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[2011] ZAGPJHC 4
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Russow v Reid and Another ([2011] 3 All SA 106 (GSJ)) [2011] ZAGPJHC 4; 50730/2007 (8 February 2011)
SOUTH GAUTENG HIGH
COURT, JOHANNESBURG
REPORTABLE
CASE NO:
50730/2007
DATE: 08/02/2011
In
the matter between:
NICOLAAS
LOUW RUSSOW
.
Applicant
and
ENGELA
(LOUW), REID
First
Respondent
SASOL
PENSION FUND
Second
Respondent
J U D G M E N T
MOKGOATLHENG
J
(1)
The applicant seeks an order against the first respondent for the
payment of the amount of R135 614.27, in respect of the tax
deducted
from his pension interest in the second respondent and paid to the
Receiver of Revenue, consequent upon the first respondent’s
invocation of
section 37 D (d) (1) of the
Pensions Fund Act 24
of 1956
.
THE FACTUAL MATRIX
(2) The applicant and
first respondent’s marriage was dissolved on the 25 August
2006. In terms of
section 7
(8) (a) of the
Divorce Act 70 of
1979
the court made an order encapsulating
clause 5
of
the parties settlement agreement devolving their patrimonial
benefits, which provided: “
the first respondent shall be
entitled to 30% of the applicant’s interest held with and
accruing from his membership with
the second respondent, calculated
as from the date of divorce.”
(3) In April 2009 the
first respondent duly exercised her right, and elected to withdraw
the 30% interest assigned to her from the
applicantfs pension
interest in the second respondent by invoking
section 37
(D)
(b) (1) of the
Pension Funds Act No 24 1956
.
On the 17 April
2009, the administrator of the second respondent, Alexander Forbes,
paid the first respondent an amount of R300
199.99 from the
applicantfs pension interest in it to the first respondent.
This amount was calculated as at the 25 August
2006 as the 30%
assigned and accruing to the first respondent from the applicantfs
pension interest in the second respondent.
(4)
On the 19 April 2009, Alexander Forbes, advised the applicant that in
terms of a tax directive from the South African Revenue
Services the
amount of R135 614.27, was determined by the former as the tax
payable consequent upon the payment of the first respondent
’
s
assigned 30% interest from the applicant
’
s
pension resulting in a total deduction of R435 814.26 from the
applicant
’
s
total pension of R1 000 666.63.
THE APPLICANT’S
SUBMISSIONS
(5) The applicant
contends that in terms of
section 2
B of the Second Schedule of
the Income Tax Act No. 58 of 1962
he is entitled to recover
from the first respondent the tax paid consequent upon her invocation
of
section 37
(D)
4
(b) (11) of the
Pension Funds Act No. 24 of
1956
,
further he contends that pursuant to the dictates of
section 2
B of the Second Schedule of the Income Tax Act No. 58
of 1962,
such tax payment or liability is not a debt to his
account as envisaged in
clause 3.2 and 6
of the settlement
agreement. The applicant argues the payment of the first respondent’s
30% assigned interest in his pension
created a tax liability for him
by the
ex lege
operation of the deeming provision in
section
2 B of the Second Schedule of the Income Tax Act 58 of 1962.
THE FIRST
RESPONDENT’S SUBMISSIONS
(6) The first respondent
contends that the 30% interest assigned to her in terms of
clause
5
of the settlement agreement is the total due and payable to her
without deducting tax therefrom, and submits that such tax free
payment is congruent with
Clause 3.2
of the settlement
agreement, because at the execution of the settlement agreement
it was within the parties contemplation
that in terms of the
Income Tax Act 58 of 1962
the applicant was liable to
pay tax liability because tax payable by the applicant consequent
upon the payment of the first respondent’s
assigned 30%
interest in the applicant’s pension interest in the second
respondent, is a debt to the account of the applicant
in terms of
clause 3.2 and 6
of the settlement agreement.
(7)
The first respondent contends that, in terms of
clause
3.2 and 6
of
the settlement agreement the applicant has no right of recovery
against her for the amount of R137 614.27 deducted as tax from
his
pension interest in the second respondent because:
(a) the applicant has no
contractual right arising from the terms of the settlement agreement
entitling him to any refund of the
tax deducted from the applicantfs
pension interest in the second respondent;
(b)
clause 6
of
the settlement agreement provided that as from the 25 August 2006 the
parties do not have any further claims against each other,
and both
unequivocally waived or abandoned any such claims which existed
during the subsistence of their marriage;
(c)
clause
3.2
of
the settlement agreement provided:
“
the
parties agree that each party shall be responsible for the payment of
their respective individual accounts owed and in either
party
’
s
name
”
;
and
(d) it was in the
contemplation of the parties that the tax liability triggered by the
payment of the first respondent
’
s
assigned 30% interest was to accrue to the account of the applicant.
The Applicable
Legal Principles
(8)
Section 7
(8)
(a) of the
Divorce Act 70 of 1979
provides:
g(8)
Notwithstanding the provisions of any other law or of the rules of
any pension fund-
(a) the court granting
a decree of divorce in respect of a member of such a fund, may make
an order that-
(i) any
part of the pension interest of that member which, by virtue of
subsection (7), is due or assigned to the other
party to the divorce
action concerned, shall be paid by that fund to that other party when
any pension benefits accrue in respect
of that member;
(ii) the
registrar of the court in question shall forthwith notify the fund
concerned that an endorsement be made in the records
of that fund
that part of the pension interest concerned is so payable to that
other party;
(b) any law which
applies in relation to the reduction, assignment, transfer, cession,
pledge, hypothecation or attachment of the
pension benefits, or any
right in
respect
thereof, in that fund,
shall
apply mutatis mutandis with regard to the right of that other party
in respect of that part of the pension interest concerned.h
(9)
At the dissolution of the marriage,
section 37
D (1) of the
Pension Funds Act 24 of 1956
which governed the assignment of
a non-member spousefs interest in a pension interest of a
member spouse, provided:
(1) A registered
fund may –
(d) deduct
from a member’s benefit or minimum individual reserve, as the
case may be –
37A Pension benefits
not reducible, transferable or executable
“
(1) Save to the
extent permitted by this Act, the
Income
Tax Act, 1962 (
Act
58 of 1962
),
and the
Maintenance Act, 1998
,
no benefit provided for in the rules of a registered fund (including
an annuity purchased or to be purchased by the said fund
from an
insurer for a member), or right to such benefit, or right in respect
of contributions made by or on behalf of a member,
shall,
notwithstanding anything to the contrary contained in the rules of
such a fund, be capable of being reduced, transferred
or otherwise
ceded, or of being pledged or hypothecated, or be liable to be
attached or subjected to any form of execution under
a judgment or
order of a court of law, or to the extent of not more than three
thousand rand per annum, be capable of being taken
into account in a
determination of a judgment debtor’s financial position in
terms of
section
65
of the Magistrates’ Courts Act, 1944 (
Act
32 of 1944
),
and in the event of the member of beneficiary concerned attempting to
transfer or otherwise cede, or to pledge or hypothecate,
such benefit
or right, the fund concerned may withhold or suspend payment thereof:
Provided that the fund may pay any such benefit
or any benefit in
pursuance of such contributions, or part thereof, to any one or more
of the dependants of the member or beneficiary
or to a guardian or
trustee for the benefit of such dependant or dependants during such
period as it may determine”.
(i) any
amount assigned from such benefit or individual reserve to a
non-member spouse in terms of a decree granted
under
section
7 (8) (a) of Divorce Act, 1979 ( No 70 of 1979);
……”
;
and
In terms of
section
37 A (1)
thereof,
any portion of the pension fund interest a non-member spouse was
entitled to pursuant to such decree of divorce, only accrued
to such
non-member spouse upon the resignation, retirement or death of the
member spouse.
(10)
Section 37 A
(1) of the Pension Fund Act 24 of 1956
provides as follows:
“
Save to
the extent permitted by this Act, the
income
Tax,
1962 Act 58
of 1962, and the
Maintenance Act 1998
,
no benefit provided for in the rules of a registered fund (including
an annuity purchased or to be purchased by the said fund from
an
insurer for a member), or right to such benefit, or right in respect
of contributions made by or on behalf of a member, shall,
notwithstanding anything to the contrary contained in the rules of
such a fund, be capable of being reduced, transferred or otherwise
ceded, or of being pledged or hypothecated, or be liable to be
attached or subjected to any form of execution under a judgment
or
order of a court of law, or to the extent of not more than three
thousand rand per annum, be capable of being taken into account
in
determination of a judgment debtors financial position in terms of
section
65
of the Magistrates
’
Court
(Act 32 of 1944)
and
in the event of the member or beneficiary concerned attempting to
transfer or otherwise cede, or to pledge or hypothecate, such
benefit
or right, the fund concerned may withhold or suspend payment thereof:
Provided that the fund may pay any such benefit or
any benefit in
pursuance of such contributions, or to a guardian or trustee for the
dependants of the member or beneficiary or
to a guardian or trustee
for the benefit of such dependant or dependants during such period as
it may determine.
”
(11) In terms of
section
37
A (1) of the
Pension Funds Act 24 of 1956
the first
respondent had to wait until the applicantfs pension was paid
out to the applicant as a lump sum before her assigned
30% interest
in the applicantfs pension fund became due and payable to her.
(12)
The lump sum paid to the applicant attracted a tax liability in his
possession and such tax liability was exclusively to his
account. It
was only after the applicant
’
s
lump sum pension payment was taxed, that the first respondent
’
s
assigned 30% interest in the applicant
’
s
pension, accrued and became due and payable to the first respondent
by the second respondent.
(13)
The tax liability accrued to the applicant
’
s
account because
section
2
of the Second Schedule of the
Income
Tax Act, No. 58 of 1962
provided:
g
subject
to the provisions of
section
9 (1) (g) and paragraph 2 A, 2 B and 2 C,
the
amount to be included in the gross income of any person in terms of
paragraph (e) of the definition of ggross income
h
in section 1 shall be
–
(c) any amount
received by or accrued to that person
by way of a lump sum benefit
derived in consequence of or following upon
–
(i)
his or her retirement or death, or
(ii) the
termination of his or her employment due to
–
(AA) his or her
employer having ceased to carry on or intending to cease carrying on
the trade in respect of which he or she was
employed; orcc..
(iA)
assigned
in terms of a divorce order under
section 7 and (8) (a) of
the Divorce Act, 1979 (Act No. 70 of 1979),
to the extent
that the amount so assigned is deducted from the minimum individual
reserve of
that person’s former spouse in terms
of
section 37 D (1) (d) (i) of the Pension Funds Act, 1956 (Act No. 24
of 1956),
or is so deducted in terms of
section 37 D (1) (d)
(ii) of that Act
as a result of the deduction contemplated in
section 37 D (1) (d) (i) of that Act;
less any
deduction permitted under paragraph 6
(2) An amount
contemplated in
subparagraph (1) (b)
shall be deemed to accrue
to a person –
(a) in the case of an
amount contemplated in
subparagraph (1) (b) (iA),
on the date
on which an election is made as contemplated in
section 37 D (4)
(b) (ii) of the Pension Funds Act, 1956 (Act No. 24 of 1956),
or
on the date on which the amount is paid in terms of
section 37 D
(4) (b) (iv) of that Act
and
(b) in the case of an
amount contemplated in
subparagraph (1) (b) (iB),
on the date
of its transfer.h
(14)
Section 2 (C)
of the Second Schedule of the Income Tax Act No 58 of 1962
provides: g
subject to the provisions of Section 9 (1) (G)
and paragraphs 2 (A), 2 (B). gFor the purposes of paragraphs 2
and 2 (A)
.h g
When a court has made an order that
any part of the pension interest of a member of a pension fund,
pension preservation fund, provident
fund, provident preservation
fund or retirement annuity fund shall be paid to the former spouse of
that member, as provided for
in the
Divorce Act 70 of 1979
.h
(15)
In terms of this section, part of the pension interest or amount is
not deemed to have been received by, or to have accrued
to a person
other than a member. In terms of the said
section 2
(B),
it is deemed to be an amount that accrues to the pension fund member
on the date on which the pension interest, (of which that
amount
forms part), accrues to that pension member. It consequently follows,
that the tax liability is a debt incurred by and for
the account of
the applicant payable by him to the Receiver of Revenue, in terms of
section 2
of the Second Schedule of the Income Tax Act No 58 of
1962.
(16) From the 1
March 2009, in terms of the amendment to
section
37
(D)
4
(b) (1) of the
Pension
Funds Act No 24 of 1956
a non – member spouse (the first respondent) became entitled to
exercise an election for the payment of the 30% interest
assigned to
her in terms of
section
7
(8) (a) of the
Divorce Act 70 of 1979
in
the applicantfs pension interest in the second respondent at
any time before the applicantfs resignation, retirement
or
death. Pursuant to the amendment of
section
37(D) 4 (b) (1) of the Pension Fund Act 24 of 1956
a non-member spouse (the first respondent) from the 1 March 2009
became entitled to exercise an election for the payment of the
30%
interest assigned to her in terms of
section
7(8)
(a) of the
Divorce Act 70 of 1979
in the applicantfs pension interest in the second respondent at
any time before the applicantfs resignation, retirement
or
death.
THE ANALYSIS OF
EVIDENCE
(17) ‘
Pension
interest’ is defined in
section 1(1)
of the
Divorce
Act,
as
follows
in relation to a party to a divorce action who-
(a) is a
member of a pension fund (excluding a retirement annuity fund), means
the benefits to which that party as such a
member would have been
entitled in terms of the rules of that fund if his membership of the
fund would have been determined on
the date of the divorce on account
of his resignation from his office;”
(18) In the case of
Old
Mutual Life Assurance Co (SA) Ltd and Another v Swemmer
2004 (5) SA
373
(C)
it
was held:
‘
the necessary
implication of the
‘
deeming
provision
’
in
section
7
(8) (a) of the
Divorce Act 70 of 1979
,
read
together with the relatively narrow definition of
‘
pension
interest
’
in
section 1
(1),
is that any other
‘
right
’
or
‘
interest
’
which the member
spouse may have in respect of pension benefits which have not yet
accrued was
–
at
least after 1 August 1989
–
not
to be regarded as an asset in the estate of such member spouse in
determining the patrimonial benefits to which the parties
to the
divorce action may be entitled. (
Paragraph[19]
at 384D.)
Once a part of the
pension interest of the member spouse became ‘due’ or ‘is
assigned’ to the non-member
spouse in the course of the divorce
proceedings, the Court could order that such part of the pension
interest had to be paid by
the pension fund concerned to the
non-member spouse ‘when any pension benefits accrue in respect
of the member spouse. That
portion of the pension interest allocated
to the non-member spouse would be payable by the fund concerned only
at some future date
when the ‘pension interest’ in
question accrue to the member spouse. This date would be determined
by the rules of
the pension fund governing the relationship between
it and the member spouse. Moreover, there was no provision in the
relevant
sections of the Act for the pension fund concerned to be
ordered to pay to the pension interest allocated to that spouse from
the
date of divorce to the date of eventual payment….the
non-member spouse did not become the ‘owner’ of the
policy
or of the unaccrued pension benefits, did not replace the
member spouse as a member of the fund, and could not therefore
exercise
any right of the member spouse to anticipate (or postpone)
the agreed maturity date of the policy.”
(19) The first
respondentfs submission that even though the applicant contends
section 2 B of the Second Schedule to the Income Tax 58 of 1962
enjoins him to recover the tax paid consequent upon the first
respondentfs election to invoke the said
section 37 D (4)
b (1) of the Act of 1956,
such payment still remains a debt
within the ambit of the settlement agreement, and is a debt for the
account of the applicant,
as it falls squarely within the ambit of
clause 3.2
of the settlement agreement has no merit.
(20) When the parties
concluded the settlement agreement with reference to the
Income
Tax Act 58 of 1962
and
in accordance therewith, the
applicant was clearly responsible for the payment of his tax because
the first respondentfs 30%
interest in the applicantfs
pension strictly speaking first accrued to the applicant, and only
thereafter accrued to the
first respondent upon the payment of her
30% interest in his pension, consequently the tax payable
accrued to the applicants
account as it was levied on the pension
lump sum paid to him.
(21) When the parties
entered into the settlement agreement at the time of the divorce, it
could never have been in their contemplation
that the
Pension
Funds Act 24 of 1956
be would in future be amended to enable
the non member spouse to be entitled to the earlier payment of her
30% assigned interest
in the applicantfs pension because
section 2
B of the Second Schedule to the Income Tax Act 58 of
1962
was extant at the time of the dissolution of the
marriage.
TAX PAID BY
MEMBERSPOUSE RECOVERABLE
(22)
Section 2 B of
the Second Schedule
provides
: gFor the purposes of
paragraphs 2 and 2A, where a court has made an order that any part of
the pension interest of a member
of a pension fund, provident fund or
retirement annuity fund shall be paid to the former spouse of that
member, as provided for
in the
Divorce Act, 1979 (Act No.
70 of 1979),
the amount of that part is deemed to be an
amount that accrues to that member on the date on which the pension
interest of which
that amount forms part, accrues to that member:
Provided that so much of any tax payable as is due to the inclusion
in the income
of such person of any amount in accordance with the
provision of this paragraph, may be recovered by such person from the
former
spouse to whom or in whose favour the part in question is paid
or becomes payable.h
(23)
Pursuant to the dictates of
section
37 D (4) (b) (1
)
Pension Fund Act 24 of 1956 a non
–
member
spouse makes an election to enforce an order made in terms of
Section
7
(8) (a) of the
Divorce Act 70 of 1979
,
the assigned 30% interest in the members pension is taxed separately,
that is evident and reaffirmed by the last portion of
section
2
B
which states:
g
Provided that
so much of any tax payable as is due to the inclusion in the income
of such person of any amounts in accordance with
the provisions of
this paragraph, may be recovered by such person from the former
spouse to whom, or in whose favour the part in
question is paid or
become payable.h
(24)
It is patent that the applicant
’
s
right to recover the tax liability paid is not based on contract, it
arises
ex
lege.
The
reason it arises
ex
lege
is
because the non member spouse, the first respondent has made an
election and invoked
section
37 (4) (b) (1) of the Pension Fund Act 24 of 1956.
Once the first respondent has made the election so to speak to
accelerate the payment of her assigned 30% interest in applicant
’
s
pension, the
Second
Schedule to the Income Tax Act 58 of 1962
is triggered, the deducted payment of the first respondent
’
s
assigned 30% interest attracts a tax liability, and is taxed in the
hands of the member spouse who retains a right of recovery
to such
payment.
(25) The applicability of
section 2 (4)
of the Second Schedule of
the Income Tax Act 24 of 1956
makes the position clear that
if the first respondent had bided her time and did not invoke
section
37 D 4 (b) (1)
of the Pension Fund Act 24 of 1956
the
tax liability would have been a debt accruing to the applicant’s
account as envisaged in terms of the settlement agreement
made an
order of court on the 25 August 2006 in terms of
section 7 (8)
(a) of the Divorce Act 70 of 1979.
(26)
The moment the first respondent elected to invoke
section
37 (D) 4 (b) (1)
the tax implications sequelae were triggered and the tax liability
inured to the applicant. Had the first respondent strictly adhered
to
clause 5
of the settlement agreement, the tax liability would not have arisen,
the situation would quite simply have been as it was as at
the 25
August 2006, as clearly set out in
section
2 (1) of the Second Schedule of the Income Tax Act 58 of 1962
which states: g
subject
to the provisions of
Section
9 (1) (G)
h
.
The
amount to be included in the gross income of any person for any year
of assessment in terms of paragraph E of the definition
of gross
income in
Section
1
shall
be
–
g
The
amount awarded to the person in terms of an order of divorce, to the
extent that the amount is payable by the pension fund,
pension
preservation fund, provident fund, provident preservation fund or
retirement annuity fund.
h
(27)
Clause
5.1
of the settlement agreement has to be read in the context of
section 37 D (e) (2) of
Pension Funds Act No 24 of 1956
,
in terms whereof each party is taxed in accordance with the amount of
the pension interest each party receives in its hands. The
settlement
agreement is still extant, the parties may still rely on its terms.
The inclusion of
clause 5.1
thereof arises out of the
Section
7
(8) (a) of the
Divorce Act 70 of 1979
,
which permits
such inclusion.
(28)
Section 37
D (e) (2)
of The
Pension Funds Act 24
of 1956
provides:
g
(2)
For the purposes of
paragraph
(a) (ii) (bb) and (cc) of subsection (1),
the amounts so deducted shall be deemed to be a benefit to which the
member becomes entitled on termination of his or her membership
of
the fund for reasons other than as a result of retirement or death
arising at the date of the transfer or the default.h
(29)
Consequently, the only contemplation that could have been in the
parties minds at the time of the execution of the settlement
agreement, was that
section
37
D (1) of the
Pension Funds Act 24 of 1956
would endure and would regulate the payment of the first respondent
30% assigned interest in the applicant
’
s
pension. When it did accrue to the first respondent at a future time,
the applicant
’
s
pension interest in the second respondent would have been taxed in
accordance with the Income Tax law applicable on the 25 August
2006.
(30)
The manner in which
clause 5.1
is concluded attests to this
contemplation.
“
Die partye kom
ooreen dat die eieseres geregtig sal wees op 30% van die voordele
waarop die verweerder geregtig mag wees voortuitspruitend
uit sy
lidmaatskap van die Sasol Pensionfonds. Die berekening van die
eiseres se belang sal gedoen word soos op datum van egskeiding
van
die partye.”
(31) There is absolutely
no reference to a tax obligation, arising from or pursuant to the
Income Tax Act 58 of 1962
which could have been
contemplated by the parties regarding any future amendment to the
Income Tax Act 58 of 1962
concerning any tax liability
besides, the parties being properly mindful of the fact that the
first respondentfs 30% assigned
interest would have been paid
out to the member spouse, taxed in his hands and thereafter divided
in accordance with
clause 5
of the settlement agreement..
(32)
Clause 6
of the settlement agreement provides:
g
Afgesien van
voorafgaande het hierdie partye geen verdere eis het teen mekaar
nieh
,
en doen beide partye hiermee onherroeplik afstand
van enige eise wat ontstaan het gedurende die huwelik.”
It
is patent that the applicant’s entitlement and claim to recover
the tax paid as a consequent of the first respondent’s
invocation of
section 37 (D) (4) (b) (1) of the Pension Fund
Act
is not a claim that arose during the subsistence of the
marriage or at the execution of the settlement agreement. It is
patently
a claim that has arisen
ex lege
in terms of
section
37 d (4) (b) (1) of the Pension Fund Act
after the inception
of the amendment of
section 2B of the Income Tax Acts of 1962
.
The settlement agreement does not contain a waiver of the applicant’s
rights to invoke the provisions of
section 2B of the Second
Schedule of the Income Tax Act 58 of 1962.
(33)
THE ORDER
(a) The first respondent
is forthwith ordered to pay to the second respondent the amount of
R135 614.27 to be paid to the credit
of the applicantfs pension
interest in the second respondent; and
(b) The first respondent
is ordered to pay the applicantfs costs.
Dated at Johannesburg on
the 4th February 2011.
MOKGOATLHENG J
JUDGE OF THE HIGH COURT
DATE
OF HEARING: 5 MAY 2010
DATE
OF JUDGMENT: 8 FEBRUARY 2011
ON
BEHALF OF THE APPLICANT: MR R. GOSLET
INSTRUCTED
BY: COUZYNS INCORPORATED
TELEPHONE
NUMBER:(011) 788-0188
ON
BEHALF OF THE RESPONDENT: MR G.M. YOUNG
INSTRUCTED
BY: SMOOK AND LAMPRECHT
TELEPHONE
NUMBER:(011) 492-1450