Tax Tips for 2020 - reducing your tax liability before the tax year-end
The tax year ends on 29 February 2020 and there is still time to pro-actively manage your current and future tax burden. Moore’s national tax advisory team shares some tips for reducing your tax liability, how to prepare for tax year-end and advice for avoiding penalties.
Here is our brief checklist of things to discuss and action with your tax partner:
1. Top up your retirement annuity contribution
It is important to ascertain whether you have maximised your retirement savings and whether you have minimised the tax payable on your earnings, particularly if you are not contributing to a pension or provident fund and/or have significant earnings other than a salary. It may be appropriate to consider contributing to a retirement annuity fund.
Effectively, you are able to contribute 27,5% (this is the maximum) of the greater of your taxable income or remuneration to a retirement annuity investment, subject to a maximum amount of R 350 000 per annum, and reduce your taxable income by the amount contributed. On retirement, a portion may be taken as a lump sum (currently 1/3) of which R 500 000 is tax free (cumulative across all retirement funds you may have), the balance of 2/3 must be used to buy an annuity or invest in a living annuity, the proceeds of which are taxable.
Please note taxation rules are subject to change. New generation retirement annuities are far more flexible and cost efficient than those previously offered through life insurance companies. Furthermore, please be aware of the deadline for contributions which differ per financial institution.
2. Invest in a 12J fund
If you are wanting to shield your salary, bonus or capital gain from income tax, then investing in a 12J fund is certainly something worth considering. Section 12J is a tax incentive designed to encourage investment into a range of private companies which meet defined criteria. The incentive gives taxpayers the ability to write off 100% of their investment against their taxable income up to a maximum of R2,5 million p.a., thereby giving you an immediate tax benefit of up to 45% of your investment.
Read more here on the influence section 12J investments could have on your tax liability:
How Section 12J is Delivering Growth for SA
Section 12J Frequently Asked Questions
3. Make use of a tax-free investment account
This type of savings account, offered by financial institutions, invests your money in a combination of financial products such as unit trusts, bank savings accounts, fixed deposits, bonds, etc.
You can invest a minimum of R10 000 for yourself and/or your children initially, with additional contributions of R500, up to R33 000 per individual per annum. The lifetime limit for tax free savings is currently R500 000.
The difference between this and other savings or investment accounts is that all returns, i.e. the interest, dividends and capital gains earned, will be tax-free in your hands. This means that you are not liable to pay tax on the growth of your investment, nor if you decide to withdraw from your account.
4. Make a donation to your family trust
Individual taxpayers may donate up to R100,000 p.a. free of donations tax. Such donations must be made in cash or kind. If you are using a family trust as part of your estate planning, such donations may be made to the trust. This would have the effect of lowering your personal estate and future estate duty. This donation is not to be confused with a donation to a public benefit organisation (discussed below), which does not form part of this R 100,000 p.a. limitation.
5. Donate to a SARS-registered charity
If you are thinking of giving money to a good cause, then donations to a SARS-registered charity (PBO) is something to consider. Donations to a PBO are tax-deductible up to a limit of 10% of your taxable income. Any donations exceeding this limit may be carried forward and can be claimed as a deduction in the following tax year. In order to claim your deduction, you must get a s18A tax certificate from the PBO.
6. Keep a logbook – and do not forget your odometer reading
If you receive a travel allowance, then keeping a logbook is a must. Travel allowances are added to your taxable income. If you wish to claim a travel deduction, do not forget to record your closing odometer reading on 29 February 2020 for the 2019/20 tax year. SARS requires you to keep a logbook of your business travel in order to claim a travel deduction. This includes details of the date, kilometres travelled, as well as destination and reason for the trip. A separate logbook must be kept for each vehicle used. Without a logbook, you will not be able to claim a travel deduction.
The SARS re-imbursed kilometre rate for the 2020 tax year is R3.61 per kilometre.
Provisional tax payments
If you are a provisional taxpayer, make sure that your second provisional tax payment is made by 12pm on 29 February 2020. Remember that SARS imposes late payment and under-estimation penalties, so ensure your payment is made on time and that you are as close as possible to an accurate estimation of your annual taxable income.
In order for the capital gains tax impact, resultant of the Prosus listing, to be limited, an investment into either your Retirement Fund (provided the 27.5% limit has not been reached) or a section 12J Investment Fund could assist in decreasing your tax liability.
If, for example, a taxpayer were to invest an amount equal to the taxable capital gain made into a Retirement Fund or a section 12J Fund, the capital gains tax impact of the Prosus listing would be offset and no tax would be due resultant of the Prosus listing.
The following are important dates to note for 2020/2021:
Submission and payment of Second Provisional Tax for 2020 tax year (Individuals)
29 February 2020
Second Provisional Tax for February year-end (Companies)
29 February 2020
Deadline for submission of February year-end Company tax returns 2019
29 February 2020
Start of Annual Employers Tax Season EMP501 2020/02
1 April 2020
End of Annual Employers Tax Season EMP501 2020/02
30 May 2020
Start of Tax Season for Individuals (2020 tax year)
1 July 2020
Start of Interim Employers Tax Season EMP501 2021/08
1 September 2020
End of Interim Employers Tax Season EMP501 2021/08
31 October 2020
End of Tax Season for non-provisional individual taxpayers for 2020 tax year
31 October 2020
End of Tax Season for provisional individual taxpayers for 2020 tax year
31 January 2021
If you require assistance with the filing of your tax return or provisional tax return, or other tax related requirements, contact your local Moore office to book an appointment with a registered tax practitioner.