We have a client who had dismissed striking workers and after a lengthy legal process has reached a settlement with the Union. In terms of the settlement agreement, each of the employees will get a retrenchment package. This package contains an initial lump sum followed by monthly payments over a two year period. Will we have to apply for tax directives for each of the employees for the total payout as per the settlement agreement or do we apply a directive for the amount receivable in year one and another directive for the amount receivable in year 2.
You will have to apply for a tax directive for each employee because it is likely that the employee belong to different tax brackets and a different pay-level. Each employee will therefore have different tax rates and therefore different tax outcomes.
The other advantage of applying for a tax directive for each employee is the social-economic benefit. Since the labour unions are involved it will be easier to justify the tax implications if the directives came directly from SARS. This will provide greater legitimacy for the tax outcomes. The tax deductions (instructions) came from SARS.