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IF YOU save for retirement in more than one way, how do the tax deductions work? An expert advises.
A Fin24 user asks:
I would like to know if I get a tax rebate on my retirement annuity investment.
I already contribute to my company's provident fund, but it is less than 15% of my salary.
If I have an RA, will the investment be tax deductible?
Tiny Carroll, an estate planning specialist at Glacier by Sanlam, responds:
In terms of current legislation - this year's budget announcements, however, indicated that these may change from March 1 2012 - a contribution to a retirement annuity fund is deductible within the following limits:
The greater of
(a) 15% of non-retirement funding taxable income, or
(b) R3 500 minus deductible current pension fund contributions, or
(c) R1 750.
A member of a provident fund is not allowed any tax relief in respect of contributions he/she makes to the fund. The employer is allowed a deduction, usually of up to 20% of the employee's income. The portion of the employee's income on which the employer bases its contribution is regarded as retirement funding; as such, it cannot be taken into account when calculating the 15% leg of the formula.
Because the employee makes no deductible contribution to the provident fund, the deductible contribution under the "(b)-leg" of the formula will be nil.
On the assumption that you have no other non-retirement funding income - such as interest income above the exempt amount or non-pensionable bonuses - the "(b)-leg" of the formula will provide the best result. This means that you will be allowed a deduction of up to R3 500 for the RA contribution.
A Fin24 user asks:
I would like to know if I get a tax rebate on my retirement annuity investment.
I already contribute to my company's provident fund, but it is less than 15% of my salary.
If I have an RA, will the investment be tax deductible?
Tiny Carroll, an estate planning specialist at Glacier by Sanlam, responds:
In terms of current legislation - this year's budget announcements, however, indicated that these may change from March 1 2012 - a contribution to a retirement annuity fund is deductible within the following limits:
The greater of
(a) 15% of non-retirement funding taxable income, or
(b) R3 500 minus deductible current pension fund contributions, or
(c) R1 750.
A member of a provident fund is not allowed any tax relief in respect of contributions he/she makes to the fund. The employer is allowed a deduction, usually of up to 20% of the employee's income. The portion of the employee's income on which the employer bases its contribution is regarded as retirement funding; as such, it cannot be taken into account when calculating the 15% leg of the formula.
Because the employee makes no deductible contribution to the provident fund, the deductible contribution under the "(b)-leg" of the formula will be nil.
On the assumption that you have no other non-retirement funding income - such as interest income above the exempt amount or non-pensionable bonuses - the "(b)-leg" of the formula will provide the best result. This means that you will be allowed a deduction of up to R3 500 for the RA contribution.
