With the tax year-end approaching, now is the perfect time for taxpayers to take stock of their finances. The end of February marks the close of another tax year, and with it, the opportunity to maximise annual tax relief, complete payments, and finalise essential tax-related activities. Don’t let this critical window pass you by.

In this article, we highlight key areas taxpayers should review to ensure they’re optimising their annual allowances and fully benefiting from available tax concessions.

Top up your retirement funding contributions

Tip: If you have not paid the full 27.50% of R 350,000.00 for the current tax year, top up your Retirement Annuity to fully embrace your allowance.

Amendments to the Income Tax Act relating to Retirement Funds, (which includes Retirement Annuities, Pension and Provident Funds), which came into effect on 1 March 2016, offer welcome tax benefits to members of Retirement Funds.

According to amended legislation, members of Retirement Funds can contribute up to 27.50% annually, subject to an annual maximum limit of R 350,000.00, of their taxable income or salary they receive (whichever is greater) towards Retirement Funds. These contributions can be deducted annually from their taxable income before the tax payable is calculated.

An investor can invest in as many Retirement Funds as they want but the annual tax benefits are calculated on the total fund value of the combined Retirement Funds and not on individual Retirement Funds. The tax deduction is limited as discussed above and the tax-free lump sum may only be claimed once.

In summary:

• An investor can save up to 27.50% of their salary tax-free;
• The annual contributions are limited to R 350,000.00;
• An investor therefore pays less tax and can invest more for their retirement

Maximise your Tax-Free Savings Account (TFSA) annual allowance

According to the legislation governing these products, the maximum contributions per tax year (i.e. 1 March 2024 to 28 February 2025) are limited to R 36,000.00. Maximising your annual contributions goes a long way towards reaching your lifetime limit of R500,000.

An important rule to remember is that contributions exceeding these limits are subject to a 40% tax penalty on the excess amount. So, if you might be considering simply adding more next year, it’s best to keep within the annual limits to avoid paying penalties.

A TFSA can be a powerful tool to grow wealth tax-efficiently over time. The longer your money has to grow via compound interest, the better the impact of the TFSA’s benefits, as you don’t pay tax on this growth – interest, dividends, and capital gains earned within a TFSA are tax-free.

To ensure that you make use of the full allowable contributions, top up your TFSA account to make sure you don’t miss out on this opportunity.

Are there any annual deductions you might be forgetting about?

Annual deductions can lower your income and reduce your tax payable. What is a deduction? It is an amount you can subtract from your income upon filing your annual tax return so you don’t pay tax on it.

Salaried employees

Examples of such deductions include:

• Medical aid – Claim medical expenses and credits: Use medical aid contributions and qualifying out-of-pocket expenses to reduce your tax liability
• Work-from-home expenses can be deducted as follows: rent, rates, interest on mortgage bonds, and electricity – if the salaried employee is working mainly from home in a specifically dedicated space that is solely used as an office.

Commission Earners

Examples of deductions include:

• Business travel expenses – by keeping a detailed log book for all business-related travel and incurred maintenance expenses (like petrol, oil, service costs and insurance) you can claim travel expenses as a deduction. Your log book should start on the first day of the new tax year (1 March) and the closing kilometre reading should be on the last day of the tax year (end of February). In addition, it should list your vehicle’s make, model, year and value as well as kilometres used for private and business.
• Costs incurred in the pursuit of commission – for example, taking a client to lunch to discuss business – the lunch receipt can be kept and claimed.

Entrepreneurs and Small Business Owners

 For entrepreneurs and small business owners, all the above-mentioned deductions are applicable as well as the following[1]:

• Business running costs – any business running costs that are incurred in producing your income are deductible. For example, salaries to employees, and office running costs, among others.
• Wear and tear – depreciation on devices, equipment and or furniture used in your business.

Donations:

Donations to an NPO or NGO can be deducted from your annual taxable income. When a donor makes a contribution to an 18A Public Benefit Organisation, they are eligible to receive a Section 18A tax certificate, which allows them to claim a deduction from their taxable income.

If you’re looking to donate funds to your kids, family or friends it is now the time to do so as the allowance is R100,000.00 per annum. Please note that there is no annual donation limit between spouses, nor are these donations subject to donations tax.[2]

Capital Gains Tax:

Capital gains tax (CGT) is levied on the capital growth (gains) an investor earns when he/she disposes of an asset. This means whenever units/shares are sold, either to be re-invested or withdrawn, a CGT event will be triggered.

Let’s quickly recap the annual limits and allowances when it comes to CGT –

• Natural persons (and some special trusts) are eligible for a CGT exemption of R 40,000.00 per year, and R 300,000.00 in the year that the investor passes away, which reduces the impact of the potential tax payable by the investor. Any gain over R 40,000.00 will, therefore, be used to calculate the investor’s tax liability upon disposal.
• Capital growth (gains) is typically defined as the movement in price of an asset over a particular period of time (also referred to as market movement). As the price of an asset increases, so does the capital appreciation of the asset which in this case may be a unit trust fund or a share for example.
• Thereafter, 40% of the capital gain will be included in the client’s gross income and taxed at his/her marginal rate.

If you foresee you might need to make use of your annual CGT allowance, consider speaking to your financial advisor for tax-friendly solutions.

Offshore allowance:

Investors can invest R 1,000,000.00 offshore without any special approval from SARS. With SARS clearance you can invest R 10,000,000.00, therefore in total you can invest R 11,000,000.00 offshore.

If you’re considering moving money offshore, now would be a good time to make use of your annual limit and make the most of your concession.

In closing

As the tax year draws to a close, it’s the perfect opportunity to ensure you’re maximising every available tax benefit. By reviewing your contributions, deductions, and allowances, you can optimise your financial position and take advantage of valuable tax concessions. Whether it’s topping up your retirement fund, maximising your Tax-Free Savings Account, or leveraging deductions and exemptions, these steps can significantly impact your financial well-being. Make the most of the remaining time and set yourself up for a stronger financial future.

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[1] Source: Tax Tim “The complete tax deductibles guide”

[2] Source: Tax Tim “Donations Tax”