1. Open a tax-free savings account
Financial institutions offer you a type of savings account that invest your money in a combination of financial products such as bank savings accounts, bonds, unit trusts, and fixed deposits. It’s an effective saving method because any dividends, interest, or capital gains will be tax-free. Unlike a regular savings account, you’re not liable to pay tax on the growth of your investment.
There are limits on the amount you can save in a tax-free savings account. The annual contribution limit is R36 000 a year while the total lifetime contribution can be no more than R500 000. It doesn’t matter how much growth you earn, as long as the amounts you put in do not exceed the annual or lifetime limit.
There’s no limit on the number of accounts you can have, as long as you don’t invest more than R36 000. You will be liable to pay a penalty tax of 40% for contributions to your tax-free account that exceeds the limits. So be sure to monitor your tax-free savings across all your accounts.
The annual contribution limit can’t be carried over to the following year. You simply forfeit the unused amount and receive a new annual limit of R36 000 to invest in tax-free savings accounts.
You can open a tax-free savings account in the name of your children. But bear in mind that you will be using part of their tax-free allowance. Any contributions made to this account on their behalf count towards their annual and lifetime contribution limit.
2. Join a Medical Aid Scheme
If you contribute to a medical aid The Medical Fees Schemes Tax Credit you are granted a standard monthly credit against your tax owing to SARS. You will receive a medical tax credit of R332 as the primary member for the 2021/2022 tax year as well as a medical tax credit of R332 for your first dependent. Thereafter, you will receive a tax credit of R224 per month for each of your additional dependents.
Your employer may use the Medical Schemes Fees Tax Credit to reduce your monthly taxes if your medical aid contributions are paid via payroll by your employer. The tax rebate only applies to taxpayers who are members of a registered medical scheme in South Africa.
3. Contribute towards a Retirement Fund
The contributions you make to any pension fund, pension preservation fund, or retirement annuity fund are tax-deductible up to a limit of 27.5% of your taxable income, and no more than R350 000 is tax-deductible in a year.
4. Claim commission-related expenses if you’re a commission earner
If you earn commission you will have commission income coded to source code 3606 on your IRP5. Any commission earner can claim related expenses if their commission income (the income next to source code 3606) is more than 50% of their total remuneration (income next to source code 3699). Related expenses are all the expenses you incurred in order to earn your commission.
The following expenses and allowances may be deducted:
- Deductions in respect of pensions, retirement annuity funds & provident funds
- Any allowance or expense which may be deducted from the income of that person in terms of legal expenses, wear and tear, bad debts, and provision for doubtful debts
- Any expenses incurred to maintain a home office.
5. Claim business travel if you’re a commission earner
SARS will allow you to deduct all business-related travel against your commission income. You must have a logbook to claim the business travel deductions.
Expenses incurred for travel between your place of business and your residence are considered private expenses and are not deductible. If you conduct your business from home, your home should (with regard to your travels from there) be treated as your place of business. This means that kilometers travelled when traveling from your home to perform business would be considered business kilometers.
6. Keep a logbook if you receive a travel allowance
If you received a travel allowance it will display next to source codes 3701, 3702, 3722, 3772, 3751 or 3752 on your IRP5. A travel allowance is a taxable fringe benefit, so it will be included in your taxable income and you will be taxed on it.
Most of the time 80% of your travel allowance is included for tax purposes (assuming that you drive 80% for personal and 20% for business). You can however claim a travel deduction against it which could reduce your tax if you keep a logbook to record all of your business travel.
7. Keep a logbook if you drive a company car
If you receive a fringe benefit for an employer-provided vehicle, you must have a logbook to claim the business travel deductions. Note that you can only claim a travel deduction if your company car fringe benefit appears next to source code 3802 or 3816 on your IRP5.
Let us Dive Deep into your Tax return for Savings
If you like the idea of reducing your taxes, then please book a consultation with us here at Tributum Accounting, and we’ll make sure you’re doing everything possible to reduce your taxes. We’ll also make your life much easier by tackling any bookkeeping, accounting, and payroll.
We’re here to help you thrive as an individual or business.