The tax season opened on July 1 and I’m due to have my return in by November 25. If you one of those people who file Provisional Tax returns, you have to have your return in before January 31, 2017. I duly gathered all of my documentation and went online to file my return.
Much to my surprise, it transpired that I have paid less into my RAs than I was allowed to deduct in terms of the Tax Act! The result is I have missed out on making valuable contributions towards my retirement and SARS hasn’t been called on to subsidise these retirement fund payments.
As a salaried employee, you have very few available tax deductions, with the major one being the deduction for retirement funding. Your monthly contribution to your retirement funds via a company are governed by the rules of that particular fund and you generally are unable to change the amount of contributions made. Your only flexibility is in your RA contributions.
So, after finding out that I had underpaid to my retirement funding in the 2016 tax year, I have set in motion a retirement annuity with monthly contributions so that I will not have under contributed in the 2017 tax year. A little bit of planning goes a long way to make sure that SARS pays a portion of your long-term savings.
So why did this happen?
You are only allowed to claim contributions that you actually make during a particular tax year. For example, in the 2016 tax year which ended on February 29, only contributions to your RA or pension fund between March 2015 and end February 2016 will be taken into account.
The limitations relating to RA deductions were increased from March and, for most people, this will allow a higher deduction than was previously allowed.
The new limits are 27.5 percent of remuneration or taxable income, up to a maximum of R350 000 per year. These limits apply to contributions made by yourself or on your behalf by your employer to pension, provident or a retirement annuity fund.
If you are contributing an amount of, say 15%, to your employer sponsored retirement fund, you can still contribute a further 12.5 percent of your remuneration to an RA.
Your remuneration for salaried employees is the amount that the employer bases the calculation of pay as you earn tax liability each month. If you are earning an amount of R75 000 per month, your employer would be paying and R11 250 to the retirement fund and you can still contribute a further R9 375 to an RA per month. Your total contributions would therefore be R20 625 per month, which equates to R247 000 per annum. This is less than the annual limit of R350 000.
You must also bear in mind that your employer contributions to a retirement fund normally exclude bonuses and overtime. You can take your full 27.5 percent contribution on these amounts, in addition to the 12.5 percent on your normal remuneration in my example above
Remember, you do not have to submit a tax return if your earnings are under R350 000 a year unless you have more than one employer or more than one income source.
Also, you should not have a car allowance, and not be claiming any deductions or have earned interest over R23 800, for people under 65, if you are to be exempt from submitting a tax return each year.
* Peter Harten is a financial planner at BDO Wealth Advisers, BDO SA.
* The views expressed here do not necessarily reflect those of Independent Media.
IOL