Are you Paying SARS or you Paying Yourself this Year?

24 February 2017

By David Crossley, CFP® and Desiree Raghubir, CFP®, BDO Wealth Advisers

There is a way to not only boost your savings for retirement but to ensure that SARS pays for a substantial portion of this as well.

We use a retirement contribution and whether this is via a pension, provident or retirement annuity fund, they all have the effect of reducing your taxable income.

The amount that you can contribute to obtain this advantage is 27.5% of the greater of your taxable income or remuneration, with a maximum annual deductible contribution of R350 000.

There is no reason why you cannot contribute more than this as any contribution over the maximum allowed amount is carried forward to the next tax year or even accumulated as a tax free benefit at retirement.

Let’s have a look at a couple of scenarios:

Scenario One:

Salaried individual with other income sources

Without RA contribution		With RA contribution
Total taxable income (Salary plus other income less exemptions)	1 200 000	Total taxable income (Salary plus other income less exemptions)	1 200 000
		RA contribution 27.5% of salary	330 000
Taxable income	1 200 000	Taxable income	870 000
Tax payable (inclusive of rebates)	396 990	Tax payable (inclusive of rebates)	261 690

By looking at this scenario, you will see that the savings in tax of R135 300 by contributing the maximum allowed to a retirement fund equates to a percentage “Refund” of 41% of the RA contribution - this amount is paid to you by SARS.

You are being paid to save for your retirement.

Scenario Two:

Salaried individual with no other income source

Without RA contribution		With RA contribution
Total remuneration (after all exemptions)	350 000	Total remuneration (after all exemptions)	350 000
		RA contribution 27.5% of total remuneration	61 250
Taxable income	350 000	Taxable income	253 750
Tax payable (inclusive of rebates)	64 848	Tax payable (inclusive of rebates)	37 149