Rule no.1: All Good Deeds Save You Tax

If you have ever heard that old tale that helping others is rewarding; SARS happens to believe in it too! SARS has recognised that certain organisations are dependent on the generosity of the public and to encourage that generosity, has provided an S18A tax deduction for bona fide donations.

Making a donation (in cash or property) to a Public Benefit Organisation - PBO (not to be confused with NPO or NGO) such as the Solidarity Fund - you can request a S18A certificate, which is the only document SARS will accept as proof of your donation. With your S18A, you can cut your annual taxable income by as much as 10% in the tax year you make the donation. By reducing your taxable income, you are in essence reducing the income which SARS can tax you on, resulting in an overall tax reduction.

The beauty of this deduction is that any amount of donations exceeding the 10% annual limit of taxable income is treated as a donation in the following tax year. For instance if you were to donate R10 000 to a PBO in the 2023 tax year, and 10% of your taxable income amounts to R6 000, the R4 000 remainder will be rolled over to the 2024 tax year and treated the same.

In essence, only when you make a direct donation under your name to a PBO, will you be able to benefit from this deduction. Unfortunately the donations made in restaurants and other merchants on behalf of charitable organisations do not count and are literally out of the goodness of your heart.

So as it turns out, all good deeds go unpunished, but only with SARS.

Rule no.2: Tax-Free Savings May Be Gevaarlik

A tax-free savings account (TFSA) grows your investment, with no tax on interest or dividends received, and no capital gains tax on funds withdrawn. These investments are subject to a lifetime investment limit of R500 000, and an annual investment limit of R36 000, regardless of number of accounts held.

The one thing many companies that offer this amazing solution shy away from doing, is tell you about the dangers these accounts expose you to. They however inform you of the bright-side of these admittedly revolutionary accounts. Where one exceeds the annual or lifetime limits, SARS imposes a penalty of 40% of the excess contribution. It is therefore advisable that one should then only open this type of account out of necessity to avoid unnecessary entanglements with the South African version of the USA's Uncle Sam.

One might reasonably assume SARS' efficacy, particularly with revenue collection, is a cover for chastising the South African labour force. However, it understands that we are all trying to find our way and encourages investing and saving. SARS has provided an exemption for tax payers on interest earned from a South African source. For everyone under 65 years of age, the first R23 800 earned in interest in a tax year is exempt from income tax, and for persons 65 and older, the first R34 500.

So unless you have estimated and expect that the proceeds of your investments will go past the exemption threshold in any given tax year, one should then consider a tax-free savings account as an option with caution and meticulous record keeping to avoid penalties and fines, as SARS is well-versed in levying those in the blink of an eye.

Rule no.3: Medical Aid...? Oviaas!

This is just a play on the famous Lunch Bar ad, as this rule is meant for tax payers that are members of medical aid schemes. This is the 3rd and last rule in this issue of the series, intentionally as it is the most technical of them all and may need more time to digest, so don't feel too bad if you don't get it the first time around - like fine wine, it gets better with time.

SARS allows a deduction on the monthly contributions to medical aid schemes by the individual who paid the contributions. R347 for each of the first two people covered by the medical scheme, and R234 for each additional dependant. In the instance that more than one person pays the medical aid contribution, the medical scheme fees tax credit is apportioned.

For persons under 65 years of age

Tax payers who are under 65 years and have no disabilities can claim a deduction of 25% of their out-of-pocket medical costs, limited to the amount which exceeds 7.5% of taxable income.

Here's the tax jibber jabber as a formula:

25% x {[medical aid contributions - (medical scheme fees tax credit x 4)] + other qualifying medical expenses}.

For persons 65 years and older, or younger than 65 years if the taxpayer or an immediate family member has a disability

Tax payers who fall into this category can claim a deduction of 33.3% of the sum of qualifying medical expenses paid and borne by the individual, and an amount by which medical scheme contributions paid by the individual exceed three times the medical scheme fees tax credits for the tax year.

Here's the tax jibber jabber as a formula:

33.3% x {[Medical aid contributions - (medical scheme fees tax credit x 3)] + other qualifying medical expenses}.

This medical tax credit is a rebate in itself and is therefore non-refundable. It is however used to reduce the tax a person pays. Although it does not convert to cash directly in your pocket, it helps increase the likelihood of getting change from Mzansi's Uncle Sam.