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[2011] ZAGPJHC 236
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N.R v E.R (50730/2007) [2011] ZAGPJHC 236; 2012 (2) SA 481 (GSJ); 74 SATC 193 (8 February 2011)
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SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
REPORTABLE
CASE
NO: 50730/2007
DATE:08/02/2011
In
the matter between:
N
L
R
….........................................................................................
Applicant
and
E,
R
…............................................................................................
First
Respondent
SASOL
PENSION
FUND
............................................................
Second
Respondent
JUDGMENT
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)
Section 7
(8) (a) of the
Divorce Act 70 of1979
provides:
"(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
(4)
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
spouse's 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 (11 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.
(5)
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."
(6)
In terms of
section 37
A (1) of the
Pension Funds Act 24 of 1956
the
first respondent had to wait until the applicant's pension was paid
out to the applicant as a lump sum before her assigned
30% interest
in the applicant's pension fund became due and payable to her.
(7)
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.
(8)
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:
"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 "gross income"
in section 1 shall be -
(b)
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;
or......................................
(iA)
assigned in terms of a divorce order under section 7 and (8) (a) of
the Divorce Act 1979 (Act No. 70 of 1979L 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) m 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) (is/) of that Act and
(b)
in the case of an amount contemplated in subparagraph (1) (b) (iB),
on the date of its transfer."
(9)
Section 2 (C) of the Second Schedule of the Income Tax Act No 58 of
1962 provides: "subject to the provisions of Section
9 (1) (G)
and paragraphs 2 (A), 2 (B). "For the purposes of paragraphs 2
and 2 (A)” " 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"
(10)
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 of1962.
(11)
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 applicant's pension
interest in the second respondent at any time before the applicant's
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 applicant's pension interest in the second respondent at
any time before the applicant's resignation, retirement or death.
(12)
In April 2009 the first respondent duly exercised her right, and
elected to withdraw the 30% interest assigned to her from
the
applicant's 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 applicant's
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 applicant's pension interest in the
second respondent.
(13)
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
(14)
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 RESPONDENTS SUBMISSIONS
(15)
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.
(16)
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 applicant's 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
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]
at384D.)
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 respondent's 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
respondent's 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 respondent's 30% interest in the applicant's
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.
(20)
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 applicant's 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
(21)
Section 2 B of the Second Schedule provides: "For 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."
(22)
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:
"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."
(23)
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.
(24)
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.
(25)
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:
"subject to the provisions
of Section 9 (1) (G)”. 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 - l,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."
(26)
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 of1979
, which permits such inclusion.
(27)
Section 37
D (e) (2) of The
Pension Funds Act 24 of 1956
provides:
“
(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
(28)
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.
(29)
The manner in which clause 5.1 is concluded attests to this
contemplation.
"D/e
partye kom ooreen dot die eieseres geregtig sa! wees op 30% van die
voordete waarop die verweerder geregtig mag wees voortuitspruitend
uit sy lidmaatskap van die Sasol Pensionfonds. Die berekening van die
eiseres se belong sal gedoen word soos op datum van egskeiding
van
die partye."
(30)
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
respondent's 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..
(31)
Clause 6 of the settlement agreement provides:
"Afgesien
van voorafgaande het hierdie partye geen verdere eis het teen mekaar
nie", 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.
(32)
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
applicant's pension interest in the second respondent; and
(b)
The first respondent is ordered to pay the applicant's costs.
Dated
Johannesburg on the 4th February 2011.
MOKGOATLHENG
J
JUDGE
OFTHE 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