Tax and SARS knowledge base
How do I report a lump-sum amount on my IRP5 and ITR12?
How do I report a lump-sum amount on my IRP5 and ITR12?
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Direct answer
Report a lump-sum payment as it appears on the IRP5 or IT3(a), including the source code, PAYE and directive information where shown. Do not change the entry simply because the payment is described as a "lump sum". The payment type determines the employer's directive process and certificate treatment.
SARS says an employer must analyse the nature of a lump-sum payment, select the appropriate directive reason and submit the directive application. SARS then indicates the PAYE amount to withhold on the directive.
What this means in practice
"Lump sum" is a description of how an amount was paid. It is not one tax category with one code or one rate. A payment can arise from a variety of events, and the employer's or fund's supporting documents should identify the payment and its tax treatment.
The employee's role when completing an ITR12 is to review the IRP5 or IT3(a) and the prepopulated return information against the documents. The employer or fund is responsible for the directive application and for issuing a correct certificate. If the source record is wrong, ask the issuer to correct it rather than recoding the amount yourself.
SARS's current directive guide gives examples of different directive treatment. Certain severance payments use a gross source code of 3901 and employees' tax withheld under a directive can use code 4115. Leave pay and notice payments can require separate directive applications. These examples show why a reader should not assume that every payment labelled "lump sum" is a severance benefit.
Step-by-step
- Get the payment documents.
Ask the employer or fund for the IRP5 or IT3(a), the directive where one was issued, the payment letter and a breakdown of the amount. Keep the employment, settlement or fund documents that explain the payment.
- Identify the tax year and certificate information.
Check the tax year, source code, amount, PAYE and directive number shown on the certificate. Make sure you are comparing documents for the same payment and year.
- Compare the certificate with the ITR12.
Open the return and compare the prepopulated entry with the certificate. The source code and directive information should not be guessed or changed to match an expected outcome.
- Ask the issuer about a discrepancy.
If the certificate, directive and payment records do not agree, contact the employer or fund. Ask it to investigate the source record and correct its submission to SARS where necessary.
- Recheck before filing.
Once the issuer has corrected its information, recheck the ITR12 and retain the correction correspondence. If the return has already been filed, do not assume that simply submitting another return is the right route. Check the applicable correction process and case status.
- Keep the result documents.
Retain the final certificate, directive, ITR12 submission confirmation and ITA34 assessment. These documents are needed if SARS asks how the amount was reported.
Documents and records to keep
- IRP5 or IT3(a) certificate.
- SARS tax directive, where issued.
- Payment letter, payslip and payment breakdown.
- Employment, settlement or fund documentation explaining the amount.
- ITR12 screen or submission confirmation and the ITA34.
- Issuer correspondence about any correction.
Important limits and exceptions
Do not call every lump-sum payment a severance benefit or apply severance treatment simply because an amount was paid once. Different directive reasons and payment types have different codes and tax treatment.
Do not publish or rely on a generic tax rate for a lump sum. The applicable treatment depends on the type of payment, timing and directive information. A source code shown in a SARS example is not automatically the right code for a different payment.
This article is about reporting and checking the information. It does not determine the legal tax outcome of a specific termination, pension, leave, notice, settlement or other payment.
When to get tailored advice
Get tailored advice before filing if the payment relates to retirement, retrenchment, death, ill health, a settlement, backdated pay or a payment that the employer cannot explain clearly. Also get help if the directive and certificate do not match.
TaxProof can help organise the payment records and identify what needs to be checked with the employer or fund. The issuer must correct the certificate or directive record, and SARS determines the tax treatment and assessment.
Related TaxProof guides
- How to object to a SARS assessment
- When does SARS require a tax-directive number on an individual return? (B02-IND-005)