Reduce your tax liability during this retirement annuity season

Maximise your tax deductions by contributing towards retirement funds.

Tax, Retirement

2022-01-27 10:05:00 PM

[ADVISOR VIEW] One of the ways in which individuals can maximise their tax deductions is by contributing towards retirement funds: MichaelHaldane - GlobalLocalZA. PersonalFinance FinancialPlanning

Maximise your tax deductions by contributing towards retirement funds.

Don’t miss the chance of benefiting from a deduction against your tax liability!Retirement funds contribution deduction (Section 11(F))The total contributions an individual makes to any pension, provident or retirement annuity fund during the year of assessment are tax deductible. However, the retirement funds contribution deduction is limited to, the lesser of:

Taxable income before including capital gains. Please note that the tax deduction will be capped at the actual contributions made by the individual.Essentially, this means that individuals can reduce their tax liability by a maximum of R350 000 for the tax year.

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As we are approaching the end of the tax year, the question to ask yourself is: Have I maximised my contribution to a retirement annuity? Have I maximised the tax deduction? Well, one of the ways in which individuals can maximise their tax deductions is by contributing towards retirement funds. This is because total contributions towards retirement funds are allowed as a deduction against tax liabilities. Don’t miss the chance of benefiting from a deduction against your tax liability! Retirement funds contribution deduction (Section 11(F)) The total contributions an individual makes to any pension, provident or retirement annuity fund during the year of assessment are tax deductible. However, the retirement funds contribution deduction is limited to, the lesser of: Taxable income before including capital gains. Please note that the tax deduction will be capped at the actual contributions made by the individual. Essentially, this means that individuals can reduce their tax liability by a maximum of R350 000 for the tax year. How can one make use of the retirement fund contribution tax deduction? If you are currently contributing towards a pension or provident fund or your employer is contributing towards your fund on your behalf, you will have a tax deduction of the actual total contributions made towards your fund. If you are not contributing towards a pension or provident fund via your employment, you can reduce your tax liability by starting your own retirement annuity. Thus, you would contribute towards a retirement annuity by way of a lump sum or monthly contributions. You would also have the option to add funds to the retirement annuity as and when funds are available. Remember, if you are already contributing towards a pension or provident fund via your employment, you can still start your personal retirement annuity and make contributions towards the retirement annuity. Likewise, if you have an existing retirement annuity, you can just make a once-off contribution towards your fund. In turn, you would be maximising your tax deduction for the year of assessment. In all the above scenarios, you would qualify for a tax deduction to the maximum of R350 000. What are the benefits of contributing towards retirement funds? Contributing towards retirement funds can be beneficial for several other reasons, being: In addition to the above, Section 37B of the Pensions Funds Act stipulates that pension funds do not form part of an insolvent estate. Retirees who wish to take the permitted cash withdrawal portion (one-third of the benefit) at retirement, will be taxed in accordance with the retirement tax table which exempts the first R500 000. However, the R500 000 tax-free portion is a cumulative total in your lifetime. Thus, if there had been prior cash withdrawals the tax-free portion will be affected. Let’s end the 2021/2022 tax year with a tax deduction! Before February 28 2022, make sure that you use this opportunity by contributing towards your retirement annuity or starting a new retirement annuity and securing your golden days. 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