If an individual's only income for the year is dividends (300k), and Capital Gain (R1mil) - do they have an opportunity to make a deductible contribution towards and Retirement Annuity?
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
We agree with your view. Section 11F(2)(b)(ii) allows for a deduction to be made against 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 this section and section 18A. It is section 11F(2)(c) that then also limits the deduction to “the taxable income of that person before—
(i) allowing any deduction under this section; and
(ii) the inclusion of any taxable capital gain.”
In all instances, the reference to “this section” is to section 11F.
The explanatory Memorandum explained it as follows:
“… a new limiting criteria for the allowable deduction is proposed to avoid circumstances that can create an assessed loss.”
As dividends, paid by an RSA company, is exempt from normal tax, the full amount is carried forward to the next year of assessment.