SARS clarifies retirement fund tax changes for 2024
The South African Revenue Service has given a more detailed breakdown of the changes for retirement fund contributions that kicked in from March 2024.
Tax season 2024 opened on 15 July and taxpayers still have the better part of three months to complete their filings for the year.
The window closes on 21 October 2024 for individual taxpayers. Provisional taxpayers have until 20 January 2025.
The retirement fund changes are among a host of other changes in effect for the 2024 tax season, including pro-rata deductions for tax-free savings, the solar tax rebate, and redesigned tax forms.
Looking at the retirement changes specifically, SARS broadly outlined the difference as follows:
Pro-rata deduction in respect of contributions to Retirement Funds
Section 11F(2)(a) of the Income Tax Act No 58 of 1962 was amended as follows:
Where any person’s year of assessment is less than 12 months, the amount stipulated in section 11F(2)(a) of the Act used to calculate the allowable retirement contribution deduction (currently R350,000) shall be adjusted. The adjusted amount will bear the same ratio to R350,000 as the number of days in that year of assessment bears to 365 days.
Therefore, if any person’s year of assessment is less than 12 months, the allowable retirement contribution deduction (currently R350,000) will be applied pro-rata.
To clarify any confusion around the tax change, the tax service has now gone into a bit more detail about what it entails – and provided two examples of specific cases (insolvency and ending tax residency) to show it works.
SARS said that where a person’s year of assessment is less than 12 months, the maximum amount of the allowable retirement fund contribution deduction may not exceed the prescribed limit (currently R350 000) for all years of assessment within the 12-month period from 1 March of that calendar year to the last day of February in the following year.
In summary, the allowable deduction is the lesser of the following:
- R350,000; or
- 27.5% of the greater of –
- Remuneration (excluding retirement lump sum benefits, withdrawal lump sum benefits and severance benefits); or
- taxable income (including passive income and taxable capital gains) but excluding retirement lump sum benefits, withdrawal lump sum benefits and severance benefits and before any s11F and s18A deduction; or
- The taxable income (excluding any taxable capital gain and retirement lump sum benefits, withdrawal lump sum benefits and severance benefits) and before any s11F and s18A deduction.
Example 1 – insolvency
Taxpayer A was classified as insolvent on 31 October 2024.
For the 2025 years of assessment, the allowable retirement fund contribution deduction would be applied as follows:
Period of assessment: 1 March 2024 – 31 October 2024 (before insolvency)
- This assessment applies to Tax Reference Number 1 – the original tax number coded as insolvent and applicable to assessments preceding the date of sequestration
- The allowable retirement fund contribution deduction that was utilised for this assessment is R200,000
Period of Assessment: 1 November 2024 – 28 February 2025 (after insolvency)
- This assessment applies to Tax Reference Number 3 – Taxpayer A’s new tax number applicable to assessments from date of sequestration.
- The retirement fund contribution deduction allowable is R150,000 (i.e. R350,000 less R200,000 utilised in the first ‘period assessment’ that falls within the same 12-month period from 1 March of that calendar year to the last day of February in the following year).
Example 2 – ceasing tax residency
Taxpayer B ceased to be a tax resident on 31 July 2024.
For the 2025 years of assessment, the allowable retirement fund contribution deduction (i.t.o s11F(2)(a)) will be applied as follows:
Period of Assessment: 1 March 2024 – 31 July 2024 (before ending tax residency)
- This applies to Taxpayer B’s assessment as a South African tax resident
- The allowable retirement fund contribution deduction that was utilised for this assessment is R350,000
Period of Assessment: 1 August 2024 – 28 February 2025 (after ending tax residency)
- This applies to Taxpayer B’s assessment as a non-tax resident
- There will be no retirement fund contribution deduction for this assessment as the allowable amount i.t.o. Section 11F(2)(a) was fully utilised in the first-period assessment, which also falls within the same 12-month period from 1 March of that calendar year to the last day of February of the following year.
The examples show how SARS is ‘splitting’ the applicable deductions pro-rata based on the periods of assessment and the specific contexts of taxpayers over those periods.
For more information, taxpayers can view SARS’ comprehensive filing guide for individual taxpayers for 2024, which can be read here.
Read: Standard Bank warning for banking customers in South Africa
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