This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our PRIVACY POLICY for more information on the cookies we use and how to delete or block them.
  • Are you Paying SARS or you Paying Yourself this Year?
Articles:

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

 

In this instance, the savings in tax equate to a percentage of about 29% and once again this amount is paid back to you.

Why don’t you speak to your Financial Planner – he or she will help you unlock the potential to profit from SARS.

Read more BDO Insights