Get full tax deduction

Sars offers some ways to reduce your tax bill. How can you get the full tax deduction in a tax year?

The rules are as follows:

You can contribute a maximum of 27.5% of your remuneration or taxable income (whichever is higher) and no more than R350 000 to get the full deduction. Meet Steve. He earns R380 000 a year and wants to get the full tax deduction.

Max tax deductible = tax income x 27.5%; max tax deductible = R380 000 x (27.5)/ (100); max tax deductible = R104 500. Steve can contribute R104 500 to his pension fund or retirement annuity (RA) and deduct it from his taxable income for the tax year.

If he earned R1.5 million a year, this is the calculation:

Max tax deductible = Tax Income x 27.5%; max tax deductible = R1 500 000 x (27.5)/ (100); max tax deductible = R412 500 (27.5% of taxable income).

However, there’s a cap of R350 000 on the amount you can deduct. This means you can only enjoy a tax deduction on R350 000 of the R412 500 you’ve contributed. The contributions that exceeded the deduction cap will carry over to the next tax year and be considered as contributed in the new tax year.

This article was first published on Just One Lap