A was inserted in the PFA in 1976. At that time, and until 2011 when it was moved to section 179 of the TAA, section 99 of the Income Tax Act provided for third party notices. The Court therefore held that the PFA must be interpreted as having permitted SARS to declare Allan Gray as the third party agent of the taxpayer who was required to make payment of the tax due by the taxpayer.
Regarding the taxpayer’s argument that SARS acted unconstitutionally, the Court held that it failed to consider the limitation of rights in section 36 of the Constitution. Section 37A curtails the protection afforded to pension benefits deliberately and carefully. The Court concluded that the powers conferred upon SARS in section 179 constitutes a reasonable and justifiable limitation of the right to have access to social security.
Unless a higher court decides to the contrary, SARS may recover a tax debt from the taxpayer’s pension money through a section 179 notice when the pension falls due. Another example, of SARS ability to recover payments from a taxpayer pension is when a taxpayer makes an early withdrawal from the savings component under the two pot system. Before a final amount is paid out to a taxpayer’s saving component, the pension fund will be informed to deduct any outstanding tax debt on behalf of SARS before any payout is made to the taxpayer.
Telephone: +27 31 570 5496, Email: graeme.palmer@gb.co.za