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Maximum tax deductible contribution towards a RA

Posted 25 May 2016 under Tax Q&A


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Mel says:
24 May 2016 at 10:54

I am trying to work out the maximum tax deductible contribution to a Retirement Annuity. Person earns R1 000 000 of which 75% is pensionable. Total contributions to pension fund is 13%. He made a capital gain of selling shares at R150 000, received rental income of R180 000 with R50 000 deductible expenses. I'm confused on how to work out this question. It states that max deduction for a RA is 15% of non-pensionable income. I get R250 000 R150 000 R130 000 = R530 000 x 15% = R79 500. However, it also states that you are allowed deducting a maximum of 27. 5% of your taxable income towards pension / provident / RA to a maximum of R350 000 py. If I work it out this way, he currently pays R750 000 x 13% towards a pension which is R97 500 per year. If I deduct this from R350 000 I get R252 500. Please could you help?

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TaxTim TaxTim says:
24 May 2016 at 13:09

From 1 March 2016, the rules have changed and you can deduct contributions up to 27,5% of your taxable income (the deduction is capped at R350,000 per year). Please read our blog on the New Retirement Fund Tax Laws

Therefore, if this applies to tax year 2016/2017 the full pension contributions of R97,500 are deductible.

Mel says:
24 May 2016 at 17:12

the question I asked is not whether the pension fund contributions can be deducted.

I want to know how much can be contributed to a Retirement Annuity extra that can also still be tax deductible.

TaxTim TaxTim says:
25 May 2016 at 10:16

Assuming your question applies to 2016/2017 tax year:

You need to work out 27,5% of taxable income.

Salary: 1,000,000
Capital gain (40% X 150,000) 60,000
Net rental income (180,000-50,000) 130,000
Taxable income 1,190,000

27,5% of R1,190,000 = 327,250

Therefore RA contributions = R327,250 - R97,500 = R229,750


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