The countdown to the end of the South African tax year is on – February 28th is just around the corner. If you haven’t taken full advantage of your tax-saving opportunities yet, there’s still time to make your hard-earned cash work smarter for you.
What is the tax year end?
In South Africa, the tax year-end refers to the end of the tax period, which is the last day of February each year. This is the date when the South African Revenue Service (SARS) closes the current tax year, and it marks the final day for individuals and businesses to make tax-related payments and adjust their finances for the year.
Why it’s important to note
Whether you’re looking to boost your retirement savings or simply enjoy some tax relief, contributing to a Retirement Annuity (RA) or a Tax-Free Savings Account (TFSA) before year-end is one of the most effective strategies you can employ. Let’s break it down and show you how to make the most of these two powerful investment tools before the tax year closes.
Tax Tip #1 Make a Lump-Sum Contribution to Your Retirement Annuity
If you want to save on taxes while securing your future, now is the perfect time to make a lump-sum contribution to your Retirement Annuity (RA). This not only reduces your taxable income for the current year but also gives you a long-term tax-efficient way to save for retirement.
Contributing to a Retirement Annuity (RA) offers substantial tax benefits. For South African taxpayers, RA contributions are tax-deductible, meaning the amount you contribute reduces your taxable income for the year. You can contribute up to 27.5% of your taxable income (or remuneration) or a maximum of R350,000 per year, whichever is less.
Why this works: The beauty of an RA is that, unlike regular savings, you don’t pay tax on the growth of your investment—whether that’s interest, dividends, or capital gains. Your money grows tax-free, which gives it the potential to grow faster over time. It’s like planting a tree that keeps growing without any pesky weeds getting in the way.
Example: If you contribute R100,000 to your RA, you could potentially save up to R45,000 in income tax (PAYE), depending on your income tax bracket.
Making a lump-sum contribution before February 28 ensures you’re taking full advantage of the current year’s tax benefits. But if paying a large sum all at once feels daunting, consider increasing your monthly contributions to your RA. This way, you can spread the load and still reap the tax benefits without a last-minute scramble.
Contributing to a Retirement Annuity (RA) offers substantial tax benefits. For South African taxpayers, RA contributions are tax-deductible, meaning the amount you contribute reduces your taxable income for the year. You can contribute up to 27.5% of your taxable income (or remuneration) or a maximum of R350,000 per year, whichever is less.
Why this works: The beauty of an RA is that, unlike regular savings, you don’t pay tax on the growth of your investment—whether that’s interest, dividends, or capital gains. Your money grows tax-free, which gives it the potential to grow faster over time. It’s like planting a tree that keeps growing without any pesky weeds getting in the way.
Example: If you contribute R100,000 to your RA, you could potentially save up to R45,000 in income tax (PAYE), depending on your income tax bracket.
Making a lump-sum contribution before February 28 ensures you’re taking full advantage of the current year’s tax benefits. But if paying a large sum all at once feels daunting, consider increasing your monthly contributions to your RA. This way, you can spread the load and still reap the tax benefits without a last-minute scramble.
Tax Tip #2 Take Advantage of Tax-Free Investments
If you haven’t yet explored Tax-Free Savings Accounts (TFSA), now’s the time. These accounts are designed to encourage long-term savings by offering tax-free growth—a unique benefit that makes a big difference over time. Think of it as investing in a basket that can hold all your eggs, but without anyone taking a “bite” out of the profits.
The key benefit of a TFSA is that all returns, whether from capital gains, interest, or dividends, are completely tax-free. There are no income, dividend, or capital gains taxes on your TFSA investment—so all the profits stay in your pocket.
This type of investment is perfect for anyone looking to maximise compounding growth without the drag of taxes reducing your returns year after year.
It’s good to note the following contribution limits when it comes to TFSA:
The key benefit of a TFSA is that all returns, whether from capital gains, interest, or dividends, are completely tax-free. There are no income, dividend, or capital gains taxes on your TFSA investment—so all the profits stay in your pocket.
This type of investment is perfect for anyone looking to maximise compounding growth without the drag of taxes reducing your returns year after year.
It’s good to note the following contribution limits when it comes to TFSA:
- Annual Limit: You can contribute up to R36,000 per year.
- Lifetime Limit: Your total lifetime contribution limit is R500,000.
It’s important to remember that any contribution over the annual limit of R36,000 will be subject to a penalty tax of 40%. So be sure to keep a close eye on your contributions to avoid paying more than you need to.
Pro Tip: Since the tax-free returns on your TFSA grow exponentially, you want to contribute regularly to take advantage of the compounding effect. Think of it like watering a plant consistently.
Pro Tip: Since the tax-free returns on your TFSA grow exponentially, you want to contribute regularly to take advantage of the compounding effect. Think of it like watering a plant consistently.
Conclusion
The end of the tax year is rapidly approaching, and if you want to save on taxes while boosting your retirement and savings goals, now is the time to take action. By making lump-sum contributions to your Retirement Annuity and Tax-Free Savings Account, you can maximise your tax benefits and secure your financial future.
Planning for the future doesn’t have to be stressful, especially with the right strategies in place. If you’re not sure how to structure your contributions or need help navigating the tax rules, don’t hesitate to contact a financial advisor like TVC Wealth and Health Managers.
Planning for the future doesn’t have to be stressful, especially with the right strategies in place. If you’re not sure how to structure your contributions or need help navigating the tax rules, don’t hesitate to contact a financial advisor like TVC Wealth and Health Managers.
