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RAF deduction: must you first deduct travel expenses from non-retirement funding income?

17 June 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Does one first deduct the travel ‘deduction’ from gross non-retirement funding income in order to calculate the allowable retirement annuity deduction?

A: According to the definition in section 1(1) of the Income Tax Act ‘retirement-funding employment’ means—

(a) in relation to any employee or the holder of an office (including a member of a body of persons whether or not established by or in terms of any law), who—

(i) in the case of such employee, derives in respect of his employment any income constituting remuneration as defined in paragraph 1 of the Fourth Schedule (but leaving out of account the provisions of paragraphs (c) and (cA) of that definition and including the amount of any allowance or advance in respect of transport expenses contemplated in section 8(1)(b), but not an allowance or advance contemplated in section 8(1)(b)(iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under the said section 8(1)(b)(iii), and excluding any retirement fund lump sum benefit and any retirement fund lump sum withdrawal benefit) and is a member of or, as an employee, contributes to a pension fund or provident fund established for the benefit of employees of the employer from whom such income is derived…

The important point is that ‘retirement-funding employment’ is in the first instance "income constituting remuneration”(which an allowance would not be), but it is then specifically stated that "the amount of any allowance or advance in respect of transport expenses contemplated in section 8(1)(b)” is included.  We submit that it is the amount of the allowance and not the amount that must be included in taxable income that will then be the amount derived from retirement-funding employment.  In other words, the amount expended can’t be deducted. 

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. 


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