The Income Tax Act provides for a deduction made to any pension fund, provident fund or retirement annuity fund. A deduction may be claimed by members of those funds in the year of assessment when amounts were contributed, under section 11F of the Act.
This practicality is that employers typically contribute the amount on behalf of the taxpayer employee. The amount is taxed as a fringe benefit and is treated as contributions by the individual employees.
Should the amount contributed be made by the employer on behalf of the employee, it will be prepopulated on the ITR12 from the IRP5 submitted by the employer.
There is however a limitation on the deduction that may be claimed:
Total contributions to retirement funds (pension funds, provident funds and retirement annuity funds) are limited to 27.5% of the greater of remuneration or taxable income (which retirement fund excludes lump sums and severance benefits). This amount is in turn also capped at an annual limit of R350 000.
Any amounts contributed, which exceeds the limitation may and will be carried forward to the next year of assessment and it is deemed to be contributed in that following year. It will however not be carried forward, should those amounts be deducted from a retirement fund lump sum or withdrawal benefit, or set off against a compulsory annuity.
As stated above, the limitations apply to the sum of all contributions made to pension funds, provident funds and retirement annuity funds. However, the deduction may be set off against non-trade income such as interest.