Let’s talk tax savings!
You will have seen on your pay slip, the amount of tax you pay on your hard – earned income. Over and above this, our VAT rate of 15% is levied on the purchase of most goods and service. We have listed (4) four ways you can make use of the tax benefits available while increasing your savings.
- Get significant tax advantages from investing in a retirement savings vehicle while growing your long-term saving.
The contributions you make to your company’s pension or provident fund or retirement annuity fund are tax deductible, which lowers your taxable income. These funds are also exempted from dividends tax and capital gains tax.
You can claim a tax deduction on contributions to all the pension, provident and retirement annuity funds that you belong to, up to 27.5% (in the aggregate) of the higher of your remuneration of your taxable income (up to R350 000 every year).
Your taxable income is not only your salary income. You can also include rental income, dividends from real estate investment trust (Reits), gains from realized assets and interest earned on investment in your taxable income.
The tax deduction on your contribution to your employer’s pension of provident fund means that you can invest with before -tax money and reduce the amount of tax that you pay.
If you are contributing less than the amount that is deductible to all the pension, provident and retirement annuity funds that you belong to, you can consider increasing your contribution to reduce your liability.
- Be tax smart and use your employer’s retirement fund
Your retirement fund aims to provide you with an income when you retire and no longer have a monthly salary.
Many employer-sponsored pension and provident funds allow members to increase their contribution rate on a regular basis or make extra, once off voluntary contributions to the fund. You may be able to make these contributions with before tax money and reduce the amount of income tax that you pay.
Most funds don’t charge additional fees on extra money that is contributed into the fund, so the full extra amount you put into the fund is typically invested for your retirement.
- Use a retirement annuity fund to reduce the tax you owe
Another effective way to reduce your income tax is to make contributions to a retirement annuity fund. A retirement annuity fund is a private pension fund that you can use to save for your retirement.
Retirement annuities generally offer members investment flexibility and flexibility in how contributions are paid.
If you want to contribute before the end of this tax year, SARS will need the retirement annuity fund to have processed your application form and for the money to show in the retirement annuity fund before February 28 to qualify for any tax deduction. Its recommended that you check any deadlines with your chosen provider.
- Have you considered a tax-free savings account to boost your savings?
Tax-free savings accounts are generally an easy, flexible, and affordable way to save. Tax-free savings accounts were introduced in 2015 to encourage South Africans to save. A tax-free savings account can be a good option if you want to save for a specific goal or have a medium to long-term investment horizon.
With the end of the tax year coming up, now is a good time to consider investing in a tax-free savings account. The maximum tax-free contribution you can make each year to a tax-free savings account is
R36 000 (2021 tax year). If you contribute more than that, you’ll have to pay tax on the contributed amount that is over the limit. There is a R500 000 lifetime limit of contributions to tax-free savings accounts.
The investment returns like interest income, capital gains and dividends earned in the tax-free savings account are exempt from tax.
Many tax-free savings accounts have low monthly contribution limits and low investment fees. They also allow you to access your money when you need it, although you will still have the lifetime contribution limit of R 500 000.
Contact one of the NMG Financial Advisor today and re-evaluate your investments within your overall financial plans and consider whether it is appropriate for you.
Should you wish for one of our NMG Financial Advisors to contact you, please send and email to [email protected] or call 011 509 3000.
T& Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial service provider FSP 12968