Tips to pay less tax in South Africa
Learn smart, tax-efficient ways to grow your savings and pay less tax with a retirement fund and Tax-Free Savings Account.
Learn smart, tax-efficient ways to grow your savings and pay less tax with a retirement fund and Tax-Free Savings Account.
Tax-efficient saving helps you grow your money faster by reducing how much you pay to the South African Revenue Service (SARS). When you use products designed to reward long-term saving, you keep more of what you earn and make real progress towards your financial goals.
Retirement savings are one of the most effective ways to lower your taxable income in South Africa. You can contribute up to 27.5% of your annual income (up to R350 000 per year) to retirement products and get a tax deduction on these contributions.
These products include:
Your employer may already deduct contributions from your salary before you’re paid each month. If you contribute through an RA, you pay money directly from your take-home pay.
For example:
If you earn R100 000 a year and save R15 000 (15%) towards retirement, you will only pay income tax on R85 000.
You can withdraw a portion of your retirement savings before retirement through the new two-pot system. A third of your future contributions goes into a savings pot that you can withdraw under certain rules. The rest stays in your retirement pot and can only be accessed at retirement. Any early withdrawals are taxable, but the money you keep invested still benefits from years of tax-efficient growth on funds that would have gone to SARS anyway.
To learn more about your specific retirement savings options, and the right retirement plan for your needs, speak to an FSCA-registered financial adviser.
A Tax-Free Savings Account (TFSA) helps you grow your money without paying any tax on your returns.
This includes:
You won’t get an income tax deduction for what you put in, but the long-term benefit of not paying tax on the returns you earn in a TFSA is powerful, especially if you keep your money invested for many years.
You can contribute up to R46 000 per year, with a lifetime limit of R500 000. If you contribute more than these limits, you’ll pay a 40% penalty tax on the extra amount. These limits only apply to contributions, not the growth you earn.
You can withdraw money at any time, but you can’t put withdrawn money back. Once it’s out, you lose the tax-free benefit on that portion forever.
You can choose to open a TFSA with your bank and earn interest on cash deposits. You can also open a TFSA that lets you make long-term investments in unit trusts.
The product you choose should meet your personal needs and risk appetite. Remember that the longer you can leave your TFSA contributions untouched, the more significantly you will benefit from the tax saving (because the more time you can give your money to grow, the greater your tax savings benefit will be). For this reason, it makes sense to use your TFSA allocation for long-term investment goals.
Avoiding these errors helps you get the full benefit of tax-efficient saving:
Tracking your contributions helps you stay on top of your limits and financial goals. You can use tools like our app, your statements or a budget tracker to check:
Review your savings plan at least once a year or whenever your financial situation changes. This helps you:
Use tax-efficient products like retirement savings and a Tax-Free Savings Account. They reduce your taxable income and increase your long-term growth.
You can contribute up to 27.5% of your income, up to R350 000 per year, and deduct it from your taxable income.
You can contribute up to R46 000 a year, with a lifetime limit of R500 000. Anything above that is taxed at 40%.
A TFSA gives you tax-free returns and flexible access, but no tax deduction. A retirement annuity reduces your taxable income now, but you can only access your money at retirement.
Yes. Combining both helps you reduce tax today and grow more tax-free returns over time.
