The 2019 tax season officially opens on 1 July 2019, what most people want to know is how to legally reduce their income tax payable or increase refunds receivable from SARS. You might have missed the opportunity to plan your tax affairs this year – but do not fear, you still have time to implement some of my tips below for the 2020 tax year!
1. Accuracy is KEY
The first tip is to make sure that your employer is withholding the correct amount of Pay as You Earn (PAYE) on a monthly basis. The calculation of PAYE is usually automated depending on the software used by your employer, however, it is based on manually captured variables. Errors in the PAYE calculation could result in an over or under deduction of PAYE from your salary; neither is desirable. The amount of PAYE being withheld from your salary should stay constant month to month unless there are changes to your basic salary (e.g. salary increase) or annual/once-off income items such as a 13th cheque or a bonus. If you are not sure whether the PAYE being withheld is accurate, you should request a copy of the calculation from your employer and speak to your tax consultant to check it for accuracy and completeness.
2. Retirement Annuity Fund (RAF)
If you have extra cash flow in your personal budget at the end of each month (lucky you!), it is worthwhile to consider opening a RAF. A RAF can be used to make monthly contributions over and above your pension or provident fund contributions from as little as R500 per month. Your RAF contributions qualify for a deduction which ultimately reduces the amount of tax payable. If you do open a RAF, you need to present the relevant documents to your employer so that the qualifying deduction can be factored into the monthly calculation of your PAYE. Be sure to speak to your financial adviser and tax consultant before opening a RAF.
3. Donations
Most individuals overlook donations as a tax strategy but if you donate to a registered Public Benefit Organisation (PBO) e.g. tithes paid at church, it is a smart way to reduce your income tax. You must receive a certificate with all relevant details from the PBO in order for the amount you have donated to qualify for a deduction.
4. Travel allowance
My last tip is relevant only if you can structure your salary for a travel allowance. That means you must be an individual who has to travel for work purposes to see clients i.e. business travel. Essentially you can claim actual costs or deemed costs as a deduction against the travel allowance. The deductions are only available at the end of the tax year and therefore will not reduce your monthly PAYE but can result in a refund of PAYE at the end of the tax year. There is a history of tax payers abusing the travel allowance deductions so it is important that you have all necessary supporting documents for your mileage and costs when claiming this deduction in case your return is identified for audit by SARS.
Remember there is a thin line between tax avoidance and tax evasion; whatever strategies you use must stay on the right side of the law.
Happy tax planning!