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How to save on your personal tax
Nobody likes paying taxes, and we all want to pay as little as possible. There are ways to legally lessen your tax burden, and in some cases these can be beneficial to your long term wealth creation.
Below we look at a few ways to pay less tax:
Pension funds and retirement annuities
Pension funds and retirement annuities offer a great way to save for your eventual retirement. What is even better is that they allow you to save on your tax payments today.
Contributions are deducted from your taxable income. You can deduct up to 27.5% of your gross remuneration or taxable income in contributions to pension funds or retirement annuities. This is also subject to an annual limit of R350,000
Tax free savings accounts
Tax free savings accounts were introduced in South Africa in March 2015. You are currently allowed to contribute only R30,000 per year to these accounts and your lifetime limit is R500,000.
These are different to retirement products because the tax benefit is not felt immediately. Your contributions are not tax deductible however any gains made in the account are tax free. Therefore, any interest earned or capital gains are not taxed in these accounts as long as you remain invested.
This can offer great savings in the future and should be considered for long term investors.
Medical aid contributions
Contributions to medical aids receive a monthly tax credit from your tax payable. For a person below 65 years of age the credit for the 2017 tax year is R286 per month for the person paying the medical aid, and R286 for the first dependant. Each additional dependant is R192 per month
Tax payers can also deduct certain qualifying out of pocket medical expenses during the tax year.
Donations to charities
Tax payers can deduct up to 10% of their taxable income for donations made to public benefit organisations (PBO’s). The PBO must be registered with SARS and issue a valid tax certificate for all donations received.
Section 12J Venture capital companies
A lesser known deduction is investments in venture capital companies (VCC’s). Investors can deduct the full amount invested in such companies, which can produce a saving of 41% at the highest tax bracket.
These do tend to be risky investments however the tax saving could mitigate the risk and increase the potential return on these investments.
The VCC needs to be registered with SARS in order to qualify for such an investment, and you should remain invested for at least 5 years to avoid a recoupment of tax from SARS
Using a registered tax practitioner
Using a tax practitioner to complete your tax returns could save you money as they can help you with claiming all your allowable expenses. Some of which you might not be aware of. Also in cases of disputes the tax practitioner will be able to follow the correct procedures in order to get the dispute resolved quickly and accurately.