This is a brief summary of a proposed cap on tax-deductible retirement contributions, as detailed by the Minister of Finance in the 2011 Budget Speech:
Current tax laws.
As you are undoubtedly aware, currently 7.5% of employee’s salary is tax deductable as a pension fund contribution, along with a maximum of 20% contributed by the employer.
If an investor invest in an RA only, and have no pension or provident fund contributions, contributions of 15% of income are tax deductable.
If the investor contributes to both, a retirement fund and an RA, then a smaller portion of the RA contribution will be tax deductible.
Proposals for 2012
The 2011 budget speech proposed that an employer’s contribution to retirement funds on behalf of an employee should constitute a taxable fringe benefit, and that individual taxpayers will be allowed to deduct up to 22.5% of their taxable income in respect of contributions to approved pension, provident and retirement annuity funds, subject to a minimum of R12 000 per year and up to a maximum of R200 000 per year.
These proposals were not incorporated into the amendments to the Income Tax Act and will not be applied in the 2012 tax year. However, listen out for further announcements in the 2012 budget speech.
