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.R62 000b.R129 000c.R169 128d.R67 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.R62 000b.R129 000c.R169 128d.R67 000
Solution
According to the South African Income Tax Act, an individual is allowed to deduct up to 27.5% of the higher of remuneration or taxable income for contributions to a retirement fund. However, this is capped at R350,000 per annum.
Step 1: Calculate 27.5% of Anthony's remuneration 27.5% of R626,400 = R172,260
Step 2: Compare this with the maximum allowable deduction The lesser of R172,260 and R350,000 is R172,260.
Step 3: Compare this with Anthony's actual contributions Anthony's total contributions to his retirement funds are R67,000 (provident fund) + R62,000 (his contribution to the pension fund) = R129,000.
Step 4: Determine the allowable deduction The lesser of R172,260 (the calculated maximum based on his income) and R129,000 (his actual contributions) is R129,000.
Therefore, the retirement fund contribution deduction which Anthony will be allowed to deduct from his taxable income for the current year of assessment is R129,000. So, the correct answer is b. R129,000.
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