EXTERNAL DOCUMENT
VIP FAQ – Income Tax – RFI Definitions 2012
INCOME TAX
RETIREMENT FUNDING INCOME (RFI): RFI DEFINITIONS
1 INTRODUCTION
Retirement Funding Income (RFI) is defined by Section 1 of the Income Tax Act as any remuneration
(excluding certain amounts) of the employee taken into account in the determination of the
contributions, made by an employee or by the employer on behalf of the employee, to a Pension or
Provident Fund.
Remuneration is defined by Paragraph 1 of the 4th Schedule of the Income Tax Act as any amount of
income which is paid or payable to any person whether in cash or otherwise and whether or not in
respect of services rendered.
Examples of Remuneration are Salary, Bonus, Wage, Leave encashment, Commission, Overtime,
Lumpsums, Director’s remuneration etc.
2 STEPS TO DETERMINE RETIREMENT FUNDING INCOME
Step 1: Determine Remuneration for Retirement Funding Income
Remuneration for Retirement Funding Income specifically includes:
• The full Travel Allowance,
• The full Public Office Allowance,
and specifically excludes:
• Reimbursive Travel Allowances,
• Public Office Allowances, and
• any lump sum benefits from Pension, Provident and Retirement Annuity funds.
Step 2: Determine the portion used to calculate Pension/Provident Fund contributions
The portion of remuneration as defined for RFI that is actually used in the calculation of Pension or
Provident fund contributions should be determined to arrive at the Retirement Funding Income that must
accumulate.
Example 1:
An employee’s remuneration for the month consists of the following:
Salary
R12 000
Overtime
R550
The Pension fund rules state:
Pension should be calculated as 7.5% of Salary for the Employee contribution and 7.5% of Salary for the
Employer contribution.
Determine RFI:
Remuneration available for RFI
R12 000 + R550 = R12 550
Remuneration on which Pension is based
R12 000
Retirement Funding Income (RFI)
R12 000
Non-RFI
R550
Note: Even though Overtime is part of Remuneration as defined for RFI, it is not used in the calculation
of the Pension fund and is therefore excluded from the RFI accumulation for this employee.
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EXTERNAL DOCUMENT
VIP FAQ – Income Tax – RFI Definitions 2012
Example 2:
An employee’s remuneration for the month consists of the following:
Pro-rata Salary
R10 000
The employee had unpaid leave, and has a fixed salary of R12 000.
The Pension fund rules state:
Pension should be calculated as 7.5% of Fixed Salary for the Employee contribution and 7.5% of Fixed
Salary for the Employer contribution.
Determine RFI:
Remuneration available for RFI
R10 000
Remuneration on which Pension is based
R12 000
Retirement Funding Income (RFI)
R10 000
Note: This employee will have an “Empl. is over Pens or RA limit” message. The allowed tax deductible
amount for this period is the greater of:
R1 750 / 12 = R146, or
R10 000 * 7.5% = R750
The actual contribution for this period is R900.
You need to set up an “additional pension” line – this line is set up exactly like the normal pension line,
except it is not flagged as tax deductible. The difference between the actual deduction and the allowed
deductible amount is then processed as a once off negative on the normal pension line and as a once off
positive on the additional pension line. If this adjustment is not made, VIP will force the correction in
February.
Example 3:
An employee’s package for the month consists of the following:
Package
R10 000
Travel Allowance
R1 500
Pension
R750
Cash
R7 750
The Pension fund rules state:
Pension should be calculated as 7.5% of Package for the Employee contribution and 7.5% of Package
for the Employer contribution.
Determine RFI:
Remuneration available for RFI
R7 750 + R1 500 = R9 250
Remuneration on which Pension is based
R10 000
Retirement Funding Income (RFI)
R9 250
Note: This employee will have an “Empl. is over Pens or RA limit” message. The allowed tax deductible
amount for this period is the greater of:
R1 750 / 12 = R146, or
R9 250 * 7.5% = R694
The actual contribution for this period is R750.
You need to set up an “additional pension” line – this line is set up exactly like the normal pension line,
except it is not flagged as tax deductible. The difference between the actual deduction and the allowed
deductible amount is then processed as a permanent negative on the normal pension line and as a
permanent positive on the additional pension line. If this adjustment is not made, VIP will force the
correction in February.
Example 4:
An employee’s package for the month consists of the following:
Package
R10 000
Travel Allowance
R1 500
Pension
R600
Cash
R7 900
The Pension fund rules state:
Pension should be calculated as 7.5% of 80% of Package for the Employee contribution and 7.5% of
80% of Package for the Employer contribution.
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Determine RFI:
Remuneration available for RFI
Remuneration on which Pension is based
Retirement Funding Income (RFI)
VIP FAQ – Income Tax – RFI Definitions 2012
R7 900 + R1 500 = R9 400
R8 000
R8 000
Note: The RFI accumulation in this case is limited to the remuneration that forms part of the package. If
the remuneration components in this example only added up to, for example R7 800 (and not R9 400),
then the RFI value would have been R7 800 and not R8 000. Remember to move the value of the
pension contribution that is greater than the allowed tax deductible limit to an additional pension line
and reduce the “normal” pension line with the same amount.
3 NON-RETIREMENT FUNDING INCOME
Non-Retirement Funding Income (Non-RFI) is not defined in the Act, but is deemed to be the
Remuneration as defined for RFI that remains after RFI has been accumulated according to the rules of
the Pension or Provident Fund.
In Example 1 above the Non-RFI will be the amount of Overtime – R550 as it is the part of
Remuneration not used in the calculation of the Pension fund contributions.
4 WHY IS IT NECESSARY TO DETERMINE RETIREMENT FUNDING INCOME?
Sections 11 (k) and 11 (n) of the Income Tax Act prescribe the limits that must be applied to determine
the tax deductible portion of Pension and Retirement Annuity contributions. These limits indicate the
value of the contribution that may be tax deductible on the payroll, but does not cap the value of the
actual contribution that the employee may make.
4.1 PENSION
The maximum allowable Pension contribution is the greater of:
R1 750, or
7.5% of RFI.
4.2 ARREARS PENSION
The maximum allowable Arrears Pension contribution is:
R1 800 per annum.
4.3 RETIREMENT ANNUITY
The maximum allowable Retirement Annuity contribution is the greatest of:
R1750, or
15% of Non-RFI, or
R3 500 less Pension contributions.
4.3.1 ARREARS RETIREMENT ANNUITY
The maximum allowable Arrears Retirement Annuity contribution is:
R1 800 per annum.
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