A client of mine aged 39 receives a widow's pension every month and from it she contributes to a retirement annuity fund, is she allowed to receive a deduction in her taxable income for the contributions to the RAF? She is not employed her only other sour
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
Simply put, section 11F of the Income Tax Act allows as a deduction in respect of contributions to retirement funds, a maximum of the lesser of R350 000 or 27,5% of the higher of: remuneration (other than lump sum benefits) or taxable income.
Section 11F(2)(b)(i) defines the remuneration for purposes of the 27,5% calculation as “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”.
Paragraph (a) of the definition of “remuneration”, in paragraph 1 of the Fourth Schedule, states that "remuneration" means any amount of income which is paid or is payable to any person by way of any … pension, superannuation allowance, retiring allowance or stipend, whether in cash or otherwise and whether or not in respect of services rendered, including any amount referred to in paragraph (a), (c), (cA), (cB), (d), (e), (eA) or (f) of the definition of "gross income" in section 1 of this Act … The pension is essentially an annuity, but is also specifically included.
The pension would also be included in her taxable income, together with the taxable income derived from rental. Shoe would therefore be entitled to make a deduction at the higher of her remuneration or taxable income, with the absolute limit of R350 000.