How to reduce your tax burden
Tax is a legal obligation which we all have to live with.There are ways in which this tax burden can be reduced.
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Tax is a burden every human being carries through life. Whether you are an entrepreneur or formally employed, paying tax is one obligation you can’t escape. It is worth knowing that there are ways in which an individual or even a business enterprise can reduce the tax burden. Below are some options.
Tax free savings accounts
Tax free savings accounts were introduced in South Africa in 2015. These accounts allow you to save a maximum of R30 000 per year and R500 000 in your lifetime. You save in a specially designated fund/account without having to pay any tax on capital gains or the interest or dividends received on these investments.
Charity donations
Taxpayers, including companies and trusts, can donate up to 10% of their taxable income to public benefit organisations (PBOs) and claim a tax deduction on this donation, as long as these PBOs are registered with the South African Revenue Service and issue a valid tax certificate for all donations received.
Deductions for rental properties
For those in real estate business, you can deduct certain expenses from income received from your rental property. This includes the interest portion of your mortgage bond if the property is bonded, levies, rates and taxes, insurance premiums, rental agent’s commission, repairs and maintenance costs and bank charges.
Medical aid contributions
All individual taxpayers receive a monthly medical scheme contribution tax credit. Taxpayers are also able to deduct certain qualifying out-of-pocket medical expenses incurred during the tax year.
Pension, provident funds and retirement annuities
Pension funds and retirement annuities offer three tax relief benefits. These include the fact that:
- Contributions are tax deductible which means you may deduct up to 27.5% of your gross remuneration or taxable income (whichever is the higher) in respect of your total contributions to a pension, provident or retirement annuity fund, subject to an annual limit of R350 000.
- The other benefit is that investment returns are tax free which implies that there is no income tax or capital gains tax on the investment return earned in retirement annuities.
- The third benefit is that benefits are taxed on a favourable basis, this simply means lump sum benefits are taxed on a sliding scale with a portion of the benefit tax free.
With tax avenues provided above, your tax burden will become much lighter to carry.