Tax and SARS knowledge base
Is notice pay taxable when I leave my job?
Is notice pay taxable when I leave my job?
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Direct answer
Yes. SARS's termination-directive guidance treats notice payments separately and says they are taxed as normal income, not as severance benefits. Do not rely on the fact that the payment was made on or after your last day at work to classify it as a severance benefit.
The contractual question of whether you were entitled to notice pay is separate from its tax classification. This guide deals with the SARS record and return process, not employment-law rights.
What this means in practice
Your termination payment may include more than one amount. For example, a final payslip can include ordinary remuneration, notice pay and leave pay. The labels and supporting documents matter because SARS does not treat every amount paid at termination in the same way.
Ask payroll for a written breakdown that describes each component and its payment date. Then compare the breakdown with the IRP5 or IT3(a), payslip and, where one was issued, the SARS directive. Keep records even if the ITR12 is prepopulated, because prepopulation reflects source data submitted to SARS and is not a replacement for checking that source data.
Normal-income treatment also means that an amount described as "notice pay" should not be added to a severance-benefit figure merely to make the certificate look simpler. If documents conflict, the employer or relevant fund should correct its own submission.
Step-by-step
- Obtain the termination paperwork.
Keep the resignation, dismissal or retrenchment notice, the termination letter and any settlement or final-pay statement. These explain what the payment was intended to cover.
- Request a payment breakdown.
Ask payroll to identify notice pay separately from salary, leave pay and any severance-related payment. Record the payment date and the amount before relying on a single total in a bank transaction.
- Check the directive documents.
SARS's guidance deals with termination-related directive applications. Keep any directive and its reference with the payment documents, but do not assume that its presence turns notice pay into a severance benefit.
- Compare the IRP5 or IT3(a).
Check the certificate against the payroll breakdown and directive information. A mismatch should be raised with the party that issued or submitted the certificate.
- Review the ITR12 before submitting.
Compare the prepopulated entry with the certificate. Do not edit a prepopulated certificate amount to solve a source-data error. Ask the employer or fund to investigate and submit a correction where necessary.
- Keep the final assessment.
Retain the submitted return, any correspondence and the ITA34 assessment with the termination records. They provide an audit trail if SARS later asks for evidence.
Documents and records to keep
- Notice of termination, resignation or dismissal.
- Final payslip and detailed payment breakdown.
- SARS directive and reference, if issued.
- IRP5 or IT3(a).
- Bank record showing payment.
- Employer or fund correspondence about a correction.
- ITR12 and ITA34 assessment.
Important limits and exceptions
This guide does not calculate PAYE or decide the final tax payable. It explains the key distinction in SARS's guidance: notice payments are normal income and are not severance benefits.
Leave pay may also appear on a final payroll, but it has its own treatment. A settlement can include contractual damages or other components as well. Do not infer their treatment from the description "final payment". Obtain a specific payroll explanation when the documents do not separate the amounts.
This article does not establish whether an employer could lawfully pay in lieu of notice, whether a notice period was correct, or whether a settlement is enforceable.
When to get tailored advice
Get tailored advice if the employer combined notice pay with severance, leave or a settlement amount, if a directive or certificate is missing, or if the prepopulated ITR12 does not match the final payroll.
TaxProof can help organise termination records and identify questions to raise with payroll. The employer or fund corrects source data, and SARS determines the final assessment.
Related TaxProof guides
- Employer IRP5 and EMP501 guide
- Is accrued leave pay taxable when I resign or retire? (B03-IND-004)