Financial Fitness - SARS And Tax Breaks

Make The Most Of Your Benefits This Tax Season

By Jessie Taylor

This month marks the start of the filing season for provisional and non-provisional taxpayers who must file a tax return. The South African Revenue Service (SARS) has announced 15 July 2024 as the start date.

Auto-assessments for an expanded pool of South African taxpayers will run from 1 July 2024 to 14 July 2024, and SARS Commissioner Edward Kieswetter said the tax authority is committed to making filing season for standard taxpayers an invisible process. “The pool of taxpayers who will be auto-assessed will increase to about 4.8 million this year compared to about 3.8 million taxpayers last year,” SARS said.

Taxpayers are also reminded that while the auto-assessment process offers numerous benefits, it requires due diligence from selected taxpayers. Taxpayers are advised to reconcile the assessment with their tax certificates, bank statements and salary slips. Taxpayers who are auto-assessed but wish to claim tax rebates must complete their tax return and file it normally.

There are a Number of Tax Breaks That Taxpayers Can Benefit From:

1. Retirement Annuity

Topping up your retirement annuity as the tax year-end approaches could allow you to maximise your tax-deductible contributions. The limit is currently up to 27.5% of taxable income with an annual cap of R350 000. The tax deduction applies to the cumulative total of all retirement fund contributions.

This benefit works best with retirement annuities that offer flexibility and ad hoc contributions. This will allow taxpayers to calculate the contributions made towards their retirement funds during the year and to leverage the tax deductibility. Retirement annuities that provide significant tax advantages: investment premiums are tax deductible, dividends and interest are tax-exempt, and no capital gains tax applies to investment growth.

Retirement annuities also effectively reduce tax on death as the funds held in an RA fall outside of the deceased estate.

2. Tax-Free Savings

Taxpayers can receive some benefits from tax-free savings accounts, as dividends, interest, and capital gains within the investment remain taxfree. However, there is no possibility of claiming tax back on investment premiums. Current legislation allows for annual investments of up to R36 000 in tax-free savings accounts, with a total lifetime contribution capped at R500 000. Keeping track of annual contributions is essential to avoid exceeding the R36 000 limit so as to avoid tax penalties of 40%.

The tax advantages of a tax-free savings account are seen after about 10 years, which means that they are better suited to long-term investing and can be used effectively to supplement one’s retirement savings.

3. Medical Credits

Taxpayers can claim deductions for their contributions to medical schemes. The amount you can claim depends on the number of members on your scheme. As the primary medical aid member, you are entitled to a medical tax credit of R364 for the 2024/2025 tax year, and R728 per month for the taxpayer and one dependant. Thereafter, you will receive a tax credit of R246 per month for every other member registered on the same medical scheme. These credits will be deducted from the tax you are liable to pay, and it is important to obtain a tax certificate from your medical aid provider for tax filing purposes.

In addition, taxpayers could claim for out-of-pocket medical expenses. This applies to the portion of medical expenses not covered by their schemes. If you submitted these expenses to your medical aid but they were not covered by the fund, these amounts will appear on your tax certificate. If you did not submit them to your medical aid, you will need to keep a record of these costs for tax purposes.

4. Donations

In terms of the Income Tax Act you can also claim donation deductions against taxable income. However, the deduction is limited to 10% of such taxable income before claiming the donation deduction. This means if your income us R900 000, then the deduction you claim for the donation made is limited to R90 000.

The key to qualifying for this tax deduction is, however, to ensure that you are donating to a Public Benefit Organisation (PBO) that is registered as such with Sars. You can request a Section 18A certificate from your PBO at the end of the tax year, which will provide proof of your donations during the course of the tax year. If you have not yet made any charitable donations during this tax year, you can do so by making a once-off contribution of up to 10% of your taxable earnings to a duly registered PBO.

Source: Money Web, Fin 24, Tim Tax