Individuals who owe unpaid taxes to the South African Revenue Service (SARS) may find the agency has the legal authority to recover funds directly from their bank accounts or even their pension savings to settle tax debts.
According to legal professionals from Garlicke & Bousfield, SARS is granted this power under the Tax Administration Act (TAA). This legislation allows SARS to issue a notice to the taxpayer or a third party, such as a bank or pension fund administrator, that holds the taxpayer’s funds. Once the notice is issued, the third party must transfer funds to SARS to cover the outstanding debt.
South Africa Pension and Salary at Risk?
Tax expert Graeme Palmer explains, “SARS will first issue a final demand to the taxpayer, outlining the steps they can take to recover the unpaid taxes.”
If the third party cannot fulfill the notice, they are required to explain the reason to SARS. Failing to comply without proper justification could result in the third party being personally liable for the unpaid debt.
What Funds Can SARS Recover?
Section 179 of the TAA gives SARS the authority to collect various types of funds owed to the taxpayer, including pension savings, salaries, or wages held by third parties. In one notable case, Piet v CSARS (27 August 2024), a taxpayer’s retirement fund administrator, Allan Gray, transferred R146,000 to SARS to settle a tax debt.
In this case, the taxpayer, who was over 55 and eligible to withdraw from their retirement savings, learned that the entire amount had already been transferred to SARS under section 179 of the TAA.
The taxpayer took the matter to the High Court, requesting the funds be returned, claiming SARS had violated Section 37A(1) of the Pension Funds Act (PFA) and infringed on their constitutional right to access social security.
Court Ruling: SARS’ Authority Over Pension Funds
The court ruled that Section 179 of the TAA explicitly includes pension funds within its scope. Palmer pointed out that, unless the tax liability is suspended due to an objection or appeal, SARS can continue to pursue debt recovery, even if pension savings are involved.
While Section 37A of the Pension Funds Act is designed to safeguard pension benefits from being seized, it does make exceptions. These include deductions authorized by laws such as the Income Tax Act.
In Allan Grey’s case, the court found that the retirement fund administrator had complied with Section 179 of the TAA, not the Income Tax Act. The court further noted that before Section 179 was added to the TAA in 2011, similar provisions existed under Section 99 of the Income Tax Act, allowing SARS to issue third-party notices.
The court ultimately ruled that Section 37A does allow SARS to designate a third party, like Allan Gray, to transfer funds from a taxpayer’s pension to satisfy unpaid taxes.
Constitutional Challenges and Court Findings
The taxpayer also argued that SARS’ actions were unconstitutional, claiming they violated their right to access social security. However, the court dismissed this claim, referencing Section 36 of the Constitution, which allows for reasonable limitations on rights under specific circumstances.
The court clarified that Section 37A of the PFA was designed to protect pension benefits but deliberately limits this protection in cases where tax debts need to be recovered. The court found that SARS’ powers under Section 179 of the TAA represent a legitimate and reasonable limitation on social security access.
Implications of the Ruling
“Unless a higher court overturns the decision, SARS has the legal authority to collect tax debts from a taxpayer’s pension using a Section 179 notice once those funds become available,” Palmer added.
SARS has also extended its authority to cover early withdrawals under the new two-pot retirement system. Before any money is released from the taxpayer’s savings component, the pension fund must deduct any outstanding tax debts on behalf of SARS, ensuring that tax obligations are fulfilled before the remaining balance is paid to the taxpayer.
This ruling reinforces SARS’ ability to use pension savings and other funds to recover unpaid taxes, highlighting the importance of ensuring tax debts are settled to avoid the seizure of retirement savings.
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