Tax Directives – Other

Tax directives are often issued by SARS to instruct employers how to deduct employees’ tax from certain payments such as termination lump sums and arbitration awards. More information about these types of directives can be found here.

However, this page deals with two other types of tax directives, which might be issued in circumstances such as the following:

  • Exempt policy proceeds
  • Share options

Exempt policy proceeds are tax-exempt

No tax is deducted on exempt policy proceeds directives. When you select "3908 => Exempt policy proceeds" as the Directive Income Source Code, the Amount of Tax to Deduct (from Tax Directive) field is hidden.

To add a tax directive in the above-mentioned cases:

  1. Go to an employee’s profile, and click on Add next to Regular Inputs.
  2. Click on Tax Directive under Other.
  3. Enter the Directive Number.

  4. Select the Directive Type from the drop-down:

    • Fixed Amount – IRP3(c): This means that a fixed amount of tax will be deducted on each payslip to which this regular item applies. Continue to step 5 below.
    • Fixed Percentage – IRP3(b) and IRP3(pa): This means that a fixed percentage of tax will be calculated on the taxable income, before taxable income deductions are taken into account. Enter the Percentage, and continue to step 7 below.

    Changing directive type

    Should you change the directive type during the tax year, a new IRP5 will be issued from the pay period in which the change takes effect, reflecting the difference in tax calculation.

  5. If you select “Fixed Amount”, you will also need to complete the following additional fields that appear, as they impact the reporting codes to SARS:

    • Directive Issue Date: This refers to the date that SARS issued the directive.
    • Directive Income Source Code: This code relates to the specific income source code indicated on the directive issued. Only those relevant to payroll can be selected.
    • Directive Income Amount: This code relates to the value of the lump sum or taxable benefit corresponding to the directive issued.

  6. Enter the Amount of Tax to Deduct (from Tax Directive).

  7. Click Save.