SARS issued two Binding Private Rulings (BPR 421 and BPR 422) on 26 November 2025, both dealing with South African tax residents receiving lump sums from foreign retirement funds.
At face value, the scenarios appear almost identical. Yet, the tax outcomes differ significantly. One possibility is that the two BPRs were drafted by separate members of SARS, but the probability of single authorship cannot be ruled out. That said, whoever the author(s) were in this case is irrelevant.
Two Rulings, Two Different Outcomes
While both SARS and taxpayers often refer to BPRs for guidance on how SARS ruled in a particular situation, it is important to note that for a BPR to be 100% applicable to a different situation, the circumstances would have to be pretty much identical.
It is safe to say that these two BPRs were probably not the product of a single SARS employee over-indulging on Klippies and Coke on an otherwise boring Wednesday afternoon, but the key question remains: how can two seemingly similar cases produce entirely different tax treatments? To solve this, we need to dig a bit deeper into the factors underpinning each BPR.
Relevant Legislative Framework
Each BPR relies on the same provisions of the Income Tax Act 58 of 1962:
Paragraphs (c) and (e) of the definition of ‘gross income’ in Section 1(1)
In the context of these two BPRs, paragraph (c) includes amounts received in respect of services or employment. Paragraph (e) includes retirement fund lump sum benefits. The exclusion under paragraph (eA) is not applicable in this instance as it refers to members remaining with the same employer, and dependents or nominees of a deceased member.
Section 10(1)(gC)(ii)
This provides exemptions for certain foreign pensions, lump sums, or annuities linked to past foreign employment.
Paragraph 1 of the Second Schedule
This Paragraph defines a ‘lump sum benefit’ to include:
(a) any amount determined in respect of the commutation of an annuity or portion of an annuity
(i) payable by; or
(ii) provided in consequence of membership or past membership of, a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund;
(b) any fixed or ascertainable amount (other than an annuity)
(i) payable by; or
(ii) provided in consequence of membership or past membership of, a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund; any amount transferred for the benefit of that person on or after normal retirement age, as defined in the rules of the fund, but before retirement date, less any deductions permitted under the provisions of paragraph 6A, whether in one amount or in instalments, but does not include any amount deemed to be income accrued to a person in terms of Section 7(11).
Paragraph 54(b) of the Eighth Schedule
Confirms that certain retirement lump sums are disregarded for Capital Gains Tax purposes. This includes:
- a lump sum benefit as defined in the Second Schedule; or
- a lump sum benefit paid from a fund, arrangement or instrument situated outside the Republic which provides similar benefits under similar conditions to a pension, pension preservation, provident, provident preservation or retirement annuity fund approved in terms of this Act.
Facts Common to Both BPRs
In both cases, the applicants were due to receive a lump sum from a retirement fund outside of South Africa and were applying for an Advance Tax Ruling to determine whether they were liable to SARS for any taxes thereon.
In both cases:
- The applicants were South African tax residents
- Each was entitled to receive a lump sum from a foreign retirement fund
- Each sought clarity from SARS on the tax implications
At this level, the cases appear aligned.
Where The Two Cases Differ
BPR 421
It is important to note that the applicant had never been a tax resident of the foreign country in question (in this case, Australia). In 1980, the applicant had incorporated a company in Australia, which managed an inter vivos trust of which the applicant was a beneficiary.
The applicant was a director of said company and received remuneration for services rendered. The company also made employer contributions to an Australian retirement fund. In addition, the applicant made personal contributions to this fund. It is noted in the BPR that these contributions were funded from after-tax income earned in South Africa and transferred to Australia by way of his ‘Approved International Transfer’ allowances.
Although the applicant lived in Australia at least from the time the company was incorporated in 1980 until his return to South Africa in 2020, the BPR states that at no time was the applicant a tax resident in South Africa. It is therefore presumed that the applicant did not sever his South African tax residency, and would need to account to SARS in terms of his tax compliance requirements.
The applicant left Australia in 2020, having contributed to his Australian retirement fund since circa 2007, and had not claimed from such fund on departing from Australia in 2020. Subsequently, the unclaimed benefits were transferred to the Australian Tax Office (ATO) on 20 March 2024.
Following the transfer, the applicant has requested a full lump sum withdrawal benefit from his unclaimed benefit in the form of a “Departing Australian Superannuation Payment” (DASP), which would be claimed from the ATO.
BPR 422
Similar to the facts outlined in BPR 421, the applicant in this case was a foreign citizen, but the country is not specified. They became a tax resident in South Africa from 1 March 2018 by virtue of the physical presence test during the 2019 tax year.
The applicant had also been a member of a foreign retirement fund, to which contributions had been made between 1987 and 2012. This coincided with the applicant’s period of employment with the company that sponsored the retirement fund as the employer.
Unlike BPR 421, both the employment and contributions were clearly linked to a foreign jurisdiction.
Key Distinction: Tax Residency and Source of Services
In the case of BPR 421, the applicant had effectively rendered services from South Africa by virtue of not having relinquished his South African tax residency and was never a tax resident in the foreign country.
It is therefore clear that the tax treatment set out by the respective rulings was ultimately determined by the tax residence status of the applicants, both in terms of where the services were deemed to have been rendered, as well as the country from which the respective contributions to the funds were made.
The outcome of the rulings
In essence, the rulings that formed the basis of the respective BPRs were as follows:
BPR 421
- The withdrawal constituted a disposal of an asset
- Any capital gain or loss was disregarded under Paragraph 54(b)
- Employer contributions and growth were included in gross income
- No Section 6quat rebate was available
The fact that the applicant in BPR 421 was claiming his lump sum benefit from the ATO, compared to the applicant in BPR 422 claiming their lump sum directly from the retirement fund, appears to be a factor in determining whether the lump sum fell within the ambit of the Eighth Schedule.
However, since the lump sum from the DASP originated from “a fund or arrangement situated outside South Africa which provides for similar benefits under similar conditions to a pension, pension preservation, provident, provident preservation, or retirement annuity fund approved in terms of the Act”, any capital gain or loss was disregarded.
BPR 422
- The lump sum was included in gross income
- It did not qualify as a “lump sum benefit” under the Second Schedule
- The exemption in Section 10(1)(gC)(ii) applied
- Capital gains or losses were disregarded
Effectively, the difference between the two tax treatments hinged on paragraphs b) and c) of the respective BPRs, which in turn was impacted by the tax residency of the respective applicants at the time the contributions were made to the respective funds.
Conclusion
The facts arising from these two BPRs and the respective rulings made therein once again highlight the importance of understanding that BPRs apply specifically to the facts of each case and cannot be relied upon to be equally applicable in all circumstances.
However, the manner in which the relevant tax legislation has been applied is informative insofar as it relates to the specific situations, and (in this case) can be helpful when considering how one’s tax residency status impacts how particular amounts are taxed in South Africa.
WRITTEN BY STEVEN JONES
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants.
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