A Fin24 reader writes:
My wife earns R5 500 monthly. If she starts contributing
R350 to a retirement annuity (RA) fund, can she claim the amount on her tax at
the end of the year? Will she be getting back 35% of her year's contributions?
What is the minimum or maximum contribution towards the RA
fund she should be looking at to get the maximum tax benefit?
Hein Daffue, Sanlam's legal adviser, responds:
She can claim it at the end of the year in her tax return.
The SA Revenue Service (Sars) will allow a deduction per tax year which is the
(a) R3 500 minus any pension fund contributions; or
(b) R1 750; or
(c) 15% of non-pensionable taxable income.
Pensionable income means your employer has a pension or
provident fund for its employees, and the employer and/or employee fund
contributions are calculated as a percentage of such income.
If her income of R5 500 per month is not pensionable income
as per (c) above, then the full R350 per month (R4 200 per year) will be
deductible as it is less than 15% of her income.
However, if her income of R66 000 per year (R5 500 per
month) is pensionable income, then she will only be able to deduct R1 750 per
year (R145 per month) as (b) above will be more than (a) or (c).
For instance, if she contributes the maximum deductible 7.5%
of R66 000 per year (R5 500 per month) then it is R4 920, which means no RA
contributions will be deductible under (a) above and nothing under (c) as there
would be no non-pensionable income.
Will she be getting back the full 35% on her year's
contributions? Only if she qualifies for the full deduction and if that is her
marginal rate of tax per the individual tax table.
If her income for the year is just the R66 000, then her
marginal rate for the current tax year is only 18%.
Apart from the deduction limits mentioned above, the minimum
she should contribute depends on what the product provider who administers the
RA fund allows.
Also keep in mind that Sars will carry forward to the next
tax year any deduction it disallows, and any unused deductions by the time a
person retires will reduce the taxable portion of the one-third lump sum
payable at retirement.