RA paid by company - tax deductible or not?

[AirWolf]

Hi all

At the company I work for we have RAs for staff. Part of it is paid by the employees and the balance by the company, and the total amount gets paid by debit order from the company bank account.

Which of the following is the correct tax rule here:

1. Employee portion tax deductible (within limit of maximum RA on non-RFI); or
2. Total RA tax deductible (within limit of maximum RA on non-RFI); or
3. The RA is not tax deductible because it is not a private RA.

I do not see any clauses in the income tax act dealing specifically with this situation.

 

[stoke]

I think that there is no such thing as a private retirement annuity.
I also don't know where to find the definition of an RA.

 

[Mercury]

Hi all

At the company I work for we have RAs for staff. Part of it is paid by the employees and the balance by the company, and the total amount gets paid by debit order from the company bank account.

Which of the following is the correct tax rule here:

1. Employee portion tax deductible (within limit of maximum RA on non-RFI); or
2. Total RA tax deductible (within limit of maximum RA on non-RFI); or
3. The RA is not tax deductible because it is not a private RA.

I do not see any clauses in the income tax act dealing specifically with this situation.

You have to apply general principles. If the Act tried to deal with all the possible combinations individually it would be much, much thicker than it is.

The strict legal answer is that the amount paid by the company is a fringe benefit in the employees' hands while only the portion actually paid by the employee is deductible within the limits.

The practical answer is that the the amount paid by the company is a fringe benefit in the employees' hands while the full amount of the contributions made shown on the tax certificates issued by the RA provider to the employees is deducted within the limits.

The imminent legal answer (according to this year's Budget Review) is the same as the practical answer.

Usual disclaimers apply. This answer is worth what you paid for it. Etc.

 

[AirWolf]

I think that there is no such thing as a private retirement annuity.
I also don't know where to find the definition of an RA.

No according to VIP Payroll:
Private RA = RA paid from employees bank account.
Non-private RA = RA paid from employers bank account.

But I haven't seen that definition anywhere in the Income Tax Act.

You have to apply general principles. If the Act tried to deal with all the possible combinations individually it would be much, much thicker than it is.

The strict legal answer is that the amount paid by the company is a fringe benefit in the employees' hands while only the portion actually paid by the employee is deductible within the limits.

The practical answer is that the the amount paid by the company is a fringe benefit in the employees' hands while the full amount of the contributions made shown on the tax certificates issued by the RA provider to the employees is deducted within the limits.

The imminent legal answer (according to this year's Budget Review) is the same as the practical answer.

Usual disclaimers apply. This answer is worth what you paid for it. Etc.

The amount paid by the company *should* fall under the definition of taxable benefits, but no mention is made about RAs in the Income Tax Act under taxable benefits at all, hence my dilemma (and also the fact that we haven't in the past been deducting any tax for the employer's contribution ).

 

[guest2013-1]

Hi all

At the company I work for we have RAs for staff. Part of it is paid by the employees and the balance by the company, and the total amount gets paid by debit order from the company bank account.

Which of the following is the correct tax rule here:

1. Employee portion tax deductible (within limit of maximum RA on non-RFI); or
2. Total RA tax deductible (within limit of maximum RA on non-RFI); or
3. The RA is not tax deductible because it is not a private RA.

I do not see any clauses in the income tax act dealing specifically with this situation.

as far as i understand both parties pay towards the RA. where the money comes from is irrelevant as its the employee's RA, not the company's.

@stoke. I have my own RA and I work through myself. Personally I'd always do things privately because its a bitch of paperwork and questions when leaving a company. I dont have to deal with tax issues all the time.

However, to the OP. If the RA money is being paid out in cash then tax is paid on, monthly salary + RA amount. If the RA is being transferred to another RA contribution scheme (perhaps private) you dont pay tax on the amount paid out. However I speak under correction

 

[Mercury]

The amount paid by the company *should* fall under the definition of taxable benefits, but no mention is made about RAs in the Income Tax Act under taxable benefits at all, hence my dilemma (and also the fact that we haven't in the past been deducting any tax for the employer's contribution ).

Before we even get to fringe benefits, paragraph (c) of the definition of "gross income" in the Income Tax Act, 1962; "any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount (other than an amount referred to in section 8 (1)) received or accrued in respect of or by virtue of any employment or the holding of any office"

Paragraph 2(h) of the Seventh Schedule to the Act; "the employer has, whether directly or indirectly, paid any amount owing by the employee to any third person (other than an amount in respect of which item (i) or ( j) applies), without requiring the employee to reimburse the employer for the amount paid or the employer has released the employee from an obligation to pay any amount owing by the employee to the employer"

Act available at http://www.sars.gov.za/home.asp?pid=160 under Principal Acts - Main.

Usual disclaimers apply.

 

[AirWolf]

So the correct procedure would be:

• Employee contribution is tax deductible;
• Employer contribution is a taxable benefit;
• When employee gets contribution certificate from RA company, they can submit to SARS to claim tax on employer's contribution to RA.