via Moneyweb




I am 59 and already retired. I have a living annuity and a few other private investments in unit trusts and shares direct. My taxable income is R250 000 to R350 000 per year. 



If I take out a retirement annuity (RA), with say yearly lump sum payments of R40 000, may I deduct the premiums (R40 000) from the yearly tax payable? Then may I, after ten or 15 years stop, withdraw and invest in an living annuity, and withdraw the 2.5% to17.5%? So actually the RA is funded by tax, not by me. 

Will my wife receive the living annuity after my death?




The answer to your question lies in Section 10C of the Income Tax Act, 58 of 1962 (ITA) which came into effect on March 1 2014 as well the new legislation allowing 27.5% (to a maximum of R350 000) being allowed as a RA tax deduction against the greater of remuneration or taxable income.


What this simply means is that any RA contribution up to 27.5% of your income can be used to offset your tax liability. Any amount paid into your RA that exceeds this cap will then rollover to the following year, or in the event that you have a Living annuity the excess can be used to offset your tax liability on the annuity payments.


So in answer to your question, yes your RA will be funded by the tax you should have paid. Also, on your death your spouse will have the option to continue the Living annuity in her own name subject to tax at her marginal rate or she can access the remaining funds as a lump sum subject to tax based on the “retirement tax tables”. Be aware that if your wife should choose this option the lump sum could be heavily taxed depending on how much of the allowable one third cash the deceased accessed before he annuitised the proceeds of the compulsory money.

Leave a Reply