You are entitled to a deduction, under section 11F, of contributions to any pension fund, provident fund or retirement annuity fund. The contributions that may be claimed as a deduction in the current year of assessment are limited to the lesser of:
(i) R350 000;
(ii) 27,5% of the higher of –
• remuneration; or
• taxable income; or
(iii) taxable income of that person before –
• including any taxable capital gain.
The remuneration referred to is remuneration for employees’ tax purposes, but excluding retirement lump sums and severance benefits. The taxable income referred to excludes retirement lump sums and severance benefits, and is the taxable income before the deduction of qualifying retirement fund contributions, qualifying foreign tax credits [section 6quat(1C)] and bona fide donations (section 18A).
Contributions made in prior years that were not allowed as a deduction in those years will be carried forward to the current year of assessment unless they had been deducted from a retirement fund lump sum or withdrawal benefit, or set off against a compulsory annuity. Arrear contributions simply get added to the current year’s contributions and treated in the same manner.
The limits apply to the sum of all contributions made to pension funds, provident funds and retirement annuity funds. The deduction may be set off against non-trade income such as interest.