Tax avoidance (not evasion), where taxpayers use legal means to reduce the taxes they pay, is perfectly legal, recommended behaviour in our climate. “In the case of avoidance, the canny taxpayer makes the most of incentives which are openly available to them and legally utilizes the tax regime to their advantage in an attempt to reduce the amount of tax that is payable by means that are within the law.”
Here are some tips about the ways in which you can legally avoid paying more than is necessary:
- Simply contribute to a retirement fund and SARS will reward you by charging you less income tax, effectively paying you back a portion of any money you save towards retirement. You can deduct total contributions to a pension, provident or retirement annuity fund up to 27.5% of your taxable income. The overall limit is R350,000 per annum. The next tax year, 2019/2020, ends on 29 February next year so there are still eight months to go. If you get started now, by the time tax season comes around in a year’s time you will have a decent claim to make.
- If you are already contributing to a retirement fund perhaps consider raising your contributions a little. This will increase the amount of money you are diverting from the Receiver into your pension pot. If it is a company pension or provident fund, ask your HR representative to increase your contribution rate. They will most likely do the calculations for you and you won’t get a refund next year but will rather start paying less tax every month. If you don’t feel able to commit to a higher monthly contribution most funds will allow you to make occasional contributions, known as Additional Voluntary Contributions when you can. Your HR department will assist you with this.
- Many people put a proportion of year-end and other bonuses into their retirement savings, either a retirement annuity or pension fund. Think of it as putting a little of your bonus aside for the years when you will no longer get one and claim some of it back from the taxman.
- If you don’t belong to a workplace retirement fund, or the fund’s rules don’t allow you to increase your contributions, you can start a Retirement Annuity (RA) instead. There are plenty of providers, such as 10X Investments, that allow you to sign up online without paying an advisor. Then simply claim the contributions made to your RA when you submit your annual tax return, using the IT3(f) tax certificate from your provider as evidence.
- Another way to increase your RA contribution rate without reducing your take-home pay is to reinvest the annual tax refund as a lump sum. That way, your refund will increase every year, and within a few years, you will have significantly increased your rate of saving.
This Article above is an excerpt from https://businesstech.co.za/news/business/330853/5-ways-you- can-legally-avoid-paying-more-tax-than-you-need-to/