FAQ – Will I still get an RA rebate?

IF YOU save for retirement in more than one way, how do the tax deductions work? An expert advises.

A taxpayer 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.

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