Tax advice for success: The tax man can give as much as he takes

They say death and taxes are the only two certainties in life. While this may be true on both accounts, there is opportunity for you to soften the tax blow by playing your cards right with the South African Revenue Service (SARS), says Momentum Financial Adviser Ernest Zamisa.

Tax is not something that we can get away from and one should not even try, as the fines and repercussions of tax avoidance are severe, says Zamisa. “Just like you can’t cheat death, you can’t cheat the tax man. SARS will find you and you will pay your dues. And more importantly, you should recognise the role that your taxes play in the betterment of society.”

However, there are certain avenues that will allow you to harness tax to your advantage that are legal in both the spirit and the letter of the law, which are there to promote the financial wellbeing of South Africans.

Zamisa suggests that you structure your income in such a way that you get the most of any possible tax benefits, while also making sure that your portfolio is as tax-efficient as possible.

Playing the long game – retirement savings

Although tax can be complicated, with a few smart moves, you can benefit significantly from tax incentives, especially when planning for retirement. In the process, you can also improve the probability of achieving your investment goals.

In order to encourage South Africans to save more, the South African government introduced a new savings vehicle in 2015, in the form of a tax-free savings account.

“You can provide for your retirement and be tax-savvy at the same time. Every month, ensure that you are putting money away into a retirement fund along with a tax-free savings account. The benefit of investing or saving through the latter is that all returns and proceeds will be completely tax free,” says Zamisa.

How does this work exactly? On a yearly basis, you are given the opportunity to make a pre-tax contribution before the end of February to your retirement funds, of up to 27.5% of your taxable income or remuneration, capped at R350 000 per tax year. If you have not maximised this benefit, you can make an additional contribution to your retirement annuity in the form of a lump sum.

“Speak to your financial adviser, who will help you choose the most appropriate solution for your savings goals,” says Zamisa.

Take care of your health and your tax return will take care of you

Way back in 2012, SARS introduced a medical scheme fee tax credit. Before this, medical aid contributions would be deducted against your taxable income, but now they are deducted from your overall tax liability (the total amount of tax you're responsible for paying to the taxman).

Zamisa explains that for each month of the tax year that you (as the main member of the medical aid) belonged to a medical aid, you receive a tax credit of R286. For the first dependent (usually your spouse), you get an extra R286, and a further R192 for any additional dependents.

But Zamisa says you must make sure it is you who gets tax back on your medical aid. He says many people often assume that they are due a tax refund as they are part of a medical aid. This is not always the case.

“If you contribute to a medical aid via an employer, your contributions are deducted from your salary and your tax benefit will already be included in your monthly PAYE tax deduction on your pay slip. If you are paying for your medical aid on your own, then you are definitely due a refund and should ensure your contribution is listed on your tax profile.”

A little giving can go a long way

If you have children or family overseas, you could give them a tax-free gift. Since the annual donations exemption is R100 000 per tax year, you can split the gift over two tax years so that it falls below the donations tax threshold. Zamisa adds, “If you gifted someone R60 000 in the first year and R60 000 in the second year, then there will be no donations tax to pay.”

Another great way of ensuring a tax refund is to make annual contributions to registered public benefit organisations. If you do this, Zamisa says you will no doubt receive a Section 18a tax certificate, which you should then ensure is correctly reflected on your tax profile.

Donations tax is calculated at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. However, SARS makes provision for a donations tax threshold of R100 000, below which no donations tax is payable.

“Just make sure the public benefit organisation is an approved section 18A organisation to qualify for tax deductions. The deductible portion of the donation is capped at 10% of the taxable income of the donor.”

Speak to a financial adviser to learn all the tricks

Zamisa believes you could write a book with all the valuable ways one can work the tax system in their favour.

“If you want to know how to best game the system, then you should be talking to a financial adviser. Ask them how to you can claim a portion of your house for a tax rebate if you work from home. If you own a business, ask them how you can best go about import and export taxes. And most importantly, ask them what they think you should do with the money saved from all of this? If you get a tax rebate, do not spend the money on arbitrary things, rather save this towards a goal, like your retirement or pay off debt first,” concludes Zamisa.

Filing your taxes can be daunting. Momentum has a great tool in the form of Tax Tim that will take you through your tax filing process step by step. The service will also give you the information you need on tax matters and will also remind you of the tax season and help you to complete your tax return.

Owning your success means you have the final say and being in charge of your taxes is a formidable way to be in the driver’s seat.

ENDS