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Delivery from SARS: Retirement Contributions Letter

A closer look into the retirement contributions carry over balance


Posted 22 August 2017

So, you’ve recently submitted your tax return, received your assessment and were probably breathing a sigh of relief to be finished with the tax filing process for this year… then suddenly out of the blue you receive a confusing letter (**see bottom of page) referring to a “retirement contribution carry over balance”. You probably don’t even contribute to a retirement fund (i.e Pension, Provident or Retirement Annuity) which ends up making this letter seem even more confusing.

What does it all mean?

The retirement laws changed in March 2016, to allow taxpayers to deduct retirement contributions up to 27,5% of their taxable income. Have a look at how these Retirement Funds Tax Laws Changes can affect you. Prior to March 2016, the deductible limit was lower than 27,5% and any retirement contributions exceeding the limit were carried forward and deducted in the following year up to the allowable limit.

Since March 2016, the same principal applies, but a higher amount is allowed to be carried forward – this means that any contributions which weren't deducted in the prior year/s, as they exceeded the allowable limit, are carried forward and deducted against the following year’s taxable income up to the new limit of 27,5% of taxable income.

Let’s look at an example:

Jenny contributes R3,500 per month (R42,000 per year) to a retirement annuity. During the 2017 tax year, she earned an annual taxable income of R200,000. She has R12,000 “excess” retirement contributions carried forward from the previous year (these are contributions which exceeded the prior year’s deductible limit).

In the current year, Jenny can deduct contributions up to 27,5% of her taxable income:

27,5% X R200,000 = R55,000.

Therefore, the total current year contributions of R42,000 will be deductible.

In addition, Jenny can deduct the full amount carried forward balance from the prior year of R12,000.

Current year: R42,000
Prior year carried forward: R12,000
Total 2017 deduction: R54,000

The full amount of R54,000 is deductible in the current year as it's less than 27,5% of taxable income (i.e. R55,000).

The new increased limit of 27,5% is helping taxpayers to clear out their old carried-forward excess retirement contributions from previous years (and is therefore a big tax savings for many).

What about the R1,800 “arrear” contributions?

In prior years, you may have noticed an additional deduction of R1,800 related to “arrear” contributions. This would happen if you exceeded the allowable limit for the year, but had not used up your quota in the previous year. This amount is no longer applicable.

What should I do about the letter?

Nothing – no action is required from you. You simply need to wait to see what SARS will do. In most cases, this letter won’t be relevant to your tax situation at all and therefore they'll do nothing. In other cases, they'll issue you with a revised ITA34 (assessment) which should come a few days after receipt of this letter (but we're seeing cases where this is taking longer).


Example of SARS letter:

**Dear Taxpayer

URGENT NOTIFICATION FOR YOUR ATTENTION

As part of the implementation of the retirement reform, the retirement fund contributions carry-over balance brought forward from the 2016 year of assessment may have impacted your 2017 assessment. Details are available on the 2017 ITA34 (Notice of Assessment).

SARS has reassessed your 2017 Personal Income Tax Return (ITR12) to include the retirement fund contributions carry-over balance. The impact of this could be one of the following:
-Your carry-over balance remains unchanged
-Your carry-over balance has been updated
-Your assessment has been revised as a result of the updated carry-over balance and the amount allowed as a deduction.
A revised ITA34 has been issued reflecting your latest assessment for 2017.

While processes have been implemented to confirm these carry-over balances, you are requested to check the correctness of your retirement fund contributions carry-over balance. Outstanding or late returns may also impact the correctness of the carry-over balance and should be submitted without delay.

If you are not in agreement with the carry-over balance, you may submit an objection to the assessment received by following the standard dispute process.

Should you need more information or have any queries please call the SARS Contact Centre on 0800 00 7277.

Sincerely

THE SOUTH AFRICAN REVENUE SERVICE
July 2017

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