The impact of a taxable capital gain on the calculation of certain deductions is as follows:
- 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.
- For the 2015 and subsequent years 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.
- Retirement Funds
Section 11F provides a deduction for pension, provident and retirement annuity fund contributions. Under section 11F(2) the deduction is limited to the lesser of:
- R350 000 [s 11F(2)(a)];
- 27,5% of the higher of the person’s:
- remuneration (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit) as defined in paragraph 1 of the Fourth Schedule; or
- taxable income (other than in respect of any retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under section 11F and section 18A [s 11F(2)(b)];
- the taxable income of that person before allowing any deduction under section 11F; and the inclusion of any taxable capital gain [section 11F(2)(c)].
A taxable capital gain is included in the taxable income determined under section 11F(2)(b) but excluded under the taxable income determined under section 11F(2)(c). To the extent that a taxable capital gain is included in taxable income it will increase the potential deduction and to the extent that it is excluded it will reduce the potential deduction.