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As the financial year draws to a close, South African taxpayers have a last chance to optimise their tax returns and potentially lower their tax liabilities. If you do not have a tax-saving action plan, you may be losing money unnecessarily. Now is the perfect time to review your finances and take advantage of available tax benefits.
Here are some of the key year-end tax relief strategies South African individual taxpayers should keep in mind:
One of the most effective ways to reduce your taxable income is by contributing to your retirement funds. In South Africa, contributions to retirement annuities (RAs), pension funds, and provident funds are tax-deductible up to certain limits.
The total tax-deductible contribution for all retirement funds combined is limited to 27.5% of your taxable income (or remuneration, whichever is higher). The combined total of your contributions to these funds is subject to a maximum cap of R350,000 per year.
Is your contribution for the current financial year maximised yet? Doing this will reduce your taxable income while investing in your future.
South Africa offers medical tax credits to encourage individuals to save on medical expenses. These credits are granted monthly and are based on the number of dependents you claim for. You can claim a primary tax credit for yourself as the taxpayer and an additional secondary tax credit for each dependent.
The medical tax credit amounts for the 2024/2025 tax year are:
If you have had substantial medical expenses throughout the year or paid for medical aid out of pocket, this is an excellent opportunity to reduce your tax burden. Make sure you have claimed for all eligible dependents and expenses.
A tax-free savings account (TFSA) is another tax-advantaged investment vehicle that allows you to earn returns without paying taxes on them. Contributions to a TFSA are not tax-deductible, but the benefits lie in the interest, dividends, and capital gains generated within the account, which are completely tax-free. For the 2024/2025 tax year, you can contribute up to R36,000 per year (with a lifetime limit of R500,000). If you have not reached the annual limit yet, consider taking full advantage of your annual allowance.
You can claim tax deductions on donations to organisations registered with the South African Revenue Service (SARS) as public benefit organisations (PBOs), provided they are also approved under Section 18A of the Income Tax Act. South African taxpayers are allowed to claim up to 10% of their taxable income in charitable donations. Donating can help a cause you care about while providing a significant tax deduction before year-end.
Capital gains tax (CGT) applies when you sell an asset, such as property or shares. However, South African taxpayers enjoy an annual exclusion of R40,000 (for individuals) on any capital gains during the tax year. If you have made a capital gain, be sure to take advantage of this benefit.Additionally, with the help of a tax expert, you can consider whether there are any other ways to structure or defer taxable events to ensure that you are optimising your CGT exemption.
Are you working from home? There are potential tax deductions for home office expenses. This is particularly relevant given the rise of remote work since the COVID-19 pandemic. You can claim a portion of your home expenses (such as electricity, water, insurance, and repairs) as tax-deductible if the space is used exclusively for work.You need to calculate the proportion of your home used for business purposes and ensure you keep accurate records of your expenses.
Lastly, if you have any outstanding taxes or owe SARS, settling those before year-end is a good idea. Doing so will help you avoid late payment penalties and any interest that may accrue on overdue amounts.
It is always wise to consult a tax professional or financial advisor when planning to optimise tax benefits. At Huysamen Westraad Inc., we can help you navigate the complexities of taxation and ensure you take full advantage of available deductions before the year-end.Book a consultation with one of our friendly and highly competent tax experts before time runs out.
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