You can’t avoid tax, but you can make it work to your advantage

It’s no secret that the rising cost of living is only set to keep growing. Food, fuel, interest rates, inflation – all of these elements are banding together to make South African lives as unaffordable as possible. 

There are ways to be tax-smart in an ailing economic landscape. More and more South Africans are looking towards tax returns and tax breaks as a way to relieve the strangling pressure of an economy in recovery. There are ways and means to get a portion of your tax contributions back if you know how to package your returns properly and structure your portfolio.

There are numerous avenues a taxpayer can pursue. These include:

1. Playing the long game with retirement savings

You can provide for your retirement and be tax-savvy at the same time. Every month, ensure that you are putting money away into a retirement savings vehicle. A great benefit is that you can deduct the money that you invest in a retirement annuity from your taxable income.

For example, if you earn about R500 000 a year, your tax rate is effectively around 25%. That means that for every R100 you invest in your retirement annuity, only R75 comes from your pocket, because you get R25 back from the taxman if you claim it back.

A maximum of 27.5% of your taxable income and no more than R350 000 is tax-deductible in a tax year.

2. Let your medical aid contribute to your tax return

In 2012, South African Revenue Service (SARS) introduced a medical scheme contribution tax credit; your contributions are deducted from your overall tax liability – i.e. the total amount of tax you need to pay.

SARS calls this rebate the ‘Medical Schemes Fees Tax Credit’ and it applies to the fees paid by a taxpayer to a registered medical scheme for you (as the taxpayer) and your dependant/s. The credit for 2022 is a fixed monthly amount of R332 for you as the primary member, a further R332 for your first dependant and R224 for each of your additional dependants.

Ensure it is actually you who gets tax back on your medical aid. Many people often assume that they are due a tax credit as they are part of a medical aid. This is not always the case, especially in the case where employers are paying for a portion of the cost.

3. Charity is tax-deductible 

Of course, giving back is a selfless endeavour, but it doesn’t hurt to get a little bit coming back your way. Section 18A of the Income Tax Act states that you are allowed to donate up to 10% of your taxable income to a charity. If you want to claim for a deduction, you need to ensure the Public Benefit Organisation is in possession of a Section 18A certificate. These are the organisations officially granted by the Tax Exemption Unit at SARS.  

By getting all the right documents signed as proof of your donation, you can list your contribution in your tax return and expect a percentage of that back.

4. Working from your home office

Even if you are permanently employed at a company, if you have been working from home sometime in the last tax year, you should be able to claim for expenses. According to SARS, if you are an employee who works from home and has set aside a room to be occupied for the purpose of “trade”, you may be allowed to deduct certain expenses incurred in maintaining a home office.

This comes with a few conditions. Your office needs to be in a dedicated space or room in your home and set up for the purposes of trade. You had to have performed more than 50% of your duties from this home office.

For earners where more than 50% of remuneration consists of commission or variable payments based on work performance, SARS requires more than 50% of those duties to be performed otherwise than in an office provided by your employer in order to take advantage of this return.

Once you have that down, you can start listing off the expenditures you have incurred while working from home, including rent, repairs to your home, rates & taxes, electricity, internet, stationery and office equipment. SARS has a handy guide to filing for a home office right here. 

Of course, this is only the tip of the tax return iceberg when it comes to gaining the most value out of this system. If you really want to get the lowdown on doing tax returns right, then I suggest you speak to a financial adviser who can guide you on this journey to tax success.