My daughter is starting a new job where her offer is R 500,000 cost to company per annum.
The company does not offer a pension scheme or medical aid scheme, but the company contributions have been included in the annual CTC amount. What deductions is the company responsible for deducting and paying over? I assume UIF and tax.
Is she allowed to invest the full 15% pension contribution (EE and ER) herself into a pension fund or retirement annuity and will the full amount be tax free?
I would appreciate your assistance in my effort to calculate her monthly tax, together with any other advice you may have in these circumstances.
Firstly, let’s confirm the employer’s obligations. The employer MUST deduct 1% as a UIF contribution from her salary and in addition, also pay 1% as a company contribution. Your daughter’s UIF contribution will however be limited to R148.72 per month as she will earn more than the earnings ceiling per month. PAYE must also be deducted every month. There is no company retirement or medical scheme in place therefore the obligation to pay these contributions remain with your daughter.
If the employer does not offer any retirement or medical scheme but does include a cash payment in the total cost to company package that she can use as a contribution towards her own fund, I would suggest she makes use of this benefit to enjoy the full tax deduction allowed.
Keep in mind that at the moment, provident fund contributions are not tax deductible and will only change once the proposed retirement reform legislation is implemented in 2016. It will be best to invest in a pension or retirement annuity. For pension fund contributions, only the portion of the contribution made by the employee is tax deductible and will be limited to 7.5% of pensionable earnings per annum. For retirement annuity contributions, any amount paid by the employer will result in a taxable fringe benefit while the full contribution will be allowed as a tax deduction, limited to 15% of earnings per year.
In your daughter’s case, there is no contribution paid by the employer as there is no agreement between the employer and a specific fund to make any contribution on her behalf. I would suggest that she decides on a suitable retirement annuity fund to invest the additional cash payment she receives from her employer.