Tax deductions and tax reforms | Fin24
 
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Tax deductions and tax reforms

Oct 09 2014 15:53
Fin24

A Fin24 user wants to know if Sars has changed the tax deductions on pension funds because of the new retirement reforms coming into effect. He writes:

With the new retirement reforms coming into effect on the March 1 2015 I have a question regarding the new tax implications on my contributions to a retirement fund for the 2015 financial year.

I am currently working for a large international employer who has its own managed umbrella provident fund to which I contribute to monthly.

I earn R500 000 a year and my fund salary is calculated at 50% of my annual salary. I contribute 16.5 % of this fund to my provident fund annually.

Currently the deductions on a pension fund contribution are the greater of 7.5% of remuneration from retirement funding employment, or R1 750.

I am not allowed any deductions when it comes to filing my tax return at the end of the year due to the fund being a provident fund and not a pension or retirement annuity fund.

As of March 1 2015 my funds are being moved to Sentinel Retirement Fund - I understand it as being a pension fund - as I am aged 29.

Will I be able to claim any deductions on my monthly contributions on my tax return for the 2015 tax year or any future years or has the SA Revenue Service changed the tax deductions on pension funds because of the new retirement reforms coming into effect?

Anton Swanepoel, manager of Sanlam Employee Benefits and chairperson of the legal and technical committee of the Institute of Retirement Funds Africa, responds:

From March 1 2015 employer contributions to retirement funds will be taxed as fringe benefits in the hands of employees.

For tax purposes these employer contributions will be deemed to have been made by the employees.

Employees may deduct up to 27.5% of remuneration or taxable income in respect of contributions - employer/employee, including employee contributions to a provident fund - to pension, provident and retirement annuity funds, subject to an annual cap of R350 000.

Therefore, the tax deductions for member contributions to provident funds will apply with effect from the 2016 tax year, that is the tax year from March 1 2015 until end of February 2016.

In other words these deductions will not apply for the 2015 tax year.

* Fin24 also contacted Sentinel to provide an answer, but received not response.

- Fin24

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

sanlam  |  tax  |  retirement  |  money  |  money clinic
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