Question:
I earn directors’ remuneration (code 3615) which is non-pensionable. For the last couple of years the Receiver only allows a deduction for income tax of R3 500 and not 15% of my income. On the assessment, the difference between my retirement annuity contributions and the R3 500 is then added to a balance and shown as "amount off to next year". As the 15% is not deducted, I had to make payments to the Receiver when assessed over the past couple of years.
Answer:
JJ,
The deduction allowed on retirement annuity contributions is the greater of:
15% of non-retirement funding income
R3 500 less the allowable pension fund contributions, or
R1 750
If you are not a member of your company’s pension or provident fund, then all your directors emoluments should be deemed as non-pensionable. In that case, we cannot see a reason why you should not be allowed the full 15% deduction for your retirement annuity contribution, other than that the Receiver does view your director’s remuneration as part of your pensionable income. It is worth a query.
Also remember that if you are a member of your company’s provident fund, your income (other than that specifically excluded) will be deemed as pensionable even though the company is making the contribution.
Good news: In terms of proposed legislation, you will be allowed to deduct 22.5% of your taxable income as a retirement fund contributions (capped at R200 000 per year), irrespective of whether it is to a pension, provident or retirement annuity fund. The whole issue about pensionable and non-pensionable income will fall away. That should address your problem in future years; also you can add any amounts not allowed as a retirement annuity deduction in the past to your tax-free cash lump sum at retirement.
