[ADVISOR VIEW] The tax directive simulations provide an estimate of what a client’s tax would be if a withdrawal was made from the fund: Wouter de Witt - GravitasTax. Moneyweb Retirement Tax
What happens if a financial advisor doesn’t perform a tax directive simulation on a client’s half before they withdraw funds from a retirement vehicle? Emile van der Spuy of Gravitas Tax explains.
It is therefore critical to have an idea upfront of how much tax is going to be deducted from the lump sum in the fund. This calculation will leave a client with a net amount, from which it is possible to decide how much to withdraw for their immediate needs, for example, paying off debt, or sustaining a living for a couple of months.Tax directive simulations only came into effect in 2019, meaning this is a relatively new concept that many advisors and their clients are unaware of.
Say, for example, a client wishes to take out R500 000 on retirement and their advisor estimates – without performing a simulation – that there’s going to be nil tax payable. The actual withdrawal takes place and Sars deducts the tax that they deem necessary. If there is, for example, an additional R100 000 to be deducted, for which the advisor didn’t account, there’s no way back.
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