It is time again when personal tax returns have to be submitted. Manual filing by November 23, e-filing by January 21. All returns must include global income and global capital gains tax.
There are legitimate ways to reduce tax. This is the distinct difference between tax evasion — nondisclosure — and tax avoidance — making use of all that is permissible.
First I mention the proposed bill with regard to retirement and tax and the withdrawal formula which is now more favourable as it deals with cumulative benefits. This bill will be effective from March 1 next year. An important aspect is the taxing of spouses in the event of divorce. Spouses who claim their retirement benefits will be taxed in their own right from the next tax year, which is much fairer.
Another important consideration for anyone who is withdrawing from a retirement fund — my advice is to stop what you are doing until March 1 when the changes become effective. If on withdrawal you are transferring to a preservation fund, there is no reason to wait. The proposed new formula is generous in that the first R225000 is tax free and the balance up to R600000 is taxed at only 18%. The next R300000 is taxed at 27% and the balance at 36%.
There has also been a change to the formula on retirement and it may not pay to invest in a retirement annuity once you have accumulated more than R2,7m. The tax deduction at 40% and now the tax on the additional lump sum at 36% may not a be sufficient arbitrage any more. I am not suggesting you stop saving. Perhaps it’s better to pay the tax up front and invest the after-tax amount.
Those who took amnesty are finding the tax on their offshore assets has increased enormously. It is possible to structure your offshore income much more tax efficiently by making use of an endowment policy wrapper which simplifies your tax reporting and compliance duties as you don’t need to record annually your investment income as the insurer pays tax on your behalf.
For those who are contributing to a retirement annuity and not getting a tax deduction, if one exceeds their tax relief contributions, this can be offset against the next year’s income. But it may be prudent to invest directly into say a collective investment scheme with after-tax rands.
I have a concern where one spouse has capital and is paying tax and transfers it to the other spouse who does not pay tax. SARS can challenge this under section 7(2) of the Income Tax Act where the donor spouse can still be assessed for tax.
Get your tax affairs in order and on time. It is comforting to know now that in case of a dispute with SARS, it offers alternative dispute resolution, a less expensive method to try to resolve issues before they get out of hand.
My advice is not to leave your planning to this time next year start fresh and maximise your taxable deductions.
