Are amounts contributed to a foreign retirement fund deductible for SA income tax purposes?
03 February 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: I have a client who is now a permanent resident in SA; however she is still paid in US dollars. The query is my client contributes to a retirement account in the states. $ 17 500 of her income goes to this, do I declare the $17 500 under amounts exempt, foreign pension, or will it fall into her taxable income. She was not out of the country for 60 consecutive days during the tax year, so she does not qualify for the income earned while she was out the country for this year.
A: It is our understanding that the contributions to the Roth 403(b) fund
are made from after tax monies and is a fund in the USA. To claim a deduction
for retirement contributions made by employers in terms of section 11(k) &
(n) ITA, the relevant fund must be approved by SARS and usually must be created
by law in SA.
In our view the fund will not be an "approved fund” and therefore the
taxpayer would not be entitled to a deduction. As a tax resident in SA she will
be taxed on her worldwide income and her full gross income earned must be
disclosed as income in the return and not just the net amount payable after
deductions or contributions.
In respect of the s10(1)(o)(ii) ITA exemption for foreign employment,
please note that she does not have to be working outside SA for 183 days and 60
days continuous in the tax year, but in any 12 month period which can be over more than one tax year.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.