Retirement funds and salaries are not a refuge from the taxman

​SARS has the powers to appoint third parties to collect outstanding tax debts from a taxpayer’s retirement or salary payments.

Lump sums, monthly annuities and salaries are not off-limits to the long arm of the taxman. Taxpayers who have failed to pay their tax debts in full to the South African Revenue Service (SARS) should not be surprised if SARS moves to recover what it is owed from retirement fund administrators or employers using the third party appointment process.

SARS’ powers to withhold funds

SARS can require an employer or retirement fund administrator to hold back / deduct outstanding tax debts of an individual through the third party appointment process set out in section 179 of the Tax Administration Act (TAA). SARS may appoint third parties such as employers, retirement fund administrators, banks, insurance companies, investment managers, and debtors to deduct the outstanding tax debts from any money held for, owed to or to be paid to the individual, and to pay the amounts deducted to SARS. Effectively, these third parties are appointed as "agents" to deduct and pay to SARS the outstanding tax debts.

SARS must send a final letter of demand to the taxpayer at least ten business days before instituting the third party agent appointment process (unless the final demand would prejudice the collection of the tax debt). SARS must ensure that the letter of demand is "received" / delivered on the taxpayer's eFiling profile.

In SIP Project Manager (Pty) Ltd v CSARS [2020] ZAGPPHC and WPD Fleetmas CC v CSARS and another [2020] ZAGPPHC, the High Court ruled that the third party appointment processes were unlawful as SARS did not prove that the final letters of demand were delivered to the taxpayers' eFiling profile. The High Court found that the direct debits on the taxpayers' bank accounts were unlawful and SARS was required to refund the amounts.

The third party agent appointment process is thus a collection process by SARS after it has issued a final letter of demand, but the taxpayer has still not paid the outstanding tax debts.

The mechanisms for collection

  1. Deductions from lump sums

  2. When an individual resigns, is retrenched or retires from their employment, their pension or provident fund will apply to SARS for a directive on the amount of PAYE to be withheld from the lump sum payments (on resignation or retrenchment) or lump sum withdrawals (on retirement). A retirement annuity fund administrator will also be required to apply for a directive from SARS on the amount of PAYE to be withheld from the lump sum withdrawals on retirement.

    SARS will issue an IT88L directive for an amount deductible as PAYE by the retirement fund administrator for the income tax amounts due from the lump sum payments/withdrawals, existing income tax debts, administrative penalties, and provisional taxes owed by an individual. The IT88L effectively acts as a "stop order for taxes in arrears" for the retirement fund administrator to deduct the tax debts from the lump sum amounts and pay them to SARS.

  3. Deductions from monthly annuity/pension payments

  4. The amount a taxpayer receives in the form of monthly annuities from a retirement fund is "remuneration", and subject to PAYE. These amounts can also be targeted by SARS.

    SARS can appoint the retirement fund administrator as its third-party agent to collect tax debts. Effectively, the retirement fund administrator is the "employer" responsible for withholding PAYE on the annuities / remuneration payable to the taxpayer.

    The monthly pension or annuity can potentially be subject to third party appointment letters by SARS in the form of the AA88 Third Party Appointment Notice. These AA88 notices instruct the retirement fund administrators to deduct the specified tax debt amounts against the monthly annuities and pay them to SARS by the due dates.

    If the taxpayer has accumulated their monthly annuities in a money market account over time, SARS can also issue a third party appointment letter to the bank requiring it to deduct any outstanding tax debts from the money market account and pay it to SARS.

  5. Deductions from salaries

  6. SARS can also issue the AA88 Third Party Appointment Notice to employers on the e@syFile™ system with similar instructions to deduct specified tax debt amounts from the salaries of the listed employees. If an employer does not comply with the AA88 instructions, the employer will be personally liable for the amounts not deducted.

    The employer can post an outcome on an employee and send it to SARS without deducting the amount in the AA88 instruction. These outcomes could be, for example, if the taxpayer’s employment is not confirmed or they are not employed, the taxpayer is deceased or insolvent, or there is an affordability request to reduce the amount to be deducted based on "basic living expenses" needed by the employee and their dependants.

    While the IT88L represents a "stop order" on the lump sums, the AA88 agent appointments are issued to employers until the tax debts of an individual are proven to be paid up by the individual, in which case the employer will finalise and cancel the AA88 instruction and stop further deductions.

Pay tax debts by the due dates

SARS has very broad powers to collect outstanding tax debts. Tax debts arising in this filing season should be paid to SARS by the due dates to avoid SARS exercising its third party collection processes.


These materials are provided for general information purposes only and do not constitute legal or other professional advice. While every effort is made to update the information regularly and to offer the most current, correct and accurate information, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect, inaccurate or dated. We accept no responsibility for any loss or damage, whether direct, indirect or consequential, which may arise from access to or reliance on the information contained herein.

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