How to reduce your income tax! With the tax season drawing to a close, now’s the time to act to maximise your tax savings. Nobody loves tax season, but with proper planning, you can keep more of your hard-earned Rands. This article covers seven actionable tips to help you minimise your income tax liability in South Africa.
The Basics of Income Tax in South Africa
South Africa has a progressive tax system, and the rates range from 18% to 45%, depending on your income. Regardless of your earnings’ source, be it salary, freelance gigs, or investments, the taxman wants his share. Keep in mind that tax can significantly erode your savings over time. And while you want to use every available legal avenue to reduce your tax liability, SARS and Global Tax Authorities more broadly are becoming more sophisticated in finding non-compliant individuals. So be smart about it. And do also check out why working with your accountant and financial advisor together can unlock so much value.
Preparing for Tax Season
Hiring a certified tax consultant isn’t just a suggestion—it’s a game-changer. The expense will more than pay for itself with the money you save. Also, make sure all your financial records are in tip-top shape for possible deductions and credits. SARS has even implemented a convenient lump sum calculation tool on eFiling, which appears on the right-hand side of the eFiling homepage once you log in.
1. Contribute to a Retirement Annuity Fund
Max out your contributions to tax-efficient investment options like Retirement Annuities (RAs). These accounts attract minimal taxes and can seriously boost your long-term financial outcomes. Up to 27.5% of your total taxable income, capped at R350,000, invested in your RA is tax-deductible. This also applies to pension and provident funds.
2. Leverage Tax-Free Investments
Investing in Tax-Free Investments (TFIs) can also minimize your tax liability. For the current tax year, you can invest up to R36,000 tax-free in a TFI. If you don’t have a TFI yet, now’s an excellent time to consider starting one. Personal advice is crucial in deciding between an RA and a TFI—or both.
3. Tax Advantage of Tax Credits
Medical Aid Tax Credits are your best friend when it comes to reducing your overall tax liability. Additionally, charitable donations to approved public benefit organizations are tax-deductible up to 10% of your taxable income. To claim this deduction, you’ll need a Section 18A certificate from the organization.
4. Make Smart Donations
Donations to loved ones or charities can also help. Up to R100,000 is exempt from donations tax, and it doesn’t have to be cash; it could be a property or other physical assets. And good news—donations between spouses are not subject to donations tax.
5. Understand Capital Gains Tax (CGT)
Selling an asset at a profit? Remember that the first R40,000 of your annual net capital gain or loss is exempt from CGT. Planning your asset sales strategically can save you a significant amount in taxes.
6. Log Work-Related Travel Costs
If you receive a travel allowance, remember to log your odometer readings until the last day of February for tax deductions. However, travel between your home and workplace is considered private travel and is not deductible.
7. Keep Up With SARS Changes
Tax laws change, and staying updated with SARS’s latest amendments can help you plan better. Follow their newsletters or social media channels for timely updates.
Time is ticking to maximize your tax savings before the tax year ends. Paying taxes is a civic duty, but that doesn’t mean you should overpay. Act smart, plan better, and watch your savings grow.