As of 1 March 2016 taxpayers are allowed a tax deduction in respect of contributions made to retirement funds up to 27.5% of taxable income, capped at R 350,000 per year. This is a significant increase from 15% previously. Those taxpayers whose taxable income exceeds R 1,272,727 will be affected by the capping of R 350,000 per year.
The increase to 27.5% will especially benefit those people still in the retirement funding “build-up” phase whose retirement funding is inadequate, provided they have the necessary disposable income to take advantage of the increased deduction of 27.5%.
There are many tax advantages of contributing to a retirement fund. In addition to the tax deduction one is allowed in respect of any contribution to a fund as mentioned above, the funds in the retirement fund are not subject to tax on interest, dividends or capital gains. These tax benefits can substantially increase one’s retirement funding over time.
