Planning Perspectives with Palesa Tlholoe

HOW TO MINIMISE YOUR TAX BILL

TAX! Isn’t it everyone’s nightmare? Whether you earn R220 000 or R2.2 million per year, having a chunk of your hard-earned money taken out before receiving it is not something you look forward to, right! The question should not be how to avoid or evade tax, though, but rather how to best utilise the available tax breaks to your advantage, because paying tax is just one of those things we all need to do.

Here are a few nuggets you can make use of to minimise your tax:

Contribute to a retirement fund

This is at the top of the list because it is simple to do and available to everyone, from a self employed individual to a director of a big, multinational company.

Every taxpayer in South Africa can contribute up to 27.5% to a maximum of R350 000 per year to a pension fund, provident fund, retirement annuity (RA) or a combination of the three.

This amount will then be deducted from your income received for that tax year, reducing your taxable income such that you may even find yourself in a lower tax bracket. With an RA, if you contribute from after-tax income throughout the year, you receive your refund when you file (if you don't owe SARS anything).

Should you exceed the above limits, your tax benefit rolls over to the following tax period to retirement, which will be applied to your post-retirement income if unused.

Contribute to a medical scheme

Not everyone can afford to contribute to a medical scheme, but if you do, you get tax credits.

For the 2023 tax year (1 March 2022 - 28 February 2023), medical tax credits are R347 for the main member and one dependent and R234 for each additional dependent. For example, a family of four (two adults and two children) will get R1162 tax credits. In addition to the medical tax credits, you may also claim on additional medical expenses for certain qualifying medical, subject to limitations.

Take out a tax-free investment

Ordinarily, any interest that you receive on investments will attract tax depending on the amount of interest. For individuals younger than 65, your tax-free portion is limited to R23 800, going up to R34 500 for taxpayers older than 65. This means any amount of interest above this will be taxed according to your income tax tables. Other types of taxes in these investments may include capital gains tax andr dividend withholding tax. Consider taking a tax-free investment to avoid these taxes or reduce your tax burden.

For tax-free investments, you can contribute up to R36 000 per year or R500 000 in your lifetime. All your interest, capital gains, and dividends will be tax-free if you don’t exceed the maximum.

To reach the R500 000 limit, you need to contribute R36 000 each year for 13 years and R32 000 in your final year. This means that all the funds and the growth thereon will never be taxed while in the fund, and when you cash the investment, it will eventually be paid out taxfree.

Other tax refunds

Depending on the nature of your work and your remuneration package, you can lower your tax rate if you meet specific requirements. You need to have proof such as a logbook (in case of a travel allowance or a company car), and slips or invoices for payments made in the following categories: a) Travel allowance b) Company car allowance c) Commission related expenses d) Subsistence allowances. Palesa Tlholoe, CFP, is director and wealth manager at Imvelo Wealth.

Palesa Tlholoe