7 Tax-saving Strategies for South African Investors

Posted on: 3rd January 2025 in Financial Planning

Tax season in South Africa may be a way off, but planning now can help ensure you are prepared. As a South African investor, you have several innovative ways to lower your tax bill while growing your wealth.

Using these strategies, you can keep more money in your pocket and put it to work for your future. Let’s dive into eight tax-saving strategies tailored for South African investors.

1- Maximise Retirement Contributions

Saving for your golden years is not just good for your future; it’s also great for reducing your taxes. Contributions to pension, provident, and retirement annuity funds are tax-deductible. You can claim up to 27.5% of your taxable income or remuneration (whichever is higher), with an annual cap of R350,000.

By investing in these funds, you’re essentially giving yourself a tax break while securing your financial future. It’s a win-win!

2- Use Tax-Free Savings Accounts (TFSAs)

A Tax-Free Savings Account (TFSA) is a must-have for South African investors.

With TFSAs, you can contribute up to R36,000 per year, with a lifetime limit of R500,000. The best part? You don’t pay tax on the interest, dividends, or capital gains earned in these accounts.

Think of it as a way to let your money grow without the taxman taking a cut. From unit trusts to exchange-traded funds (ETFs), you have a range of investment options.

3- Take Advantage of Capital Gains Tax (CGT) Exemptions

Capital gains tax can eat into your profits when you sell an investment.

Luckily, there’s an annual CGT exclusion of R40,000 for individuals. You can make the most of this exemption by strategically timing the sale of your assets.

For example, if you have investments that have grown in value, consider spreading the sale across multiple tax years to stay within the annual limit. Small adjustments like this can greatly affect your overall tax burden.

4- Donate to Public Benefit Organisations (PBOs)

Donating to a good cause doesn’t just make you feel good—it also lowers your tax bill. Contributions to registered Public Benefit Organisations (PBOs) are tax-deductible, up to 10% of your taxable income.

Not sure where to start? Look for charities or causes close to your heart. Just make sure SARS approves them to qualify for the deduction. It’s a meaningful way to give back while saving money.

5- Claim Medical Expense Tax Credits

Medical expenses can add up, but the good news is that they can also lower your tax bill. South African taxpayers can claim medical scheme fees tax credits as well as additional credits for qualifying medical expenses.

The amount you can claim depends on factors like age, disability status, and the number of dependents you support. Keep all your receipts and medical records organised to ensure you don’t miss out on this benefit.

6- Structure Investments Through Trusts

Setting up a family trust could be a good option if you want flexibility in managing your investments.

Trusts allow you to distribute income among beneficiaries, which can reduce the overall tax burden if some beneficiaries fall into lower tax brackets.

However, keep in mind that trusts are subject to higher capital gains tax rates, so it’s essential to consult a financial adviser before going this route. With the right structure and guidance, a trust can be a powerful tool in your tax-saving arsenal.

7- Consider Investment Holding Companies

Creating an investment holding company might make sense if you’re a high-income earner. These companies are taxed at a flat corporate rate of 28% on investment income, which can be lower than personal marginal tax rates.

While this approach isn’t for everyone, it can be beneficial for those with significant investments. Consider the administrative costs and complexity before setting up a holding company, and seek professional advice to ensure it’s the right move for you.

Start Planning Today

Saving on taxes doesn’t have to be complicated. Using these eight strategies can lower your tax burden and keep more of your hard-earned money. From retirement contributions and TFSAs to charitable donations and trusts, there’s something here for every investor.

Remember, tax laws can be tricky, and everyone’s financial situation is different. Speaking to a tax professional or financial adviser to tailor these strategies to your needs is always a good idea.

Start planning today and watch your savings grow while keeping the taxman at bay!