#TaxSmartTips for Budget month 2018
As the end of the South African tax year approaches, you have the opportunity to get a contribution to your savings from the government. One way to do so is by topping up your retirement annuity (RA). Or by investing in a new RA if you haven’t yet. Not only will you reduce your tax liability, but also boost your retirement savings and earn compounding tax-free returns.
This is according to Floris Slabbert, country manager at Ecsponent Financial Services, who encourages all South Africans to make use of this tax planning opportunity.
“Faced with the question of whether to pay taxes or save, everyone will agree that the latter is the better option. Thus, before the tax year ends, it is important to think about the incentives the government has put in place to encourage us to save,” says Slabbert.
SARS allows individuals to invest up to 27.5% of their annual income in retirement funds, such as an RA. The total contribution is capped at R 350,000 per year. Slabbert explains that: “If you earn R 500,000 per year, for example, you will receive a tax deduction for contributions to your RA of up to R 34,000. To simplify this, instead of paying tax on R 500,000, your income will reduce by R 34,000. You will only pay tax on R 466,000, which amounts to a tax saving of around R 12,000. One could then say that R 12,000 of your contribution was government funded.”
“Additionally,” Slabbert adds, “the growth in a retirement fund or RA does not attract income tax, dividend tax or capital gains tax. This tax incentive contributes to further savings.
You have until 28 February to benefit from tax savings this tax year
If you haven’t yet contributed 27.5% of your taxable income to your retirement fund in this tax year, you have until 28 February, which is the end of the tax year, to top up your investment. You also still have time to invest in a new RA if you don’t already have one but want to make use of the tax benefit available to you.
“Always make these decisions with the help and guidance of a financial advisor. That way, you will get the best returns on your smart investment choices.”