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Tax deductions for Pension, Retirement and Provident funds simplified

on Wednesday, 13 April 2016.

As of 01 March 2016 amendments were made to the tax act regarding the above mentioned tax deductions.

Tax deductions for Pension, Retirement and Provident funds simplified

All contributions to pension, retirement annuity and provident funds can be deducted from the individual's taxable income. The deduction is capped at a rate of 27.5% of the greater of remuneration and taxable income. In other words, if say your total pension fund contributions for the year was R100 000, your taxable income was R200 000, and your remuneration was R300 000, then your deductions would have been limited to 27.5% of R300 000 (since R300 000 is greater than R200 000). Thus your deductions would have been limited to R82 500.

From our example above you would notice that R17 500 (R100 000 - R82 500) were not allowed for a deduction in the relevant tax year. However, the deductions that were not allowed is carried over to the following tax year and deemed as contributions for that tax year. In other words say for the next tax year your pension contributions were R100 000, your taxable income R300 000 and your remuneration R400 000. Thus your allowed deduction would be R400 000 x 27.5% = R110 000. You only contributed R100 000, but now you can also deduct R10 000 of the R17 500 from the previous year, thus a total deduction of R110 000. The remaining R7 500 is now carried over to the following tax year.

 

Some technical points:

  • Both contributions made by an employer and the employee are deemed as contributions made by the employee and thus part of the deductions. The employer contribution is now included in the taxable income of the employee by way of a fringe benefit.
  • In the example, the taxable income and remuneration exclude retirement lump sum and severance benefits

Update: Completing your income tax return:

Our institute (SAIT) has alerted us on the following matter:

If you see the following error when saving or submitting your return:

The 'Total contributions for this year of assessment' must be equal to the sum of 'Contributions made this policy.'

To correct this, please ensure that you have completed the Retirement Annuity section correctly. The new Retirement Annuity section allows you to complete the details of multiple policies held – look out for the additional containers labelled “Details of Policy(ies)” below the field that houses source code 4006. 

At each container, you are required to complete the contribution for that particular fund (e.g., for Policy 1 you have contributed R5 000, for Policy 2 you have contributed R2 000). The sum of all contributions made to all policies should be completed next to the source code 4006, which is the first container located under the Retirement Annuity section. Example: (Policy 1) R5 000 + (Policy 2) R2 000 = R7 000; therefore R7 000 is the amount that should reflect at source code 4006. 

Important! Even if you make contributions to only one policy, the details of that policy and the amount contributed still need to be completed in the details section. 

Get our iOS app to help you with monthly and annual payroll tax calculations (including pension, retirement and provident fund): https://itunes.apple.com/za/app/taxtree/id1263890353?mt=8

Would you like us to complete your tax return, just complete our online form: https://www.chconsulting.co.za/online-services/individual-tax-return

For help in your tax matters, please contact us, we serve clients across South Africa and internationally. https://www.chconsulting.co.za/contact

Please note that any advice given on this blog or in any comments of this blog does constitute a legal tax opinion, and the taxpayer cannot rely on it as such. The taxpayer relies on any content of this blog or the comments of this blog at their own risk. For a legal tax opinion, please engage us directly for a consultation. 

Author: Chris Herbst from CH Consulting

Comments (133)

  • ziets

    10 February 2017 at 22:40 |
    There seems to be a lot of confusion even amongst tax accountants. Can you include the taxable portion of your capital gains in your taxable income calculation on which the 27.5% RA contribution is based. Some say yes, some no. Even Allan Gray has published a notice this week to say you can. On a R100k CG you would then be able to add (100 - 40) x 40% = R24k as taxable income and be able to push 27,5% of R24k into an RA (subject to the R350k limit).

    reply

  • Tony de Wijn

    15 February 2017 at 07:16 |
    SARS has changed definition of the word "remuneration" when it comes to this 27.5% rule. In this case remuneration includes the amount of any Capital Gain profit that is added to your normal income and also taxable and tax free interest etc including after-tax income from SA dividends (normally taxed at 15% before you get them). Also included in "remuneration" is profit from rental of properties.

    reply

  • Irene Pienaar

    02 July 2017 at 15:11 |
    Are contributions carried over from the prior tax year allowed as a deduction in the 2017 tax year under this new rule ? Limited to the 27.5% of course

    reply

    • Chris Herbst

      02 July 2017 at 16:02 |
      Hi Irene,
      Thank you for your comment.
      Assuming your contribution in the prior year was to a pension or retirement fund you can add this to your 2017 tax year deduction, subject to applicable limits.

      This does not apply if your contributions were to a provident fund. However from the 2018 tax year you will be able to carry forward excess provident fund contributions as well.

      reply

  • Tony de Wijn

    02 July 2017 at 15:34 |
    In the 2017 tax year the taxpayer may claim allowable contributions to R/A, Pension and Provident funds added together as Retirement Fund under the new 27.5% rule.. Arrears contributions to R/A and Pension funds may be claimed together with current R/Fund contributions or these disallowed contributions may be added up and added to the lump sum taken at retirement. Arrears contributions to Provident funds may not be claimed in 2017 as Provident Fund contributions were not allowed as a claim in previous tax years.

    reply

  • Gillian Davies

    02 July 2017 at 20:25 |
    When will the arrears provident fund contributions carried forward be deductible?

    reply

    • Chris Herbst

      03 July 2017 at 10:38 |
      Hi Gillian,
      Thank you for the comment.
      As from 01 March 2016 a provident fund is handled in the same way as a pension and retirement fund. Thus any excess contributions can be carried forward to the 2018 tax year (01 March 2017 - 28 Feb 2018). However please note that arrear contributions and excess contributions are two different thins. Arrear contributions are when you make contributions in the current year for years in the past where you did not utilise your maximum contribution. Whereas excess contributions are the amount you contribute above your allowable amount for the specific year.

      reply

  • Johan Burger

    03 July 2017 at 10:18 |
    Is code 3817 included in code 3699?

    reply

  • Tony de Wijn

    03 July 2017 at 10:27 |
    Yes. Code 3817 is the taxable element of employer's contributions and is included in code 3699 on the IRP5. Have a look at this video lecture. The part that concerns your query starts at 1 minute and 55 seconds https://youtu.be/Q6Ki2mfqwC8

    reply

  • Tony de Wijn

    03 July 2017 at 11:34 |
    According to the document that SARS released in April this year to employers, code 4001 includes current and arrears contributions to pension funds and code 4002 has been done away with. The same with code 4006 to R/A funds. Are we missing something here or have SARS not thought this through?

    reply

    • Chris Herbst

      03 July 2017 at 12:01 |
      Hi Tony,
      Thank you for your comment. That is indeed correct. Although current and arrear pension / retirement fund contributions remain two different things by nature, SARS now deems this as the same thing for tax purposes. To be clear irrespective of whether you have paid current or arrears contribution they will be deemed the same in terms of the tax deduction (subject to limitations) and thus use the same code pension 4001, retirement 4006.

      reply

  • Tony de Wijn

    03 July 2017 at 12:15 |
    Nice to know I am still sane! Thanks Chris.

    reply

  • Gillian Davies

    03 July 2017 at 21:13 |
    So any provident fund contributions carried forward from prior years against code 4003 will still be carried forward? I was under the impression that those would then fall into the new retirement reforms and would be able to be deducted subject to the rule 27.5% of taxable income limited to R350 000.

    reply

  • Tony de Wijn

    04 July 2017 at 05:47 |
    No. Provident Fund contributions made prior to 1st Marc h 2016 were not deductible and this has not changed. From 01/03/2016 (2017 tax year) Provident Fund contributions were deductible but this does not include Provident Fund current or arrears or disallowed contributions made before 01/03/2016. Only on the 2018 assessment will you be able to claim arrears Provident Contributions that were made in the 2017 tax year. From 1st March 2016 contributions made to Provident Funds, Pension and R/A funds are lumped together and called R/Fund contributions for the purposes of apply the 27.5% rule.

    reply

    • Gillian Davies

      04 July 2017 at 08:20 |
      Thank you so much. It makes sense.

      reply

  • Sybil

    04 July 2017 at 12:33 |
    How do we claim our retirement fund tax deduction when submitting our returns?

    reply

  • Tony de Wijn

    04 July 2017 at 12:47 |
    Retirement Annuity contributions should be claimed under code 4006 on the ITR12
    Pension Fund contributions should be claimed under code 4001 on the ITR12
    Provident Fund contributions should be claim under code 4003 on the ITR12
    SARS will show the total of these amounts on the IT34 as code 4029

    reply

    • zane

      13 July 2017 at 07:07 |
      Hi Tony, could you please kindly assist:
      I completed my IT12A and their calculation simply deducted 27.5% of ALL my taxable income, even though I didn't contribute anywhere near this amount, this cannot be correct...?

      reply

      • Clement

        27 July 2017 at 18:07 |
        Thanks for that, zane. I noted a similar issue with my calculation, which is way too much. Will this lead to a huge correction next year??

        reply

        • zane

          28 July 2017 at 08:05 |
          Hi Clement, from what I see on my ITA34 (assessment), SARS will still carry forward any outstanding disallowed RA contributions as well as pension and provident fund contributions FOR THAT TAX YEAR. Do you contribute to a RA?

          reply

          • Clement

            28 July 2017 at 09:22 |
            Thanks Zane. I do have an RA. I assume that SARS are including previous years' disallowed contributions, in the 2017 deduction. This would explain how they are taking the full 27.5% of all my taxable income, which is much more than my 2017 RA total.

            reply

            • zane

              28 July 2017 at 09:34 |
              Correct. I didn't understand this myself, since their policy is supposed to be that any previous disallowed amounts would eventually be offset from your taxable amount on the pensionable RA amount when you retire. If they are giving it all back to you now, it means you cannot deduct it at retirement...? If in 2018 or the next year if there are no more carry over amounts, you would start from scratch, where you can decide how much to contribute to an RA to offset that year's tax again.

              reply

  • Sybil

    04 July 2017 at 12:50 |
    Thank-you!

    reply

  • Vania Van Tonder

    04 July 2017 at 13:30 |
    I have just submitted a 2017 tax return and the RA Contributions that rolled over from previous years were not brought into the current year's calculation. It does show on the 2016 Assessment as 'amount carried forward to next year' Should I have brought it in somewhere on the tax return or shall I just do an objection?

    reply

    • Chris Herbst

      04 July 2017 at 13:47 |
      Hi Vania,
      You should have included that amount with the current year contributions under code 4006. Thus code 4006 should show total of current year and amounts carried forward from the previous year.

      reply

      • Vania Van Tonder

        04 July 2017 at 13:52 |
        thank you - I will resubmit

        reply

        • Chris Herbst

          04 July 2017 at 13:53 |
          Pleasure.

          reply

  • Mufamadi David

    05 July 2017 at 03:47 |
    How do we claim my company contributions o pension fund tax deduction when submitting our returns?

    reply

    • Chris Herbst

      05 July 2017 at 13:47 |
      Hi Mufamadi,
      Correctly said by Tony below. The pension fund contributions will reflect under code 4001.

      reply

  • Tony de Wijn

    05 July 2017 at 05:29 |
    Code 4001 reflects the amount of pension contributions paid by both the employer and the taxpayer and also includes arrears contributions.

    reply

  • Tony de Wijn

    05 July 2017 at 16:40 |
    Hi Chris,
    The biggest problems that tax-practitioners are experiencing is that, on the ITR12, SARS is not displaying and utilising b/fwd excess Pension and R/A contribution disallowed last year. Apparently SAIT have queried the reason for this with SARS and are waiting for a reply. Maybe this is just an error or maybe a change in what may be claimed?

    reply

  • Inayet Hassen

    06 July 2017 at 20:30 |
    Hi...I have only a single retirement annuity contribution which is reflected in the correct box next to 4006. I am still get the error The 'Total contributions for this year of assessment' must be equal to the sum of 'Contributions made this policy'. I dont know how to correct this.

    reply

  • Chris Herbst

    06 July 2017 at 20:47 |
    Hi Inayet,

    "Even if you make contributions to only one policy, the details of that policy and the amount contributed still need to be completed in the details section."

    Can you please confirm that you have completed these fields?:

    o ‘Name of Insurer’
    o ‘Policy Number’
    o ‘Contributions made to the policy’

    reply

    • Inayet Hassen

      06 July 2017 at 21:35 |
      Thank you Chris. I have submitted.

      reply

      • Chris Herbst

        06 July 2017 at 21:40 |
        Pleasure

        reply

    • Oliver

      09 July 2017 at 09:46 |
      Hi, my query is the same as yours_ what amt do you enter in Contributions make to this policy, is it the same amt as 4006

      reply

      • Chris Herbst

        09 July 2017 at 09:55 |
        Hi Oliver,
        If you only have one policy then the amount you should enter at "Contributions made to this policy" will be the same as at 4006.

        Remember that if you for example had 2 policies then 4006 will be the total of the contributions to the 2 policies and then you would have had 2 boxes open up and should then have split the total of 4006 to reflect the amount contributed to each policy.

        reply

  • Oliver

    09 July 2017 at 10:50 |
    Thank you

    reply

    • Chris Herbst

      09 July 2017 at 10:53 |
      Pleasure

      reply

  • Gillian Davies

    09 July 2017 at 18:57 |
    I refer to Vania's question. SARS has not taken the arrear RA contributions carried forward into account. If we are to include this with our current RA contributions under code 4006, how do we split this out if contributions carried forward were made to a number of policies? This would be quite a task if carried forward contributions go back back ten years or so. Thanks Gillian

    reply

    • Chris Herbst

      10 July 2017 at 13:21 |
      Hi Gillian,
      After careful consideration I can note the following:

      Under code 4006 should only be current year contributions and current year arrear contributions - NOT excess contributions carried forward from previous years.

      Please note that excess and arrear are two different types of contributions. In hindsight my answer to Vania was incorrect since she war referring to EXCESS and not ARREAR.

      Theoretically SARS is suppose to automatically carry forward EXCESS contributions and take that into account. If they do not, the correct route to follow will be to object as Vania originally proposed.

      reply

      • Gillian Davies

        10 July 2017 at 21:37 |
        Thank you so much, I appreciate your advice.

        reply

      • Marica

        31 October 2017 at 14:11 |
        Hi,
        Does this mean that if I have a tax certificate from my provident fund which list an amount for both 4006 and 4007, that I should be counting these 2 amounts together and add both under 4006? Thanks

        reply

        • Chris Herbst

          01 November 2017 at 07:25 |
          Hi Marica,
          That would be correct yes.

          reply

  • Stephen

    10 July 2017 at 13:03 |
    My IRP5 reflects 3817 = pension fund contributions by company , and my deductions lists 4029 = retirement fund contributions. So which code reflects my personal ( not company contributions)?

    reply

    • Chris Herbst

      13 July 2017 at 20:18 |
      Hi Stephen,
      Correction: Your pension fund contribution should be reflected under code 4001 and your employers pension fund contribution under code 4472.

      4029 reflects excess contributions not allowed in the current year of assessment as a deduction, but carried forward to the next year.

      reply

      • Stephen

        14 July 2017 at 10:28 |
        Hi Chris,

        my Sars preassessment shows 4029 as retirement fund contributions and that amount is deducted from my total income to determine my 'Taxable income'. My conclusion is 4029 is the sum of both my and my company pension contributions. My tax due is then calculated as the appropriate percentage on the 'taxable income'. Is this correct ?

        reply

      • Elizabeth

        07 February 2018 at 14:20 |
        Is employers pension fund contributions (4472) tax deductible?

        reply

        • Tony de Wijn

          07 February 2018 at 14:49 |
          Code 4472 is the employer's contributions to a pension fund .i.r.o. an employee. Code 4001 is the total of employer plus employee contributions and code 4001 amounts are deductible subject to certain limits such as the 27.5% rule.

          reply

          • Elizabeth

            07 February 2018 at 15:08 |
            On the IRP5, it states 4001 R53000, and 4472 R44000, and total contributions as R97000. Is there an error? Only the R53000 was deducted.

            Thank you

            reply

            • Tony de Wijn

              07 February 2018 at 15:20 |
              Code 4001 (R53,000) is the total of employer and employee's contributions. It looks like the employer paid R44,000 and the employee paid R9,000

              If the IRP5 shows total contributions of R97,000 then that is wrong.

              reply

  • katu

    11 July 2017 at 11:09 |
    have things changed for pension? last year code submitted was 4001 and i recieved a tax rebate this year it shows as 4029 and i have recived zero?...
    can someone please clarify this for me.

    reply

    • Chris Herbst

      13 July 2017 at 20:21 |
      Hi Katu,
      4029 reflects the excess contributions carried forward, i.e. not allowed in the current year, but carried forward to the next year of assessment.

      I do not have enough information to comment as to why you are not receiving a deduction in the current year of assessment.

      reply

  • Kobus

    12 July 2017 at 07:19 |
    On my Irp5 and return the employers provident fund contribution is listed under code 4473. When calculating taxable income however it looks like sars is only including source code 4003 (my contribution). What am I missing on my return to get both included as a deduction against my taxable income, limited to R350k?

    reply

    • Chris Herbst

      13 July 2017 at 20:32 |
      Hi Kobus,
      It is difficult to say without seeing the actual calculation.

      I assume you are talking about the 2017 tax year. Since your employer's contribution is included as a fringe benefit under code 3825, it should be taken into account when your deduction is calculated.

      reply

  • Anton

    16 July 2017 at 21:24 |
    Good info.

    Chris, I have pension fund contributions of 2016 which were capped in that year and therefore supposed to be carried over to 2017. It appears that it's not automatically carried over. I want to claim it in the 2017, but am not sure where on the return to put it in. My IRP5 only reflects the contributions my employer and I made in the 2017 year.

    Best
    Anton

    reply

    • Chris Herbst

      19 July 2017 at 07:11 |
      Hi Anton,
      That is a common problem.

      Firstly the concern here is that there is no code you can include it under since SARS is suppose to automatically carry the 2016 excess contributions to 2017.

      The second concern is you can only see whether they have carried it forward on your assessment for 2017 - thus after you have filed your return.

      The only option that leaves you is to file your 2017 return, see if they have carried it forward - if not you will have to object to your return via completing a N001.

      Please let us know how the situation turned out for you, I do think many readers may find the information useful.

      reply

  • JanCasper

    18 July 2017 at 13:42 |
    Hi, I have a provident fund code 4003 of R150k and an employer contribution 3825 of R90k. But when I calculate my return on SARS it shows only R166k deducted per code 4029 and it displays 0 next to code 4003. My taxable income 27,5% inclusion is above the total of R240k thus it cannot be the inclusion % that is limiting the calc. My question is what is limiting me on the calculation and is there maybe a thorough definition of remuneration to determine if I am including anything incorrectly.

    reply

    • Chris Herbst

      19 July 2017 at 07:58 |
      Hi JanCasper,
      Code 4029 indicates the amount that is not allowed and carried over to the following tax year. Thus from what I gather only R74k (R240k - R166k) was allowed as a deduction.

      With the limited information available it is difficult for me to assess the situation.

      Regarding your question of a definition of remuneration, from the income tax act:

      section 11(k)(i):

      any amount contributed during a year of assessment to any pension fund, provident fund or retirement annuity fund in terms of the rules of that fund by a person that is a member of that fund: Provided that -

      (i) the total deduction to be allowed in terms of this paragraph must not in the year of assessment exceed the lesser of -

      (aa) R350 000; or
      (bb) 27.5 percent of the higher of the person's-

      (A) remuneration (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as defined in paragraph 1 of the fourth schedule; or

      (B) taxable income (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph

      reply

  • zane

    19 July 2017 at 08:04 |
    Hi, could someone kindly please assist:
    I completed my IT12A and the e-filing calculation simply deducted 27.5% of ALL my taxable income, even though I didn't contribute anywhere near this amount IN THE TAX YEAR, this cannot be correct, unless SARS is adding all previous provident fund amount disallowed...?

    reply

    • Chris Herbst

      19 July 2017 at 08:37 |
      Hi Zane,
      SARS will not allow previous provident fund contributions as this is only deductible as from 01/03/2016 - so we can rule that out. Going forward you would be able to deduct disallowed provident fund contributions.

      I have heard that SARS has made some errors this year, however not sure if that is one of them.

      It is difficult for me to assess without having the full information at my disposal.

      reply

      • zane

        20 July 2017 at 14:08 |
        Hi Chris, an update after receiving my ITA34: ALL previous brought forward retirement annuity contributions are apparently tax deductible in the 2017 tax year (up to 27.5%)! It means massive refunds for some.

        reply

        • Chris Herbst

          20 July 2017 at 14:14 |
          Hi Zane,
          Thank you for the update.

          Just for clarity - were you incorrectly referring to provident fund contributions in your first post above - did you mean retirement annuity? Because yes they will allow previous brought forward retirement annuity contributions however not provident fund contributions.

          reply

  • Nireshni

    20 July 2017 at 13:08 |
    Hi. This is the first year that I am seeing code 3817. What is it and why is my pension under taxable income?

    reply

    • zane

      20 July 2017 at 14:05 |
      3817 - all employer taxable pension benefits. You will pay tax on this as if it were income, but can deduct as part of all your retirement contributions for the year.

      reply

  • zane

    20 July 2017 at 14:18 |
    Hi Chris, no I actually meant to say "previous provident fund amounts", since I didn't know what they were doing at the time. Now I see exactly what's happening from the ITA34.

    reply

  • Gigi

    25 July 2017 at 01:22 |
    Hi
    I currently need clarity on the matter below.
    I’m currently contributing to the pension fund a total of R150 000 paid as follows
    50%, R75000 is deducted via my payslip
    50%, R75000 is paid directly by my employer to the pension fund and this is not a fringe benefit, my employer pays this directly to the pension fund on my behalf.

    I recently received my IRP5 and the following was reflected in respect of pension fund:-

    Income received:
    Amount Source Code
    75 000.00 3817

    Deduction / Contributions / Information:
    150 000.00 4001
    75 000.00 4472

    Does this mean that I’m being taxed on the other 50% contribution paid by employer under source code 3817 even though it’s not a fringe benefit?

    If so will SARS allow this amount as a deduction when I’m submitting my tax return, i.e. (R225 000) being R150 000 actual contribution and R75 000, amount incorrectly included as Fringe benefit and taxed or will my deduction be limited to R150 000 actual contribution?

    In all I would like to know what will be the impact on my tax liability as a result of the above?
    Thanks

    reply

    • Chris Herbst

      27 July 2017 at 19:12 |
      Hi Gigi,
      The definition of code 3817: "Value of taxable benefit iro Employer’s pension fund contributions paid for the benefit of employee."

      Thus yes if it is under code 3817 it will be taxed a fringe benefit. Under code 4001 you will be able to deduct the total of contributions paid by yourself and your employer, thus R150 000.00 subject to the statutory cap of 27.5% of the highest of your taxable income or remuneration.

      From what I can see the R75 000.00 is a fringe benefit as it is paid by your employer on your behalf.

      reply

  • Chris Herbst

    29 July 2017 at 08:44 |
    Hi All,
    We have released an iOS app - TaxTree - to assist you in calculating your monthly and annual tax. It includes pension, retirement and provident fund. Bear in mind the calculator off course does not take previous period excess contributions etc into account, it is only for current year. You can get it at:
    https://itunes.apple.com/za/app/taxtree/id1263890353?mt=8

    Let us know if you found it helpful.

    reply

  • Kerry

    31 July 2017 at 12:40 |
    Hi

    Should pension ( code 3603) be included in the taxable income before the applying the 27.5% limitation. My understanding is that is should, but SARS is excluding this income ( code 3603) from the taxable income. Also how shld reimbursive travel all be treated code 3703 for the same limitation

    reply

    • Chris Herbst

      31 July 2017 at 13:16 |
      Hi Kerry,

      Code 3603 (pension) should be included in taxable income before applying the 27.5% limitation. Section 11(k)(i) of the income act states that:

      any amount contributed during a year of assessment to any pension fund, provident fund or retirement annuity fund in terms of the rules of that fund by a person that is a member of that fund: Provided that -

      (i) the total deduction to be allowed in terms of this paragraph must not in the year of assessment exceed the lesser of -

      (aa) R350 000; or
      (bb) 27.5 percent of the higher of the person's-

      (A) remuneration (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as defined in paragraph 1 of the fourth schedule; or

      (B) taxable income (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph

      and the definition of remuneration according to the first paragraph of the fourth schedule of the income tax act specifically includes pension as part of remuneration.

      Travel allowance (3703) is an reimbursement and thus not part of taxable income or remuneration. Thus it should not be included before applying the limit calculation.

      reply

  • Leonie Landman

    17 August 2017 at 12:03 |
    In my tax calculator from Sars, I have code 3817 but there is no code 4472 in the deductions. Is this correct. I was under the impression that employers tax contribution is not tax deductable.
    Thanking you

    reply

    • Chris Herbst

      23 August 2017 at 15:55 |
      Hi Leonie,
      I am assuming you are referring to the 2017 year of assessment. The employer's contribution to your pension fund will be taxed as a fringe benefit. The total of your employer's and your contribution to the pension fund can then be deducted from your taxable income, subject to section 11(k). The deduction should show under code 4001.

      reply

  • Tony de Wijn

    23 August 2017 at 16:26 |
    Code 4001 on the IRP5 is the total of employer's PLUS employee's contributions paid to a Pension Fund.

    reply

  • Sakkie Swanepoel

    26 August 2017 at 17:59 |
    Hi

    A really stupid question ...
    Calculating the 27.5% on remuneration is fairly simple as it is a figure known before taxable income is calculated. When the 27.5% on taxable income is calculated to check which is the bigger however: do you first exclude pension, provident and RA payments in the taxable income calc to do the 27.5% ? or otherwise it becomes a circular reference?

    reply

    • Chris Herbst

      26 August 2017 at 18:48 |
      Hi Sakkie,
      Actually a good question.
      You calculate the taxable income before the pension, provident or retirement annuity calculation. Otherwise it will indeed be a circular reference.

      From the income tax act section 11(k)(i):

      "taxable income (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph."

      Where any deduction under this paragraph refers to pension, retirement and provident fund deduction.

      reply

  • Irmarie Burger

    14 September 2017 at 19:01 |
    My employer contributed 10.5% of my salary towards my pension fund. Only 5% of this was actually contributed towards the fund and the other 5.5% was for risk benefits (life, funeral, spouse cover). They used however source code 4472 on the IRP5 to reflect the total contribution of 10.5%. Should this not be split between Employer pension contributions and other fringe benefits? As I understand it this 5.5% paid towards risk benefits are not tax deductible? Thanks

    reply

  • Chris Herbst

    15 September 2017 at 09:28 |
    Hi Irmarie,
    You are correct, they should only use source code 4472 for the actual pension fund contributions. Life, funeral and spouse cover are not tax deductible and should only be shown as a fringe benefit.

    reply

  • Petro Wessels

    19 September 2017 at 15:01 |
    Good day

    Is the full taxable reimbursive travel code 3702 included in the calculation for code 3699 or only the (80/20)split?

    reply

    • Chris Herbst

      19 September 2017 at 15:36 |
      Hi Petro,

      Code 3699 is the Gross Taxable Employment income that is used to calculated the PAYE liability.

      Thus only the 80/20 split of a travel allowance (3701) should be included. The non-taxable portion 20/80 should be included under code 3696.

      You referred to code 3702 which is a taxable reimbursive travel allowance - this should be included as 100% under code 3699. Code 3703 which is a non-taxable reimbursive travel allowance should be included under code 3696.

      reply

  • Jeffrey Osrin

    11 October 2017 at 23:14 |
    Hi ,
    My wife has a Retirement Annuity Fund certificate dating back to 2006 with an amount of R29412 on it .. Since then we have been claiming R1800 (source code 4007) as arrear contributions . I have completed her tax return but not yet submitted it . Where do I claim on her tax return the balance as now the new amount is 27,5% of taxable income . She does not have a current RA being contributed to . Thanks

    reply

    • Chris Herbst

      12 October 2017 at 07:43 |
      Hi Jeffry,
      You have incorrectly been claiming the R1800 under code 4007. Code 4007 were for contributions made in the current year to the retirement fund as arrear contributions. You are allowed to contribute up to R1800 per tax year to your retirement fund if you have not utilised your full deduction in previous years.

      It should not be confused with contributions that were made in previous years and were not allowed in those years, this will be excess contributions and SARS (theoretically) keeps track of this on their side.

      Code 4006 is now used to declare both current year retirement fund contributions as well as CURRENT year arrears retirement fund contributions.

      Thus any excess contributions from previous years made by your wife should not be filled in on the tax return. SARS should automatically take this into account. If they do not, you can object to the tax assessment.

      reply

  • Tony de Wijn

    12 October 2017 at 06:42 |
    Hi Jeff,

    Source code 4006 covers the total of employer's plus employee's plus Arrears contributions to an R/A fund. You should be able to claim the full allowable amount of arrears R/A contributions under code 4006 - subject to the "27.5%" calculation rules.

    reply

  • Angelique Bekker

    27 October 2017 at 08:58 |
    Good day, I am confused as to provident fund fringe benefits are a pre or post tax deduction. Please can you assit

    reply

  • Tony de Wijn

    27 October 2017 at 09:43 |
    Hi Angelique,

    Quickest and best way to explain is to suggest you watch this YouTube video
    https://youtu.be/Gc7yzhioB5U

    Tony de Wijn

    reply

  • Chris Herbst

    06 November 2017 at 15:20 |
    Hi Brian,

    Your question refers:

    I enjoyed your blog and the comments but have a query. You posted
    · Tony de Wijn
    15 February 2017 at 07:16 | #
    SARS has changed definition of the word "remuneration" when it comes to this 27.5% rule. In this case remuneration includes the amount of any Capital Gain profit that is added to your normal income and also taxable and tax free interest etc including after-tax income from SA dividends (normally taxed at 15% before you get them). Also included in "remuneration" is profit from rental of properties.
    My questions re remuneration for the purposes of the 27.5% RA calc
    1. Is normal local interest included eg R100 000 ?
    2. Is the tax free R34500 also included?
    3. Are dividends included?
    4. Gross or net dividends?

    My response:

    section 11(k) of the income tax act:

    any amount contributed during a year of assessment to any pension fund, provident fund or retirement annuity fund in terms of the rules of that fund by a person that is a member of that fund: Provided that -

    (i) the total deduction to be allowed in terms of this paragraph must not in the year of assessment exceed the lesser of -

    (aa) R350 000; or
    (bb) 27.5 percent of the higher of the person's-

    (A) remuneration (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as defined in paragraph 1 of the fourth schedule; or

    (B) taxable income (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph

    You will note that 11(k)(i)(bb) states that the limit is based on the HIGHER of the remuneration or taxable income.

    In light of this:

    1. Is normal local interest included eg R100 000 ?

    Only the taxable portion. Since interest does not form part of your remuneration (unless you earn interest on as a trader or something similar). The taxable portion is part of your taxable income and hence included based on 11(k)(i)(bb).

    2. Is the tax free R34500 also included?

    No as explained above.

    3. Are dividends included?

    No, since dividends do not form part of taxable income. Again this will differ if you earn dividends as a trader or something similar as it may be part of remuneration then.

    4. Gross or net dividends? None, as explained above.

    reply

  • Vish Padayachee

    09 November 2017 at 17:08 |
    Hi Chris
    Please help wrt deductions allowed in respect to pension fund contributions. in the 2016 tax year an amount of R49400 was carried forward to the next tax year for RAF contributions. My 2017 ITA 34 reflected this amount as B/F from previous tax year. However after being audited SARS reduced this amount to R19 000.
    My deductions are less than R350 000 and there was no CGT. Why would SARS not C/F the full amount?
    Thank you for an informative blog.

    reply

    • Chris Herbst

      10 November 2017 at 07:39 |
      Hi Vish,
      Thank you for your comment.
      It is difficult to assess the specific situation without having more details. It may be that the 27.5% of your remuneration / taxable income is less than R350 000 and the limitation stems from there. However it sounds strange that they would lower the amount B/F.

      If you would like us to take a more comprehensive look into this, you can contact us via email.

      reply

  • Gabby Mdluli

    26 December 2017 at 05:47 |
    Hi....I'm Gabby I'm confused and I need clarification. My husband died 2016 and his provident fund was paid in may 2017. The money was shared between me and my children and my mother in law. ..of course my children shares went to a trust fund....my problem is with sars....sars deducted R448 000 + from the provident fund. Is it the right figure or I was over charged. How many percent is the deceased supposed to contribute? I got 50% R550 000 my mother in law 5% 55000 my little daughter 30% and my son 15%...Trust fund....please help me understand....they employer sent me the IRP5 that shows the deductions of R448 000.

    reply

  • zane

    30 January 2018 at 09:06 |
    Hi, could someone kindly please assist: On my tax assessment I have an amount 'c/f to next year' due to RA and provident fund contributions. Can I claim this full amount against taxable income in the following tax year?

    reply

  • Tony de Wijn

    30 January 2018 at 09:37 |
    It may be possible to claim a portion of the b/fwd amount plus any current R/A, pension or provident contributions paid next year. There are terms and conditions that apply to the limit you may claim and these t & c's are based on a percentage of your remuneration or your taxable income and subject to a maximum claim of R350K. If you received any income from a Pension, Provident or R/A fund then this may also affect the amount of your claim.

    reply

    • zane

      30 January 2018 at 15:03 |
      Thank you for your reply.
      I understand the 27.5% deduction limit on taxable income. I phoned SARS and they said that the 'c/f' amount was already paid back to me as a retirement contribution refund. However, the 'c/f' amount is reflected as a -ve amount against deductible funding. This makes me think that it should still be allowed as a deduction only in the next year?

      reply

  • Gillian

    30 January 2018 at 14:51 |
    Good day Hope you are well? Can anybody assist please. I have a client that have a arrear retirement annuity as from 2008. They allowed each year R1800 (that is correct). I did his 2017 return and they allowed the total amount that was left over (of the carried over). Then they revised it and disallowed the arrear RA carry over. I objected and they told me. The Carry over of ..... for code 4006 was declare as code 4007 in 2006 assessment therefore disallowing the carry over as it was a duplicated deduction. I don see any duplicated deduction. Is there something that i am missing. Please assist.

    reply

    • zane

      30 January 2018 at 15:16 |
      I think I made this same mistake at some stage. I realised later that this R1800 amount must never be put on your tax form, since it is automatically calculated by SARS (while you are still contributing to a RA) and they will cumulate it on your records. I hope this helps!

      reply

  • Gillian

    30 January 2018 at 15:31 |
    Thank you Zane, but what i don't under stand the arrears RA is showing still a large amount under code 4007 in the 2016 tax year, although the allowed R1800 each year ( R18000 in total as from 2008) their is still a large amount in arrears. Is this amount not suppose to be carried over to 4006 (4029) for the 2017 tax year or do you just forfeit the amount.

    reply

  • Tony de Wijn

    30 January 2018 at 15:56 |
    Before the 2017 tax year you could claim R1,800 a year for arrears payments to Pension and R/A funds. From 2017 arrears amounts c/fwd may be claimed together with current contributions. Whatever is disallowed (under the 27,5% rule) is c/fwd to the next year and, if it happens that these amounts can never be claimed then they are paid out at retirement.

    reply

    • zane

      30 January 2018 at 16:01 |
      What you mention here relates to my question also. This is where my assessment reflects a -ve c/f amount, which SARS claims has already been paid out, which confuses me?

      reply

  • Tony de Wijn

    30 January 2018 at 16:27 |
    Only a detailed examination, of all the relevant information, by a tax practitioner and SARS will explain what actually happened in your case.

    reply

  • Hennie du Plessis

    11 February 2018 at 10:08 |
    Hi
    If I am self employed, with gross income of R400 000, and taxable income of R200 000 - is the 27.5% applicable to the gross or the net? It is not clear to me from the definitions or the examples I can find. I need to calculate if I should add more to my RA before 28 Feb or not, to gain maximum benefit.

    reply

    • Chris Herbst

      12 February 2018 at 07:19 |
      Hi Hennie,

      It is 27.5% of the highest of your taxable income or remuneration.

      Thus in your case 27.5% of R400 000 (assuming your gross income constitutes remuneration.)

      reply

  • zane

    12 February 2018 at 07:05 |
    It is 27.5% of R200 000 (total taxable). Adding your retirement funding will always lower your taxable amount, but it is also money you have to fork out now which you can only access at minimum age 55 and even then you can only extract 1/3 tax-free. The question is, what do you really mean by benefit? You may be able to invest those funds in an ETF for example and have full access to it any time and also only pay CGT on it in your own capacity. Just another way of looking at it!

    reply

    • Chris Herbst

      12 February 2018 at 07:21 |
      Hi Zane,
      Thanks for your contribution. However please note that it is 27.5% of the highest of your taxable income or remuneration.

      Thus in Hennie's case most likely the 27.5% of R400 000 and not of R200 000.

      Also your statement that adding to your retirement funding will always lower your taxable income is not correct if you contribute above the statutory cap it will not lower your taxable income.

      reply

  • zane

    12 February 2018 at 07:27 |
    Apologies, seems I am still confused on taxable and gross income! I assumed that he does not have the complicated salary structure that salaried employees have since he's self-employed: here people have to add all their other benefits as taxable items, but then certain items are deductible again...also he would have to be earning over R1 million to have the maximum 27.5% deductible benefit (R350 000)?

    reply

  • Hennie

    12 February 2018 at 07:33 |
    Thanks for the feedback. I'll work on the R400 000, and if SARS only allow it on the R200 000, then I know I can carry over the difference to next year.

    reply

  • zane

    12 February 2018 at 09:09 |
    Could someone kindly please help, I seem to be having problems consolidating my amounts. I have the following figures to declare for the current year, I just want to calculate my actual taxable amount:
    PAYE + 13th cheque: R 460 849
    Medical aid payments: R 16 108
    Taxable interest: R R63 932
    Provident fund payments: R 28 158
    RA payments: R 15 000
    Disability payments: R 2 268

    I assume all retirement contributions are deductible and disability is ignored?

    Any assistance much appreciated!

    reply

  • zane

    13 February 2018 at 09:35 |
    Or OK, maybe someone could please assist with this rather: I have retirement fund contributions (4029) of R62 734 and amounts 'brought forward from previous year' of R 86 860. My allowable 27.5% deductions are capped at R134 225 for the 2017 year. SARS then states an excess (disallowed) amount of R15 369 to be 'carried forward'. Does this mean I can claim this amount in the current year against taxable income?

    reply

  • Chris

    19 February 2018 at 10:50 |
    Is it true that Treasury is intending to completely scrap out arrears contributions in 2018/19 tax year?
    Wouldn't it make more sense for Treasury to increase the arrears contribution annual limit from R1800 to a meaningful amount. Some of us have a lot of catching up to .............

    reply

    • Chris Herbst

      01 March 2018 at 18:46 |
      Hi Chris,
      Will post the answer if I gain clarity on the above.

      reply

  • Tony de Wijn

    01 March 2018 at 20:28 |
    The R1,800 has been done away with. Arrears are now included with current contributions and the total of arrears plus current contributions is now considered under the 27.5% rule. For example code 4001 now includes arrears pension contributions plus employer's current contributions plus employee's current contributions to a pension fund.

    reply

  • Stella

    14 March 2018 at 12:13 |
    Hi Tony
    but my IRP5 shows a different scenario, 4472 is R19852 and 4001 is R13660, medical aid 4474 is 12360 and 40050 R18042. how much should be included in come and how much will be deducted?

    Thanks

    reply

  • Tony de Wijn

    14 March 2018 at 13:23 |
    Code 4472 is the employer's contribution to your pension fund. This amount should also be taxable and added to income as code 3817.
    Code 4001 is the total of your employer's contributions PLUS your contributions to your pension fund.
    Code 4474 is your employer's contribution to your medical aid fund and this amount is taxable and added to your income as code 3810.
    Code 4005 is the total of code 3810(4474) plus any contributions that you paid.
    Code 4001 may be considered as a deduction under SARS's '27.5% of remuneration rule'.
    Code 4005 may be converted to "tax credits" to reduce your tax commitment. Google me for my details if you need more info.

    reply

  • Andra

    02 April 2018 at 13:22 |
    Hi
    I have a problem where SARS efiling still carried over RA Fund contributions even when the RA fund paid out. Now SARS has fixed the problem and revised all my returns and as a result I am supposed to pay in R16000.
    The year my RA Fund paid out, I supplied all supporting documentation, even the year after, still they carried over the amount instead of removing it. How is this my fault? I completed a ZERO on the RA Fund code every year therafter, do I have any options?

    reply

  • Chris Herbst

    10 April 2018 at 12:03 |
    Hi Andra,
    This is a technical situation where we would have to look into more details. Should you want to engage us for a consultation you can email us at info@chconsulting.co.za

    reply

  • Altaaf Haffejee

    02 July 2018 at 14:40 |
    Good day,

    I am currently contributing towards a provident fund and have noted that I see this income amount in SC3825 and thereafter deducted in SC4003 and SC4473. I have selected 'Y' for Did you make any contributions to a retirement annuity in order to claim this deduction. I have noted that this is the only way the deduction does work and I further include the amount and policy details. The deduction leads to a substantial refund.
    Is this the correct way in order to exercise the 11(k) deduction? I have received conflicting opinions from SARS consultants and would like further insight into this as there is no other way to obtain this deduction via efiling.

    reply

    • Chris Herbst

      02 July 2018 at 22:34 |
      Hi Altaaf, from the information that I have at my disposal it seems as if you are contributing towards a provident fund and not retirement annuity fund to which you answered yes. The provident fund deduction will automatically be calculated from your IRP5 - you cannot fill that in at the retirement annuity field. Hope this helps.

      reply

      • Yolande Scott

        04 July 2018 at 13:49 |
        Hi Chris

        I have the same dilemma as Altaaf.

        If one does not fill any information into the retirement annuity field, efiling gives an error message and states "the number of R/As you are contributing to must be greater than zero".
        I assumed this is correct based on "section 11(k) of the income tax act:

        any amount contributed during a year of assessment to any pension fund, PROVIDENT FUND or retirement annuity fund in terms of the rules of that fund by a person that is a member of that fund" - and that Provident Fund contributions under SC3825/4003 and 4473 prompts this electronic response.
        Now I'm completely confused. Please help us understand this?

        reply

        • Chris Herbst

          04 July 2018 at 22:13 |
          Hi Yolande,
          You should not be answering yes to Did you or your employer made any retirement annuity fund contributions. The income tax act refers to the way the deduction is calculated - which is the same as a retirement annuity, however as in my answer to Altaaf, this calculation happens automatically and you should not fill it in under the retirement annuity section.

          reply

  • JM

    18 July 2018 at 15:28 |
    Good Day Chris
    Need your help on the code 4029 - in the previous tax years code 4029 resulted from the total income earned x 27.5%. For e,g Code 3601 = 450 000 + code 3605 = 30000 + code 3817 = 70 000 + code 3810 = 20 000 and code 3713 = 12000. The total amount assessed was R582 000 x 27.5 % = R160 050. Please advise on the actual calculation for code 4029., taking into account RA's. Many Thanks JM

    reply

    • Chris Herbst

      19 July 2018 at 23:15 |
      Hi JM,
      The allowable retirement fund deduction is calculated by way of section 11(F) of the income tax act. You need to distinguish between taxable income and remuneration (leaving out capital gains for simplicity).

      See:

      section 11(f)(i):

      any amount contributed during a year of assessment to any pension fund, provident fund or retirement annuity fund in terms of the rules of that fund by a person that is a member of that fund: Provided that -

      (i) the total deduction to be allowed in terms of this paragraph must not in the year of assessment exceed the lesser of -

      (aa) R350 000; or
      (bb) 27.5 percent of the higher of the person's-

      (A) remuneration (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as defined in paragraph 1 of the fourth schedule; or

      (B) taxable income (other than in respect of any retirement fund lump sum benefit, retirement lump sum withdrawal benefit and severance benefit) as determined before allowing any deduction under this paragraph

      Code 4029 includes the total of all allowable deductions (11(f)) towards pension, provident and retirement annuity funds.

      Further to this, code 4029 can include excess contributions carried forward from previous years.

      Hope this helps.

      reply

  • Adele

    23 July 2018 at 16:41 |
    HI
    If some is FB Tax on a provident fund payment and it is included on there irp5 under code 3825 - surely they are entitled to the deduction also - and what code should be applied to this

    reply

    • Chris Herbst

      08 August 2018 at 10:45 |
      Hi Adele,
      SARS will consider that as a deduction automatically via the IRP5.

      reply

  • Preshen

    02 August 2018 at 22:25 |
    Sars is not considering 4473 (employers provident fund contributions) as a deduction. Is this right? The same amount is included in 3825 as fringe benefit and 4003 as my contribution. It now seems I owe SARS.

    reply

    • Chris Herbst

      08 August 2018 at 10:45 |
      Hi Preshen,
      SARS will consider that as a deduction automatically via the IRP5.

      reply

  • Jacobus Human

    13 August 2018 at 16:18 |
    In my 2018 return SARS did not allow R51920.00 of my Previous disallowed Provident fund contributions - Taxable income R 278837.00, is this correct ? Only allowed R 49009.00 allowed from RAF - current and previous payments - Thanks

    reply

    • Chris Herbst

      30 August 2018 at 14:27 |
      Hi Jacobus,
      Please remember that before 01 March 2016 provident fund contributions were not tax deductible. If you are referring to contributions after this date more information will be required to assess the situation.

      reply

  • John

    18 August 2018 at 10:52 |
    Hello
    My 2017 IT34 showed an amount of around R300,000 as excess retirement fund contributions to be carried forward. In April 2018 I commuted a RA and took the 1/3 cash around R400,000. No tax was deducted as per the directive. I have previously converted a RA (2014) and taken around R200,000 cash. I submitted my 2018 return and the R300,000 excess retirement fund contributions that were to be brought forward from 2017 had disappeared. I lodged an objection and SARS reissued the 2017 IT34 showing that the R300,000 excess retirement fund contribution that was on the original IT34 had been deducted from the R400,000 lump sum I took in April 2018. I'm not sure how they can apply a lump sum received in April 2018 to the 2017 tax year? So it appears that I get no benefit of the first R500,000 tax free first before the deduction is made against the excess retirement fund contributions. Is this correct as I am being seriously prejudiced.

    reply

    • Chris Herbst

      30 August 2018 at 14:32 |
      Hi John,
      The lump sum you withdraw first gets applied against any excess RA contributions you have available before it gets applied to the lump sum retirement tax table. Although you had the excess contribution reflected in your assessment in 2017 it was available in 2018 when you made the cash withdrawal.

      reply

      • John

        30 August 2018 at 17:43 |
        Chris thanks very much for the answer above that the lump sum is first applied against the excess retirement fund contributions before the tax fee portion. By doing it in that order there seems to be prejudice against a person who has excess retirement fund contributions who cashes in an RA before the excess contributions are exhausted. For example if I had R350,000 of excess contributions that amount would be laid off in full against my taxable income (the R350,000 in my case is less than the 27.5%) resulting in a massive tax saving at max marginal of R157,500. But if I cash in an
        RA the same year with a third cash value of R500,000 that would first be applied to the excess contribution of R350,000 which means I lose out on the tax saving of R157,500 completely! If however I delay cashing in the RA until the following year when the excess contribution has now been exhausted I would have saved the R157,500 tax and will get the R500,000 third cash value from the RA tax free. It doesn't seem fair or logical. Thanks for your assistance.

        reply

  • Joe

    23 August 2018 at 09:03 |
    Hello
    Can I deduct contributions that I make to my wive's RAF from my taxable income?

    reply

    • Chris Herbst

      30 August 2018 at 14:33 |
      Hi Joe,
      No unfortunately not.

      reply

  • Stephane

    10 October 2018 at 10:55 |
    Good day

    Please advise if you earn a monthly pension (GEPF pension), are they allowed to tax monthly pension that a retired individual receives?

    Thank you.

    reply

  • Tony de Wijn

    10 October 2018 at 11:35 |
    Regular income received from a pension, provident or retirement annuity fund is taxable and is taxed just as if it was salary.

    reply

  • James

    30 October 2018 at 04:17 |
    Hi
    I took a lump payout from my provident fund last year and was taxed the normal rates. When i filed my return this year, my contributions previously not allowed (source code 4003) were NOT deducted from the lump sum payout amount and instead show on the IT34 as a carryover to next year. I thought that this amount would be deducted from the lump sum payout before calculating the tax? Many thanks

    reply

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