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.
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