Page 396 - SAIT Compendium 2016 Volume2

IN 29 (2) Income Tax acT: InTeRPReTaTIon noTes IN 29 (2)
Example 1 – Average taxable farming income
Facts:
Y, a farmer, under 65 years of age, commenced farming in tax year 1.
Year 1 Year 2 Year 3 Year 4 Year 5
300 000 290 000 400 000 120 000 700 000
100 000 200 000 20 000 15 000 500 000 835 000
Total taxable income Farming taxable income
RR
Result:
The average taxable income from farming for year 5 is R167 000 (R835 000 / 5). Had the farmer not carried on farming operations in years 4 or 5, the average taxable income from farming for year 3 would be R106 667 [(R100 000 + R200 000 + R20 000) / 3].
Retirement annuity fund (RAF) contributions
In terms of section 11(n) a person may deduct contributions made to an RAF. There are various limits to this deduction. Section 11(n)(i)(aa)(A) states that the deduction will be limited to 15% of non-retirement funding income, excluding any "retirement fund lump sum bene t", "retirement fund withdrawal bene t" and any "severance bene t" as de ned. Taxable income derived from farming operations is non-retirement funding income. Symbol "D" in the formula refers to contributions to an RAF that are deductible under section 11(n)(i)(aa)(A), with regard to taxable income on which 15% is calculated, and where taxable income includes any amount—
• that represents special remuneration received by mineworkers for certain special tasks;
• of income from plantation farming that quali es for special treatment under paragraph 15;
• of income from sugar cane farming that quali es for special treatment under paragraph 17; and • that quali es for the rating concession under paragraph 19.
The effect is that contributions to an RAF cannot be used to reduce a person’s taxable income from other sources that do not qualify for special treatment and, in so doing, reduce the overall tax liability.
Example 2 – Symbol "D"
Facts:
X contributed R150 000 to an RAF during the year of assessment. He derived taxable income from the following sources:
Farming operations
Taxable interest
Special remuneration relating to mining
R 400 000 160 000 500 000
1 060 000
The average taxable income from farming for purposes of paragraph 19 was R300 000.
The maximum deduction for contribution to an RAF is 15% × R1 060 000 = R159 000, but limited to the actual contributions of R150 000. Thus—
15% × R500 000 (Special remuneration) 15% × R400 000 (Taxable farming income) 15% × R160 000 (Taxable interest)
Limited to actual contributions of
R
75 000 60 000 24 000
159 000
150 000
388
saIT comPendIum oF Tax LegIsLaTIon VoLume 2