Results 1 to 5 of 5

Thread: Tax implcations with Company Matching Pension.

  1. #1
    New Member
    Join Date
    Aug 2015
    Location
    Durban
    Posts
    6
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Tax implcations with Company Matching Pension.

    Hi.

    My company is planning to start a Pension or Provident fund soon. Details aren't finalised, but I would just like to understand the tax involved in a Company matching retirement fund

    As I understand it, after all the reforms, the company match is considered a fringe benefit, so it becomes part of my taxable income? Meanwhile the portion I pay would come from pre-tax money, similar to an RA?

    As a problem example, with a simplified tax schedule where everyone just pays 30% of their income tax, and there is no inflation or return on investments:

    My monthly gross salary is R100. My company will match up to 5%. This means I can put in R5 (I assume the matching 5% is typically of gross?). The company will put in R5, bringing my gross salary with benefits to R105.

    * How am I taxed from this? If I don't spend or earn anything else for the tax year, what amount will end up being in my bank balance, and in my retirement fund?
    * Since the Company Match is a benefit, what amount can I put into an RA afterward, before hitting the 27.5% total retirement funding cap?

    Thanks for reading, I would appreciate any help clarifying this.

  2. #2
    Full Member EAB's Avatar
    Join Date
    Jun 2016
    Location
    Roodepoort
    Posts
    88
    Thanks
    0
    Thanked 13 Times in 12 Posts
    Using your example (keeping simple and not using UIF):

    Your gross income is R105 (R100 cash portion and R5 fringe benefit). 27.5% of R105 is R28.88, thus your company will pay R5 to the RA and you R23.88 for maximum benefit.

    This will leave you with taxable income of R76.12 and 30% tax would be R22.84.

    If the company pays over the total RA (your R23.88 and the company R5) then your take home pay will be R53.28 (Gross income - fringe benefit - your RA portion - tax).

    If the company only pays their portion and you have to pay your portion then your take home pay will be R77.16 (Gross income - fringe benefit - tax), but you will then need to pay the R23.88 form your pocket and the net will still be R53.28.

  3. #3
    New Member
    Join Date
    Aug 2015
    Location
    Durban
    Posts
    6
    Thanks
    0
    Thanked 0 Times in 0 Posts
    Thanks for the detailed explanation.

    With the Tax reforms, isn't the 5% from the company taxable in my hands though ? so my Taxable income should be

    105-[Total of my contributions] = 105 - 23.88 = 81.12

    Or am I misunderstanding?

  4. #4
    Full Member EAB's Avatar
    Join Date
    Jun 2016
    Location
    Roodepoort
    Posts
    88
    Thanks
    0
    Thanked 13 Times in 12 Posts
    You are correct that the 5% will be taxable in your hands.

    Im my second line I added the R100 gross salary to the company 5% to give you a gross income of R105. Remember that you get taxed in the company portion and are allowed to include it in your deductions. So your total contributions will be the company R5 and your R23.88 to give you a total contribution of R28.88 (which is R105 x 27.5%)

  5. #5
    New Member
    Join Date
    Aug 2015
    Location
    Durban
    Posts
    6
    Thanks
    0
    Thanked 0 Times in 0 Posts
    Ah ok, thanks. I didn't realise the company portion was still deductable for the employee.

Similar Threads

  1. Pastel: Matching historical invoices and payments
    By TravisZA in forum Accounting Forum
    Replies: 4
    Last Post: 13-Jun-15, 03:34 PM
  2. [Question] Pastel Supplier Invoices Matching - Remove Credited Invoices
    By steffie250 in forum Accounting Forum
    Replies: 6
    Last Post: 10-Mar-15, 01:23 PM
  3. Matching payments on age analysis
    By gidalene@gmail.com in forum Accounting Forum
    Replies: 2
    Last Post: 17-Feb-15, 04:21 PM
  4. Tax handling on company pension contributions
    By Dave A in forum Tax Forum
    Replies: 4
    Last Post: 24-Mar-13, 08:03 AM
  5. Pastel matching problem
    By vieome in forum Accounting Forum
    Replies: 3
    Last Post: 28-Jun-12, 08:25 AM

Tags for this Thread

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •