Question:
How do I maximise my tax benefit in the new retirement regime starting March 2015? Should I be earning R1 272 727 to receive a maximum benefit (R350 000) in the new retirement saving regime starting March 2015, or could I do it with any salary below R1 272 727? I'm currently earning around R500K annually and my 27.5% is just R140K. I contribute towards both an employer pension fund (R5K) and retirement annuity (R2K). Total contribution to both provident fund and retirement annuity is still less than R140K. I am willing to increase my annual contribution to a maximum of R350K. If I increase my annual contribution to R350K, would I get the tax benefit in that year or would they then roll over the difference between R140K and R350K? Regards Chris
Answer:
Chris,
Your tax deduction is limited to 27.5% of the greater of your gross remuneration or taxable income. So you would have to earn R1 272 727 (in either category), to get the full R350 000 deduction. A lower income will result in a lower permitted tax deduction.
If you increase your contribution to R350 000 on a lower income base, the contributions not allowed for tax are carried forward, and may be deducted in future years, but only within those years' annual limit. So yes, on R500 000 income, you would currently have to carry forward contributions of R212 500. Any unclaimed amounts are returned to you tax free when you withdraw or retire.
Bear in mind that if you earn R500 000, you will pay tax of roughly R70 000 (after claiming R137 500 retirement fund contribution), and your take-home pay will be R290 000. Out of this you propose to contribute another R210 000 to your savings, leaving you with disposable income of just R80 000 for the year. Unless you have accumulated or inherited assets, SARS may just wonder how you make those numbers work.
