Tax and SARS knowledge base
Is compensation for personal injury taxable in South Africa?
Is compensation for personal injury taxable in South Africa?
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Direct answer
Do not assume that every payment connected to a personal injury has the same tax result. The written settlement, court order, award letter and payment schedule need to show what was paid for. Section 10(1)(gB) of the Income Tax Act is the primary-law provision that must be considered for qualifying compensation for personal injury or illness. It does not determine other separately stated payments or deductions, which need professional review.
SARS's ITR12 material deals with taxable receipts and accruals, but a return field cannot determine whether a particular payment is included or excluded. Keep the legal documents and obtain tailored tax advice before filing a material settlement or excluding it from a return.
What this means in practice
The wording "compensation" is not sufficient evidence by itself. Read the agreement and related documents to identify the cause of action, the parties, the period involved, the calculation and any allocation. If the payer is an employer, insurer, state body, road-accident fund, medical scheme or another party, retain all notices and tax documents issued with the payment.
Avoid treating the net bank amount as the tax amount. A payment could have withholding, legal-cost deductions, interest or several instalments. Reconcile the gross calculation to the bank and make a file for every component. If a legal representative received funds first, keep the trust statement or remittance advice.
This is not medical, legal or litigation advice. The purpose is to preserve a clear tax evidence trail. The personal circumstances are sensitive, so share only necessary documents with a suitably authorised adviser and retain secure copies.
Step-by-step
- Build the award file.
Keep the settlement, court order, award letter, pleadings, calculations, correspondence and all payment notifications.
- Identify distinct components.
Separate personal-injury compensation, lost-income allegations, interest, costs, reimbursements and any other stated amount from the original evidence.
- Reconcile gross to net.
Match the payment schedule to bank deposits, withholding, legal fees and instalments. Keep a lawyer's trust statement if applicable.
- Compare SARS information.
Check whether an IRP5, certificate or prepopulated entry exists. Do not edit a return before reconciling it to the documents.
- Get a written tax review.
Ask the adviser to consider each component and the relevant tax period, rather than giving a conclusion from a bank description.
- Retain the final records securely.
SARS says return support should be retained for at least five years. Keep the return and assessment with the evidence.
Documents and records to keep
- Settlement agreement, court order or award letter.
- Payment calculation, instalment schedule and bank proof.
- Pleadings, insurer or employer correspondence and relevant tax certificates.
- Attorney trust statements, invoices and legal-cost evidence.
- Medical or supporting evidence only where needed to establish the nature of the payment.
- ITR12, assessment and professional advice received.
Important limits and exceptions
This article does not make a universal exemption or taxable-income claim. It does not calculate capital gains tax, interest, legal-cost treatment or a deduction. The correct position may be affected by the statutory basis for the payment, agreement wording and the payment actually received.
Do not manufacture an allocation after the fact. If the documents are unclear, obtain clarification from the payer or legal representative before filing. A material personal-injury payment should be reviewed before an ITR12 is submitted.
When to get tailored advice
Seek tailored advice for any material payment, settlement involving lost income, interest, an employer, foreign payment, withheld tax, periodic payments, trust payment or legal-cost recovery. TaxProof can organise the records for an adviser, while legal rights must remain with the appropriate professional.