South Africans are taxed more relative to income and service delivery than in any other jurisdiction on the Planet.
Savvy tax planning and mitigation is thus highly rewarding for most high-net-worth individuals.
South of the millennium, there was a clear distinction between tax “evasion” and “avoidance”, with the former deemed fraudulent and the latter being permissible. Nowadays however there is a complex body of law deeming certain tax avoidance practices as impermissible.
The majority of tax payers accept returns submitted by tax consultants as sacrosanct and rejoice upon receipt of a refunds. South African Tax however law applies the principal of self-assessment, meaning that submission and payment of a refund does not necessarily mean that the matter is closed. SARS has the right to audit and re-assess for up to 5 years thereafter in cases of non-disclosure or error, and more in the case of fraud.
Penalties for non-declaration are harsh at 200% of tax assessed plus interest i.e. A tax debt of R1m can easily escalate to R3m plus interest.
Unfortunately, the proverbial buck stops with you and not the tax consultant.
There are a few areas in which one can arrange one’s fiscal affairs in an efficient manner and reduce taxable income including:
MEDICAL AID CONTRIBUTIONS
A Medical Scheme Fees Tax Credit (also known as an “MTC”) us available for reduction of normal tax. It is a specified monthly amount of Fees paid by to a registered medical scheme for the taxpayer and increases based on the number of dependents. It is non-refundable and not carried over to the next year of assessment.
An Additional Medical Scheme Fees Tax Credit (also known as an AMTC) is a rebate which is given in addition to the MTC, calculated against qualifying out of pocket medical expenses.
Other deductibles include:
- RENTAL ON PROPERTY
- TAX FREE INVESTMENTS
- DONATIONS TO PUBLIC BENEFITS ORGANISATIONS
- RETIREMENT ANNUITY CONTRIBUTIONS
These areas will be elaborated upon in articles to follow over the next few months.
HOLD ONTO YOUR RECORDS
To conclude, it is important, as a reminder, to point out that record keeping is the key to ensuring that your tax-planning efforts are rewarded. It is the taxpayer’s responsibility to keep all records that substantiate the submissions that were made in an annual tax return. Even after claiming those deductions, you are required by the law to keep those documents for 5 years from the date that SARS received your return. Claiming expenses that cannot be substantiated carries a harsh penalty mentioned above.
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