How To Avoid Tax In South Africa

below is How To Avoid Tax In South Africa

The tips below cover all possible recommendations and may not be applicable to your individual tax situation. The only way to know which ones apply to you is to use TaxTim to complete and submit your tax return.

1. Contribute towards a retirement fund

Your contributions towards retirement funds are tax-deductible up to a limit of 27,5% of the greater of your taxable income or remuneration (to a maximum of R350,000 per year). This limit applies to the total contributions you make to any pension, provident, or retirement annuity (RA) fund during the year. The tax deduction will always be limited to the actual contributions you made.

Your pension and provident fund contributions are usually structured via your employer (you will see these on your monthly payslip), but you can top-up your retirement savings yourself by contributing to a RA fund. Because you may not access your RA funds until you are 55 years old, this is a great way to save for your future, while also reducing your annual tax bill.

2. Open up a Tax Free Savings Account

This is a type of savings account offered by financial institutions that invests your money in a combination of financial products such as unit trusts, bank savings accounts, fixed deposits, bonds, etc.

The difference between this and other savings or investment accounts is that all returns, i.e. the interest, dividends, and capital gains earned, will be tax-free in your hands. This means that you’re not liable to pay tax on the growth of your investment, nor if you decide to withdraw from your account.

Annual and lifetime contribution amounts
There’s an annual contribution limit of R36,000 per tax year, as well as a lifetime limit of R500,000. Once you have reached your lifetime contribution limit of R500,000 no further investment in a tax-free savings account will be allowed.

No limit to the number of accounts
The annual limitation can be spread across as many savings accounts as you wish, provided you don’t invest more than R36,000 in total for the tax year (1 March to end February). So if, for example, you’ve already contributed R10,000 to one tax-free saving account for the period, you’ll only be able to invest a maximum of R26,000 to any others.

No carryover of annual contribution limit
The annual limitation can’t be carried over to the next tax year, you simply forfeit any unused amount and are given a new annual limit of R36,000 to invest in a tax-free savings account. For example, if you’ve invested R26,000 for the tax year, you can’t carry the R10,000 over to the next year.

Contribution to tax-free savings account for a minor
As a parent, you’re able to open tax-free savings account for your minor child(ren), but you need to be aware that any contributions you make to this account on their behalf count towards their annual and lifetime contribution limit.

Who is exempt from paying tax in South Africa?

Non-resident individuals are exempt from income tax unless the individual is physically present in South Africa for more than 183 days in aggregate during the year preceding the date on which the interest accrues or the debt on which the interest arises is effectively connected to a PE in South Africa.