Tax Act can be your friend

A good awareness of SA’s tax legislation is required to make the Tax Act work for you. Here are a few key pieces of legislation that investors should consider:

Foreign pensions: Any pension accumulated for services rendered outside of SA won’t be subject to tax in SA. This also relates to any lump sum, pension or annuity received by or accrued to an SA resident from a source outside of SA as consideration of past employment outside this country.

Retirement annuities (RAs): RA contributions are tax-deductible and according to the Tax Act, investors can deduct up to 27.5% of their gross remuneration or taxable income (whichever is higher) in respect of total contributions to a pension, provident or RA fund, subject to a cap of R350 000 per tax year.

Donations to Public Benefit Organisations (PBOs): a PBO is an entity created to carry out a public benefit activity, such as a trust or a not-for-profit organisation. Registered PBOs who are able to provide you with an 18A certificate will allow you to deduct your donations made from your taxable income, capped at 10% of your taxable income.

Capital allowances and recoupments: A commonly used tax allowance for property investors is the “wear and tear” allowance against the more standard assets such as furniture. In terms of furniture, a taxpayer may deduct 20% of the cost of the asset per year against income until the full cost of the asset has been claimed, adding up to five years.

Tax-free savings accounts (TFSAs): Contributions are limited to R30 000 per individual per year. A lifetime contribution limit of R500 000 applies.

Section 12J: For the less riskaverse, or those who have reached the cap on their retirement annuity, pension fund and tax-free savings account contributions, a Section 12J Investment is a tool to maximise your tax deductions.

Neill Hobbs is co-founder and director of Anuva Investments