s11F Deduction in respect of contributions to retirement funds We received a query from a client who is selling their primary residence and will make a taxable capital gain after the primary residence exclusion is applied. The client would like to make th
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
The taxable capital gain is not excluded from the amount which the 27,5% is calculated. 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.”
The section 11F deduction is therefore limited to taxable income before adding the taxable capital gain.