*This article was originally published on October 2019 and has been kept in its original form

As the adage goes, nothing is more certain than death and taxes. However, there are a few ways to minimise the amount that you have to fork over to the receiver annually. Below we will look at a few ways to save on tax. When minimising tax, there are two ways to do this, through tax evasion (not disclosing all income or understating income earned etc.) – which is illegal and will land you in jail. The legal other one is the subject of this article – tax avoidance. Tax avoidance is completely legal and will not land you in an orange jumpsuit (unless you decide to purchase one with your annual tax savings purely because it’s your favourite colour). Tax avoidance is seen as various strategies to maximise your legal deductions and tax credits. Here are a few options to get you well on your way to tax avoidance.

• Retirement Savings Contributions (Retirement Annuities, Pension- or Provident Funds ) This is one of the big guns in your arsenal to minimise the amount of tax owed. Contributions will lower your taxable earnings for the year. Thus any retirement savings made will be tax deductible at your marginal tax rate. For instance, if your tax bracket is at 30%, every R1000 invested for retirement will yield R300 back in tax. Thus on a net rate, you are buying a R1000 worth of savings and it will effectively cost you R700. As your earnings and tax rate increases, this becomes even more valuable. Also, these funds are exempt from dividends tax, thus providing a tax-free environment for your money to grow. There are a few things to keep in mind when contributions are planned. You can deduct up to 27,5% of gross annual earnings and you cannot contribute more than R350 000 per year. Bear in mind that contributions to a Retirement Annuity can only be taken out upon retirement (55+ years of age) and in some other special instances namely disability and permanent emigration (when you also cease to be a taxpayer in South Africa). Funds in a Retirement Annuity could also be left to beneficiaries upon your death. So, the money in your retirement savings is not liquid. Retirement Annuities must also be regulation 28 compliant, which means they will have to invest in funds by a mandate that states that these funds may not have an exposure higher than 75% in equities, 25% offshore and 25% in property.

• Tax-Free Savings Account Launched in 2016, the government has made a structure available called the Tax Free Savings Account or TFSA. Unlike contributions to Retirement savings, contributions to a TFSA are not tax-deductible. The tax-free part comes in where you do not pay any taxes (capital gains tax and dividends tax) on the growth or proceeds from your savings. Thus, the vehicle is perfectly suited to long term investments. There are, however, limits placed on annual and lifetime contributions, namely R33 000 per year and R500 000 per lifetime. Keep in mind that although this product is liquid – meaning you can get the proceeds paid to you at any time – every contribution you make lowers your lifetime limit and you will not be able to replenish what you extract. So, this is not a transactional account. The tactic here is to fill it up as quickly as possible and then leave it for much later – this could be used as supplementary retirement income.

• S12J Investment This is one of the lesser utilised tools, as there are currently some barriers to entry. A Section 12J Investment is a minimum 5-year investment, the main focus of investment in these funds are South African Venture Capital (VCC’s), thus making it a risky investment, there are however ways to mitigate the risk with certain options. Like retirement savings, contributions to a registered Section 12J fund are tax-deductible, there are no annual or lifetime limits.

If you need any assistance in setting up the above-mentioned tools to minimise your tax, or need help in deciding which option is best for your situation, please don’t hesitate to get in touch. WE LOVE TO HELP.