The dreaded T word… let’s face it…no one likes to pay tax. It’s almost like a grudge purchase except you did not agree to buy anything. But it is a necessary contribution that if spent correctly would go a long way in benefiting, uplifting, and improving the overall well-being of our economy.

As taxpayers we have no choice but to pay taxes whether we like it or not…but how much tax we need to pay is something we can control and reduce and that is where tax planning comes in.

In a nutshell, tax planning allows taxpayers to utilise tax benefits, rebates, and exemptions allowed by our Revenue Services to reduce the amount of tax they are liable to pay. These benefits are available to individuals, businesses, and other legal entities such as trusts.

Let us explore some of the tax benefits available to taxpayers – please note this is not an exhaustive list and for further information we highly suggest discussing your tax planning with an expert or consulting SARS – South African Revenue Services.

Tax free investments (TFI)

  • To encourage savings amongst South African households, taxpayers have the option of saving in TFI’s
  • No tax (i.e., income tax, dividends tax, or capital gains tax) is payable in the returns generated or earned from these types of investments.
  • Annual and lifetime limits apply – the annual limit is currently R36000 (2021), and any amount invested that exceeds this is taxed at a flat rate of 40%.
  • The lifetime limit is currently capped at R500 000

 Tax on interest earned

If you are younger than 65, any interest earned up to R23 800 and if you are older than 65 then any interest up to R34 500 is exempt from tax

Dividends tax

If you receive dividends from investments, 20% is withheld for tax purposes.

Rental income

Any rental income received from renting out property or part of a property is subject to income tax. So, if you are considering investing in a rental property or an Air BNB, it is worthwhile confirming which expenses can be claimed for tax deduction purposes. Allowable expenses incurred during the rental period can be deducted such as rates and taxes, interest on a home loan, estate agent fees, advertising fees, repairs, garden services, and levies.

Claiming home office expense

If you work from home, you will be able to claim a deduction for certain expenses incurred such as rent, cost of repairs, electricity, rates, and taxes, and cleaning costs. However certain conditions apply such as the home office must be set up for the exclusive use of your work and the amount allowable is determined by the size of the home office in relation to the total area of your home.

These are just some of the tax exemptions or benefits taxpayers receive. You can also claim a deduction on certain amounts contributed towards a retirement annuity. This is an incentive for taxpayers to save for their retirement and the amount they qualify for depends on the amount they are contributing towards other pension savings products and is limited to 27.5% of employees’ taxable income. Often, employees only contribute a portion of their monthly salary towards their pension fund savings. Still, they forget that they can also contribute up to 27.5% of any bonuses and other earnings such as commission earned to take full advantage of this tax benefit.

Where tax planning becomes extremely beneficial is in larger more complex estates or financial portfolios. However, taxpayers and investors should consider tax planning, especially those with large retirement savings. A tax practitioner or financial planner with a tax background or qualification such as a Postgrad in Advanced Tax or Master’s in tax can help you to optimise the tax benefits available to you. Why pay more tax than you legally have to?

*Figures above are as of today’s date and are subject to change. For the latest values, we suggest consulting a tax practitioner or SARS