Anthony is 58 years old. During the current year of assessment, he earned a salary R544 000. He contributed R67 000 to a provident fund. Antony and his employer contributed R62 000 each to his pension fund. You may assume that his remuneration is R626 400.YOU ARE REQUIRED to determine the retirement fund contribution deduction which he will be allowed to deduct from his taxable income for the current year of assessment.a.R169 128b.R62 000c.R67 000d.R129 000
Question
Anthony is 58 years old. During the current year of assessment, he earned a salary R544 000. He contributed R67 000 to a provident fund. Antony and his employer contributed R62 000 each to his pension fund. You may assume that his remuneration is R626 400.YOU ARE REQUIRED to determine the retirement fund contribution deduction which he will be allowed to deduct from his taxable income for the current year of assessment.a.R169 128b.R62 000c.R67 000d.R129 000
Solution
According to the South African Income Tax Act, the deduction for contributions to retirement funds (pension, provident, and retirement annuity funds) is limited to the lesser of:
- 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement lump sum benefits and severance benefits). Or,
- R350 000.
In Anthony's case, his remuneration is R626 400.
Step 1: Calculate 27.5% of his remuneration. 27.5/100 * R626 400 = R172 260
Step 2: Compare this with the maximum allowable deduction of R350 000. The lesser of the two is R172 260.
Step 3: Compare Anthony's actual contributions with the calculated maximum allowable deduction. Anthony's total contribution to the retirement fund is R67 000 (provident fund) + R62 000 (his contribution to the pension fund) = R129 000.
Therefore, the amount that Anthony will be allowed to deduct from his taxable income for the current year of assessment is R129 000, because it is less than the calculated maximum allowable deduction of R172 260.
So, the correct answer is d. R129 000.
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