Financial planning and personal tax matters can be a minefield of complexity for the average taxpayer due to changes in tax legislation and tax thresholds. However, clever planning and structuring of your financial affairs can help you reduce your monthly tax payments, leading to substantial savings on an annual basis.
Hein Daffue of Sanlam Legal says taxpayers are not always aware of the impact of these annual changes, nor of the potential savings they could lead to. "There are a number of options that can be considered, depending on your unique requirements. It is important to speak to a qualified financial adviser, however, who can guide you through some of the complexity and help you structure your financial portfolio to derive optimal tax benefits."
Tax deductions
- Retirement annuity fund: You can contribute to a retirement annuity fund and deduct the contributions from tax. Currently, the maximum deductions allowed per year will be the largest amount of R1 750; R3 500 less any pension fund contributions; or 15% of non-retirement funding taxable income (excluding retirement fund lump sums and severance benefits from your employer). Just bear in mind the fund benefits are taxable when you retire, but the lump sum up to certain limits could be tax-free.
If you stopped making contributions to a retirement annuity fund, you can reinstate the payment of your contributions. If you have arrear contributions, you can deduct up to R1 800 per year until such arrear contributions are up to date.
- Employer retirement fund: Where the employer retirement fund allows for arrear pension fund contributions, you can deduct up to R1,800 per year.
- Disability income protection: This year's National Budget announced that premiums paid on a disability income protection policy will no longer be deductible from your tax. This would then allow for the disability income not to be taxable should you become disabled. However, tax legislation must still be finalised in 2013 to either confirm this or to maintain the previous position where premiums are deductible with the disability income taxable should you become disabled.
- Medical scheme: If you belong to a medical scheme, income tax deductions for medical aid contributions and out of pocket expenses for taxpayers below 65 are in the process of being converted into tax credits. Employers offset the tax credit, which is a fixed amount, against tax payable. Self-employed individuals must deduct the tax credits from tax payable. Taxpayers 65 and older and taxpayers that are disabled or who have disabled dependants will see their deductible contributions and expenses convert to medical tax credits on 1 March 2014.
- Interest-bearing investments: You can invest in interest-bearing investments such as savings accounts, fixed accounts, money market accounts or unit trusts and make use of the interest exemption (R23 800 for persons under age 65 and R34 500 for persons aged 65 and over. This applies only to local interest and no longer to foreign interest and foreign dividends).
- Specific deductions: You may qualify for specific deductions such as wear and tear, for instance if you use a home computer to produce income. However, here it is essential to speak to someone with the relevant tax knowledge to best advise you in your particular situation.
Thresholds and rebates
You pay tax only if your taxable income is above a certain level, which is called a tax threshold. For persons under age 65 it is currently R67,111 per year, for persons aged 65 and over it is R104,611, and for persons 75 and over it is R117,111.
The current basic tax rebate, which is a deduction after the amount per tax table is calculated, is R12,080 per year for persons under age 65; R18,830 for persons aged 65 and over and R21,080 for persons aged 75 and over.
Daffue says the best way to complete a tax form quickly, correctly and easily is by e-filing. You can submit your tax return form electronically by registering as an e-filing taxpayer on the SARS website, www.sarsefiling.co.za.
Get documents ready
"First get all your supporting documents ready, such as IRP5s, retirement annuity and disability income protector contribution certificates, interest and dividend certificates, and where relevant, other items such as capital gains tax certificates. Once you have all the information at hand, it is much easier to complete in one go," he says.
There are guidance notes available on the SARS website for e-filing (www.sars.gov.za), as well as books that explain tax in layman's terms in certain academic bookshops. You can also approach a registered tax practitioner to fill in the form on your behalf, which will cost you a minimal amount.
Remember to file your in-branch tax return before 27 September 2013 and your e-filing return before 22 November 2013 to avoid SARS penalties.
