On 19 July 2017 the Fiscus published changes to the tax law for public comment prior to its introduction in Parliament. Note that this bill is draft legislation and is subject to change prior to formal approval.

A. Retirement Fund Contribution Deductions

Section 11 K of the Income Tax Act deals with the deductions of contributions made to retirement funds. This section (revised and effective as recently as 1 March 2016) has now been removed and replaced with section 11F. This new section limits the criteria for the allowable deductions in order to avoid circumstances where an assessed loss may be created.

The most recent version of section 11(k) limited the total deduction allowable in respect of contributions to retirement funds to the lesser of:

• R 350,000; or
• 27,5% of the higher of the person’s remuneration or taxable income.

The new section 11F includes a further limitation namely:

• taxable income before allowing any deduction under this section and before the inclusion of any taxable capital gain.

Example:

John earns a salary of R 100,000 (remuneration) and he has a taxable capital gain of R 500,000.

In terms of section 11F John’s total deduction may not exceed the lesser of:

• R 350,000; or
• 27,5% of R 600,000 (taxable income) = R 165,000
• R 600,000 less R 500,000 = R 100,000 (taxable income before allowing any deduction under this section and before the inclusion of any taxable capital gain)

Answer: John’s maximum deduction in respect of retirement fund contributions = R 100,000

B. Foreign Employment Income Exemption

Previously a South African taxpayer (South African resident for tax purposes), in calculating his/her South African taxable income was allowed to exclude a salary (remuneration) earned outside South Africa in respect of services rendered outside South Africa. It has now been proposed that South African tax residents be taxed in South Africa on all their foreign income including remuneration as described above. They may however qualify for a reduction in the tax liability to extent that they were taxed in a foreign country on the same income.

Note that currently exemptions apply in circumstances where the taxpayer has earned remuneration income while out of the country for more than 183 days and for a continuous period of more than 60 days.

Before making any decisions regarding A. and B. above, you will probably be best served by contacting us for a detailed opinion.