They say that nothing is certain but death and taxes. Paying tax is an inescapable part of earning an income, however there are some clever ways to reduce your tax liability and maximize your chance of a tax refund while still staying on the right side of the law. Marc Sevitz, tax expert and co-founder of TaxTim unpacks some clever ways to save you.
Contribute to a retirement fund: If you contribute to a pension, provident or retirement annuity (RA) fund, you will qualify for a tax deduction of up to 27.5 percent of your taxable income (up to a maximum of R350 000 per year). This means your taxable income is reduced and therefore you pay less tax, whilst saving for your future – a win-win situation for sure!
Open up a tax-free savings account: This is a type of savings account where you money is invested in a combination of financial products such as unit trusts, bank savings accounts, fixed deposits and bonds. The difference between this and more traditional investment accounts is that you pay no tax on interest, dividends or capital gains. The catch is that you can only contribute up to R33 000 per year and there is a lifetime limit of R500 000, however, this is still great way to invest and save some tax in the process.
Donate to a SARS registered charity: A public benefit organization (PBO) is non-profit organisation, which is exempt from paying tax in South Africa, due to the type of charitable work that they do. Any contributions you make to registered PBOs can be deducted from your taxable income up to a limit of 10 percent of your taxable income. This is a great way to donate to a good cause, while also reducing your tax bill.
Join a medical aid scheme: Besides bringing you piece of mind in the event you or one of your dependents falls ill, belonging to a medical aid also provides some tax relief in the form of a fixed monthly medical tax credit of R310 for you as the primary member, a further R310 for your first dependent and R209 for each of your additional dependents. This is a flat monthly amount, which comes directly off your tax bill.
Keep a logbook if you receive a travel allowance: If your job involves a lot of business travel, your salary may be structured in such a way that it includes a travel allowance. This is treated as a taxable fringe benefit (this means you are taxed on it) but if you keep a detailed logbook to record your mileage, you can claim a travel deduction, which could reduce the tax you owe on it. At least there’s some pay back for all that time spent in traffic!
Keep a logbook if you drive a company car: If your employer provides you with a company car, this will be included on your payslip as a taxable fringe benefit. It makes sense that you pay tax on the personal use of the car, however not on the business usage which is where the logbook comes in again. By keeping a detailed logbook, you can claim a travel deduction for all of your business mileage, which could reduce your tax owed to SARS.
Claim commission related expenses if you are a commission earner: If you are a commission earner, SARS will allow you to deduct all your commission related expenses (travel, staff costs), which you incurred to earn your commission income. We suggest you keep a record of these expenses, together with the related invoices, so that you can take advantage of this deduction in order to pay less tax. SARS only allows you to claim commission expenses in the event that your commission income is more than 50 percent of your total remuneration.
Claim your daily costs if you receive a subsistence allowance: In the event that you travel for work and your employer pays you a taxable subsistence allowance which is coded to source code 3704 for local travel and / or 3715 for foreign trips on your IRP5, you’re able to claim against the allowance for your expenses – provided you have receipts for them. It’s worth paying extra attention to your record keeping here, so you don’t end up paying more tax than you have to, just because you misplaced a receipt or two!
Claim expenses if you earn non-salary income: If you are an entrepreneur, SARS will allow you to deduct all your business-related expenses against your business income. We suggest you keep a detailed record of your business expenses, together with the related invoices, so that you can take advantage of this deduction to pay less tax.
Make sure you meet all tax filing deadlines: Last but not least, file your returns and pay your tax on time. SARS is very quick to slap on late payment penalties (for provisional filers) and interest, so be sure to meet all of your filing and payment deadlines!