What will the effect of CGT be when calculating the deduction for donations, medical, pension and retirement annuity fund contributions?

The impact of a taxable capital gain on the calculation of certain deductions is as follows:

  • Donations
    • Under section 18A(1) of the Act a person is entitled to a deduction for qualifying donations to the extent that they do not exceed 10% of taxable income. Since a taxable capital gain forms part of taxable income it must be included when working out the 10% allowable amount.

  • Medical
    • For the 2014 year of assessment, when calculating the medical expenses deduction under section 18(2)(c) of the Act, the rule that only that portion of medical expenses exceeding 7,5% of taxable income will be allowed, will also include 7,5% of any taxable capital gain as it forms part of taxable income.
    • For the 2015 year of assessment, when calculating the additional medical expenses tax credit under section 6B(3)(c) of the Act, the rule that only that portion of medical expenses exceeding 7,5% of taxable income will be allowed, will also include 7,5% of any taxable capital gain as it forms part of taxable income.

  • Pension Fund
    • Under section 11(k) of the Act your pension fund contributions are limited to 7,5% of your income from retirement funding employment. Since a taxable capital gain does not constitute retirement funding income it must not be taken into account when working out your admissible pension fund contributions.

  • Retirement Annuity Fund
    • When calculating retirement annuity fund contributions (RAF), the taxable capital gain must be excluded for the purpose of determining the 15% allowable deduction. The reason for this is that capital gains are part of “taxable income” and not “income” as required by section 11(n)(i)(aa)(A) of the Act.
       
Last Updated: 22/01/2015 12:05 PM     print this page
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