Tax and SARS knowledge base
Is accrued leave pay taxable when I resign or retire?
Is accrued leave pay taxable when I resign or retire?
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Direct answer
Yes, if accrued leave is encashed. SARS treats encashed accrued leave as taxable remuneration when it is paid, and says it is taxed in the same manner as a bonus. It does not form part of a severance benefit merely because it is paid when employment ends.
The timing matters. Unpaid or forfeited leave is not a payment of remuneration. This guide addresses an actual leave-payment amount, not your employment-law right to leave or an employer's leave policy.
What this means in practice
Final payroll often includes an amount for unused leave. Obtain the leave calculation, the payment breakdown and the payslip so you can see whether the amount agrees to the employer's stated leave balance and rate. If the certificate does not agree, ask payroll for an explanation before submitting the ITR12.
SARS's employer guide generally identifies leave-pay remuneration under code 3605. In a directive case, the guide indicates that code 3907 and a directive number can be relevant. Do not select a code yourself based only on the words "leave pay". The employer must submit accurate certificate data for the facts and applicable directive process.
It is useful to separate leave pay from notice pay and any severance-benefit amount as soon as you receive the final settlement. That makes it easier to identify a missing amount, an incorrect certificate entry or a payment that has been counted twice.
Step-by-step
- Get the leave calculation.
Ask the employer for the accrued leave balance, rate used and amount encashed. Keep the calculation with your termination or retirement documents.
- Check the final payroll record.
Confirm that the leave-payment amount appears separately from ordinary salary, notice pay and any other termination amount. Retain the payslip and bank record.
- Review any directive information.
Where the employer used a SARS directive process, keep the directive number and related documents. Do not assume every leave-payment case has the same certificate presentation.
- Compare the IRP5 or IT3(a).
Check the certificate against the calculation and final payslip. The employer guide generally uses code 3605 for leave-pay remuneration, while directive cases can require different supporting information.
- Raise source-data errors with the employer.
If the amount, certificate code or directive information is inaccurate, ask the employer to investigate and correct the submission to SARS. Do not change a prepopulated certificate entry to replace a source correction.
- Keep filing evidence.
Retain the ITR12, ITA34 assessment and correspondence with the employment records. They can be important if SARS asks why the final payroll differs from a certificate.
Documents and records to keep
- Leave balance and encashment calculation.
- Final payslip and payment breakdown.
- Bank record of the payment.
- Termination or retirement letter.
- SARS directive and number, if applicable.
- IRP5 or IT3(a), ITR12 and ITA34.
Important limits and exceptions
This article does not calculate tax, PAYE or the leave balance. SARS's guide describes the payroll treatment, while the employer must apply it to the actual payment.
Accrued leave that is not paid is not remuneration on the basis stated here. Notice pay has separate treatment, and a qualifying severance benefit follows its own directive process. Do not combine the labels when checking a final payment.
This article does not resolve an employment dispute about leave entitlement, a contested balance or whether a payment should have been made.
When to get tailored advice
Get tailored advice if your final payment contains leave, notice and severance amounts together, if directive details are missing, or if the certificate differs from the leave calculation.
TaxProof can help organise the calculation, payroll records and certificate for a tax-record review. The employer corrects source data and SARS determines the final assessment.
Related TaxProof guides
- Employer IRP5 and EMP501 guide
- Is notice pay taxable when I leave my job? (B03-IND-003)