Andrew is 48 years old. He earned a salary of R380 000, a bonus of R60 000. He contributes 5% of his salary and bonus to a retirement fund. His employer also contributed 5% of his salary and bonus. You may assume that his remuneration is R504 000. YOU ARE REQUIRED to determine the retirement fund contribution deduction which he will be allowed to deduct from his taxable income for the current year of assessment.a.R22 000b.R145 475c.R44 000d.R138 600
Question
Andrew is 48 years old. He earned a salary of R380 000, a bonus of R60 000. He contributes 5% of his salary and bonus to a retirement fund. His employer also contributed 5% of his salary and bonus. You may assume that his remuneration is R504 000. YOU ARE REQUIRED to determine the retirement fund contribution deduction which he will be allowed to deduct from his taxable income for the current year of assessment.a.R22 000b.R145 475c.R44 000d.R138 600
Solution
To determine the retirement fund contribution deduction that Andrew will be allowed to deduct from his taxable income for the current year of assessment, we need to calculate 5% of his total remuneration (salary + bonus).
Step 1: Calculate Andrew's total remuneration Andrew's total remuneration is given as R504 000.
Step 2: Calculate Andrew's contribution Andrew contributes 5% of his total remuneration to his retirement fund. So, his contribution is 5/100 * R504 000 = R25 200.
Step 3: Calculate the employer's contribution Andrew's employer also contributes 5% of his total remuneration to his retirement fund. So, the employer's contribution is also 5/100 * R504 000 = R25 200.
Step 4: Calculate the total contribution to the retirement fund The total contribution to the retirement fund is Andrew's contribution + the employer's contribution = R25 200 + R25 200 = R50 400.
However, the maximum amount that can be deducted for tax purposes is limited to the lesser of:
- 27.5% of the remuneration (which is 27.5/100 * R504 000 = R138 600)
- R350 000
So, the maximum amount that Andrew can deduct from his taxable income for the current year of assessment is R138 600. Therefore, the correct answer is d. R138 600.
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