Knowledge is power and we want to share with you as much as we can. Every little bit helps and these tips below could be areas where you could save some well earned tax money.
1. Contribute towards a retirement fund
Your contributions towards retirement funds are tax-deductible up to a limit of 27,5% of the greater of your taxable income or remuneration (to a maximum of R350,000 per year). This limit applies to the total contributions you make to any pension, provident or retirement annuity (RA) fund during the year. The tax deduction will always be limited to the actual contributions you made.
2. Join a Medical Aid Scheme
SARS calls this rebate the Medical Schemes Fees Tax Credit – it is a flat rate per month (i.e. doesn’t take your taxable income into consideration) and is a direct reduction of your tax liability.
If John pays for medical aid for himself, his wife and his 3 children, his tax credit for the 2019 tax year will be calculated as follows:
R310 for John
+ R310 for John’s wife
+ (R209 x 3) for his 3 children
= R1,247 tax credit per month
John’s tax liability is therefore decreased by R1,247 per month (R14,964 per year).
If your medical tax limit is greater than your actual tax liability, then your tax liability will be nil and you will not receive a tax refund. This means that in the example above if John’s actual tax liability for the year was R13,000, it will be reduced by the tax credit of R14,964 to arrive at a nil amount due to SARS. He will NOT receive the difference of R1,964 as a tax refund.
3. Open up a Tax-Free Savings Account
This is a type of savings account offered by financial institutions that invests your money in a combination of financial products such as unit trusts, bank savings accounts, fixed deposits, bonds, etc.
The difference between this and other savings or investment accounts is that all returns, i.e. the interest, dividends and capital gains earned, will be tax-free in your hands. This means that you’re not liable to pay tax on the growth of your investment, nor if you decide to withdraw from your account.
Annual and lifetime contribution amounts
There’s an annual contribution limit of R33,000 per tax year, as well as a lifetime limit of R500,000. Once you have reached your lifetime contribution limit of R500,000 further investment in a tax-free savings account will be allowed, but penalties will be incurred.
Benefits of a Tax-Free Savings Account
Tax-free growth, even if you reinvest
The critical advantage of a tax-free savings account is that your growth or earnings on the initial investment are exempt from tax on the withdrawal. You’re able to reinvest (or capitalize) your returns and they don’t count towards your annual or lifetime contribution limit.
If you invest R33,000 for the year and receive a return of investment of R5,000 that you re-invest, the total amount in the account will be R38,000, yet you’ll still be able to invest your full R33,000 the following year as the R5,000 reinvestment doesn’t count towards the annual or lifetime limit.
4. Donate to a SARS registered charity
A Public Benefit Organization (PBO) is a non-profit organization, which has special approval by SARS to not pay any tax in South Africa on the donations it receives. The organization is most likely involved with charitable work e.g. healthcare, education, poverty alleviation, housing, conservation, environmental, cultural and religious services.
This is a personal choice to make, and many companies only do donations to companies where they can see their money actually makes a huge difference.
You can find a list of SARS approved PBOs on the SARS website.
This is a great way to donate to a good cause, while also reducing your tax bill.
5. Keep a logbook if you receive a travel allowance
Don’t miss out on this one, this is mostly overlooked. A travel allowance is a taxable fringe benefit, which means it will be included in your taxable income and you will be taxed on it. In most cases, 80% of the travel allowance is included for tax purposes (the assumption is that you drive 80% for personal and 20% for business). If however, you keep a logbook to record your business mileage, you can claim a travel deduction against it which could reduce your tax owed to SARS. Please note you can only claim a travel deduction if your travel allowance appears next to source code 3701 or 3702 on your IRP5.