Tax: Making the most of deductibles

How does tax in South Africa work?

If you earn an income, whether from a salary or profits, you’ll be paying tax on your earnings. The amount you pay is based on a sliding scale of tax thresholds on your total earning over a 12-month period (starting 1 March until 28 February the following year), where the more you earn, the bigger the percentage you pay in tax. 

The easiest way to manage your tax is to register for SARS eFiling. Tax rates and tax thresholds can change from year to year; therefore, it’s important to stay up to date with these changes as it might mean more or less of your budget goes to tax. 

Types of personal income tax

Below are some types of taxes applicable to individuals. For a full list of all tax types applicable, speak to a tax consultant or visit the SARS website: 

Income tax: As an individual, you first have to reach a minimum salary amount before you get taxed. This amount varies from year to year and is based on your age. Thereafter, you’ll be taxed at between 18% and 45% depending on your income. 
Value added tax (VAT): VAT is the tax added to most goods and services and paid by all consumers whenever you buy or pay for something. It’s an indirect way for the government to raise revenue. Currently, it’s at 15%. 
Capital gains tax: This is the amount of tax you pay when you make a profit by selling an asset, such as a property or investment. These rates can change, and there are exemptions. 

What can I claim back from tax?

While you can’t get away from paying tax, there are ways that you can pay less tax or pay tax but get money back from SARS by claiming for certain deductions.  You can contact your financial planner or a qualified and registered tax practitioner to assist you.

Medical expenses
As a taxpayer paying for a medical aid, you can claim for ‘out of pocket’ medical expenses that you might’ve paid for because your medical aid scheme either didn’t cover it or you were within your ‘self-payment gap’. 

Qualifying medical contributions are converted to a tax credit based on a variety of criteria, such as how much you paid but also how many dependants you have and whether there are special needs or disabilities. This in turn will determine either how much tax you get back or how much less tax you pay because of it. 

Retirement annuity
Contributing to a retirement annuity (RA) is a tax-efficient way to grow your savings but also helps you pay less tax. That’s because the money you put into your RA gets deducted from your taxable income. 

For example, if you earn R600 000 per year and contribute R60 000 to your RA during that year, you’ll only be taxed on R540 000 of your income. There are restrictions to how much you can put into your RA and, therefore, how much less tax you’re liable to pay.  

Your retirement savings are not taxable, which means that they can grow exponentially without tax eating into your returns. Once you draw an income from it, that amount is taxable as any income amount would be. However, you can withdraw a lumpsum percentage of your RA tax-free. 

Top tip: Speak to your financial planner about opening an RA and contribute as much as you can under the allowances. The more you save, the less tax you pay.

Tax-free investments
A tax-free investment is an efficient way to grow your money without tax liability, allowing you to save and grow your money without having to worry about paying any of it away to the taxman. 

While there aren’t any limitations on how your savings can grow, you are only allowed to contribute up to R36 000 per year or up to R500 000 over your lifetime. If you contribute more than that, you’ll get penalised and pay tax on the extra amount. 

A tax-free investment is a great way to bolster your retirement savings or to help you achieve a long-term goal, such as an education. Open a tax-free call investment account today and start earning tax-free interest. 

Travel and work expenses
If you use your vehicle for work or business travel purposes or expenses that help you perform your work duties, you can deduct it from your employment income, which means you’ll pay less tax because the amount you are taxed on is lower. 

Charitable contributions
You can donate to an approved public benefit organisation or donate up to R100 000 and still be exempt from donations tax. Remember, a donation can be anything of value, not just money, and can include other assets such as property. 

You have to claim this deduction and submit your proof of donation to SARS along with a Section 18A certificate from the public benefit organisation to which the donation was made. 

Effective tax planning can help you legally minimise your tax liability. Tax laws and regulations can change, which is why it’s important to stay informed about the rules and updates from SARS. It’s best to consult a tax professional or registered accountant for personalised guidance and advice to make the most of your tax. 

Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s). 

Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.