Maximise your tax benefits before the end of the tax year

The end of February marks the end of the tax year in our country, and this is a good time to take advantage of the incentives the government has put in place to encourage us to save.

I meant to share this information with you in January already, please forgive me for the delay. The tax year runs from 1 March – 28 February.

Without further delay 🙂 … Below are 2 tips on how you can maximise your tax benefits:

1. TOP UP YOUR RETIREMENT FUND

You can invest 27.5% of your taxable income/remuneration (to a maximum of R350,000) or a tax free into your retirement fund – per tax year.

Why you should do this annually?

A retirement annuity (RA) is specifically designed to save tax efficiently for retirement. The more you contribute towards your retirement annuity in a tax year (up to a certain limit), the more tax benefits you will get. This is a win-win situation: You’re reducing your tax burden, while increasing your retirement savings. I can’t think of anything smarter than this.

How does the tax benefits work when I top up my retirement annuity?

When you save for retirement in a retirement annuity, a portion of the total contribution in any given tax year is tax deductible. This means that it can be claimed back from SARS and it will not have any impact on the value of your investment. In essence, you are being incentivised for saving for retirement.

What is the maximum tax benefit that I can claim back in a tax year?

The maximum tax deduction for all contributions to retirement annuity funds, pension funds and provident funds, is 27.5% of remuneration or taxable income (whichever is the greater). The annual maximum tax deduction limit is R350 000.

2. INVEST IN TAX FREE INVESTMENT

Tax Free Investments were introduced by Government as an incentive to encourage household savings.  This investment Account is geared towards meeting the needs of investors who wish to supplement their retirement savings.

Investors can save up to a maximum of R33 000 per year in this manner (tax free),

This is how it works:
  • You don’t have to pay income tax, dividends tax or capital gains tax on the returns from these investments.
  • You can only contribute a maximum of R33 000 per tax year (annual limit).
  • There is a life time limit of R500 000 per person.
  • If a person exceeds the limits, there is a penalty of 40% of the excess amount.  Example: Taxpayer X invests R35 000 – exceeded the annual limit by R2000, 40% of R2000 = R 800 must be paid to SARS. This penalty is added to the normal tax payable on assessment.
  • A person can have more than one tax free investment, however, you are limited to the annual limits per tax year. This means you can invest for example R11 000 (Old Mutual), R11 000 (Investec) and R11 000 (Absa).  The same will apply if for example you invest in your minor child’s name.
  • Parents can invest on behalf of their minor child.  The minor child will use his/her own annual or lifetime limits.
  • Tax free investment accounts cannot be used as transactional accounts.

If you are planning to make use of these tax concessions, you will need to do so well in advance of the 28 February deadline to allow time for your investment manager to process your investment.

You have until 28 February to benefit from tax savings each tax year.

Once again, I’m sorry this post is late.

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Disclaimer: The article is provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as financial advice. An expert should be consulted for advice based on the facts and circumstances of each transaction/case.

The contributor (Kim Nokwaza) shall not be liable for any loss or damages suffered by anyone who relies on or acts upon the information contained in this piece.

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1 Comment

  1. I love this and have started already! One of the smartest decisions to date was to make funds available by reducing my medical aid cover (reasonably and according to my needs of course) and added to my RA.

    Do you have any information, pros and cons of SmartFunder for paying schools pre tax?

    Please advise as I have activated it 01/03 and would like to hear if it is any good. It seemed great but my employer made it impossible to get a mock payslip to see its effects. At least cancellation is hassle free if the first month does not go as expected.

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