On the subject of your question, it is very important distinguish between the tax therapy of contributions made to retirement funds and the tax therapy of withdrawals from retirement funds. Your query, from what I perceive, pertains to tax reduction on contributions in the direction of an offshore retirement fund.
Governments incentivise residents to save lots of in the direction of retirement by offering tax incentives.
Incentivising residents to save lots of encourages them to take action, and in so doing, reduces their dependence upon the state for help of their retirement. Because of this, the state encourages the usage of registered retirement automobiles, being pension funds, provident funds and retirement annuities.
Subsequently, contributions made to a retirement fund registered in South Africa would take pleasure in tax reduction on the revenue earned and taxed in South Africa.
It might make no sense for the South African Income Service (Sars) to supply tax reduction for contributions to a retirement fund registered outdoors of the nation. Taxpayers can be receiving tax breaks on cash destined for an additional nation.
Since your spouse was contributing to a German pension fund, the South African authorities wouldn’t essentially profit in any method by offering tax reduction on her revenue earned in Germany. Because of this, Sars would have little or no motivation to supply a tax break on contributions in the direction of that fund.
One additionally wants to notice that whereas there are tax concessions on contributions in the direction of retirement funds, there are nonetheless tax penalties when retirees retire from these funds and start to attract an revenue. The revenue drawn from a retirement fund by the retiree is taxed as revenue.
So, in essence, it will make no sense for Sars to supply tax reduction for contributions being made to an offshore retirement fund after they would in flip not have the ability to accumulate taxes from the annuity funds made to the retiree from that fund. Merely put, you’re given a tax break on contributions made to a retirement fund, and solely when you retire from that fund are you required to pay revenue tax on the revenue you draw from it.
The actual profit is in deferring the tax payable to a later date and thus having fun with funding development on capital that might have ordinarily been paid to Sars within the type of revenue tax. It is very important keep in mind that any contributions in the direction of a retirement fund ‘saves you tax’ at your marginal fee on each rand saved if you are working.
Drawing an revenue out of your fund throughout retirement will end result within the tax being withheld at a considerably decrease stage because of the tiered nature of the tax tables. Moreover, from age 65, taxpayers profit from a secondary tax rebate; and from age 75, additionally they profit from a tertiary tax rebate. The tip result’s that the revenue drawn can be taxed at a a lot decrease common fee than the tax saving you loved on the contributions that have been made main as much as retirement. The underside line, although, is that Sars would nonetheless obtain some tax.