Understanding tax deductibles

Published on 25th June, 2024 at 10:56 am

In part two of our series on understanding tax basics, we’re tackling tax deductibles and how they impact your tax return.

Reading time: 5 minutes

In this article you will learn:

• What tax deductibles are
• How they impact your tax
• How to maximise tax savings

How tax deductibles put money in your pocket

You can claim the cost of certain expenses towards a deduction on your tax bill, but as you have probably guessed, there are rules surrounding what you can claim for. For most salaried employees, contributions you make towards retirement and medical aid are tax-deductible, and often these are automatically taken off your gross salary and reflected in your pay cheque.

When deductibles are subtracted from your total income, they reduce your taxable income and effectively lower the portion of your income that is subject to taxation.

Other deductibles to know about

You might also be able to claim for expenses for setting up a home office or earning commission – including business-related travel, automobile, or entertainment if you receive an allowance from your employer for this. Allowances should only be used for business purposes and never for personal expenses and should only be given within the maximum limit for deductions. If you use a personal device for work you may also be able to claim capital depreciation for this, according to a summary by James Whitaker, director and partner at PwC Tax Services.

If you do receive a travel allowance from your employer, be sure you understand the tax effects and how to claim. You will need to keep accurate travel records and make sure you have enough business mileage to justify the allowance, warns tax preparation service TaxTim.

And finally, if you donate to an approved public benefit organisation, your contribution is tax-deductible, up to a total of 10% of your taxable income.

Max out your retirement savings and reduce your tax

Saving for retirement also saves you money in the present day. If you have a pension, provident fund, or retirement annuity – or a combination of all three – you qualify for a tax deduction of up to 27.5% of your taxable income, up to a maximum of R350 000 per year. This limit applies to the total contributions you made for the entire year, says Nicci Courtney-Clarke, head of tax at TaxTim.

“If you contribute to a pension or provident fund via your employer, your contributions will come off your salary each month and reduce your taxable income. Your remuneration package may be structured in such a way that both you and your employer contribute to a retirement fund monthly. It is important to note that the sum of your employee and employer contributions count towards the tax deduction. This means you’ll save on your monthly tax bill if you receive this benefit as part of your remuneration package,” says Courtney-Clarke.

You can also save for retirement in your capacity by way of a retirement annuity (RA) if your employer does not offer a company retirement benefit. If you contribute to a retirement fund this way, the contribution won’t come off your salary. You will still receive the same overall tax benefit, however only at year-end once you submit your tax return, she says.

Consult your financial planner to check that your retirement contributions are in line with your goals. Courtney-Clarke provides an example to illustrate.

If Joe earns R228 000 during the 2024 tax year and saves R2 375 per month in a retirement annuity fund (well done, Joe!), it means he’s saved R28 500 for the year towards his retirement. He can deduct the full amount as it’s below 27.5% of his annual income (which would be R62 700). This means that Joe’s annual taxable income drops to R199 500 (R228 000 less R28 500), saving him R5 130 in tax payments for the year (which is the difference in tax due between R228 000 and R199 500).

Medical aid and tax

Courtney-Clarke says medical aid contributions also give you a tax benefit, but the mechanism is different. “If you contribute to a medical aid, you will receive a tax benefit in the form of a medical tax credit. Your employer will be obliged to reduce your monthly pay-as-you-earn (PAYE) tax by the fixed medical aid tax credit, which is currently R364 per month for the main member and first dependent, and R246 for each dependent thereafter.”

When you’ll need to file your tax

For non-provisional taxpayers (individuals who make their contributions to SARS via PAYE deducted from their salary each month), filing for the 2024 tax year (1 March 2023 to 29 February 2024) opens on 15 July 2024 and closes on 21 October 2024.

“During this time, taxpayers can submit their 2024 Individual Tax Return (called an ITR12) on SARS eFiling, or you can use TaxTim to make the filing process easy, quick, and effortless for you. TaxTim will assist you to complete your tax return using a simple, interactive chat process so you don’t need to use eFiling at all,” she says.

Read part one of our tax series: Breaking down tax jargon.