Relief coming soon
In circumstances in which annual tax-deduction limits to retirement fund contributions are exceeded, a taxpayer may carry forward the nondeductible portion to the following tax year, under s 11F of the Income Tax Act.
Ultimately, upon retirement, death or withdrawal, nondeductible contributions qualify for exemption, in addition to the R500 000 (death or retirement) or R25 000 (withdrawal, pre-retirement) relief against the commuted portion of a pension, pension preservation fund, retirement annuity fund or provident fund.
Shortfalls
Yet
this relief suffers from a shortcoming, inasmuch as it assumes that the
maximum commutation-amount of a retirement fund benefit is sufficient
to absorb such excess contributions.
For
example, if the full value of a retirement fund benefit is R1,5 million
upon retirement, a maximum of one-third, namely, R500 000, may be
commuted. R500 000 is tax exempt, leaving nothing to absorb excess
contributions, the deduction of which would consequently be forfeited.