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Structuring your personal tax effectively.

The 2020 year of assessment runs from 1 March 2019 to 29 February 2020 for individual taxpayers. The 2020 tax season opened on 1 September 2020. The due date to file a return is 16 November 2020 for taxpayers who file online, 22 October 2020 for taxpayers who intend to file at a SARS branch by appointment and 29 January 2021 for provisional taxpayers who file electronically.

As a result of the economic toll the COVID19 lockdown has had on the South African economy, many South Africans are seeking ways to save for unexpected rainy days. Proper tax planning may help reduce an individual’s tax liability and transition to a better financial position.

So how does one structure one’s tax to decrease their tax liability?

Some examples of how taxpayers could reduce their tax liability include:

Contributing to a medical aid

Taxpayers may claim a medical scheme tax credit in accordance with section 6A of the Income Tax Act. The credit is calculated depending on number of months medical contributions were made during the year and the number of dependents. Maximum benefit can be derived if contributions are made for the full year and a higher number of dependents are contributed for.

Contributing to a pension, provident fund or retirement annuity fund

Per S11F of the Income Tax Act, a taxpayer may contribute towards their retirement fund and deduct up to 27.5% of their gross remuneration or taxable income (whichever is higher) of the total contributions made, however this is subject to an annual limit of R350 000.

Donating to a charity registered in terms of Section 18A

Taxpayers may claim a deduction in accordance with S18A of the Income Tax Act for donations made to a public benefit organization if a valid S18A certificate is produced. Taxpayers would need to ensure that the organisation has been approved by the commissioner and meets all the other requirements of s18A. The deduction would be limited to 10% of the individual’s taxable income before the deduction is claimed.

Contributing toward a tax-free investment

S10 (1)(i) of the Income Tax Act allows for local interest exemption which is capped, depending on the age of the taxpayer on the last day of the year of assessment. By investing in tax free investments, individuals earn interest that is tax exempt. The maximum investment is R33 000 per year of assessment and R500 000 per lifetime. If contributions to the tax-free investments exceed these amounts, then 40% of the excess will be added to tax liability in that year of assessment.

Maintaining a logbook if a travel allowance is received

Taxpayers can claim travel expenses on business travel if they maintain a logbook and ensure that sufficient supporting documentation is available to prove to SARS that a portion of travel expenses were incurred for business purposes.

Investing in a Venture Capital Company

Per Section 12J of the Income Tax Act, taxpayers can invest in a venture capital company, and qualify for a full deduction of the total investment amount from their taxable income. This would also help boost the South African economy and support the growth of local SMEs.

Claiming expenses if you run your own business

A self-employed taxpayer such as an independent contractor, freelancer or sole proprietor may deduct all their business-related expenses from their business income. Business related expenses include all expenses incurred in order to earn an income such. Supporting documentation of all these expenses should be kept as evidence by the taxpayer.

Should you wish to know more about any of the above benefits or how to structure your tax effectively and efficiently, please contact us at Tax@rain.org.za.

Written by: Ratang Rabasimane

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