How to pay less tax in South Africa

Last updated on 17 August 2021

It can be depressing when looking at the amount of tax we pay each month. More so when you consider that any extra money you make, through hard work and dedication, will also be taxed. You’re not alone when wondering how to pay less tax in South Africa.

There is a perception out there that, by being extremely clever, you can pay less tax.

People also think that if they can find the right tax ‘guy’, that he’ll help them save a bucket-load of tax and get a fat refund.

In fact, many folk spend a lot of time and effort trying to pay less tax when in there may be much better personal finance knowledge one should be seeking – knowledge that’ll actually make a real difference.

So, allow me to give you an honest account as to what your options really are and how important tax advice is – or isn’t.

Your expense account is not what it used to be.

Our tax laws, especially around remuneration (the stuff you get paid by your employer every month) have come a long way in the last 10 – 15 years. Way back, it seemed like everyone had a car, travel and cellphone allowance.

The old days of salary structuring are essentially over. If your employer has agreed to pay you an amount of R25,000 per month – you will pay tax on this amount, no matter how you try and carve it up between allowances and benefits. It’s not that there are no options, but your options are severely limited; especially if you work at a corporate.

In most cases, employers don’t give you options, simply because if they get it wrong, they are responsible for the PAYE that SARS should have received – it’s not worth their while to try and create a perfect tax efficient salary structure for you. There aren’t many options for your salary package.

So let’s conclude on this and move right along. If you’re a salaried employee and you’re not a small business owner or earning rental income from a property, or from a side gig – you do not have options around structuring your salary to pay less tax in South Africa.

Tax Guys are helpful, but for boring reasons

Finding a good person to help you with your taxes is not a bad idea. Tax has gotten increasingly complex of late, and it can be daunting to complete a tax return by yourself. The mental stamina and patience required for correcting mistakes with SARS can take months and people generally don’t like to deal with SARS for any longer than they need to. So if you’re uncomfortable with completing a tax return by yourself, then by all means find someone who can help you out. See what they do and give it a go next year. If your circumstances don’t change, it’s unlikely that how you complete your tax return will change much either.

If you’re a salaried employee and not a business owner, then finding someone to help you with your tax should only be driven by your desire to get your taxes done quickly and correctly, not because you think a very clever advisor will save you lots of money. That doesn’t happen. It cannot. You’ll notice how emphatic I’m being here. That’s because “Oh you’re a tax consultant, can you get me a huge refund?” is as annoying as “Oh, you’re a comedian, tell me a joke.”

Your options are limited by tax laws, and a reputable tax practitioner can only operate within the framework of those laws. They can’t make stuff up. If you’re wanting to pay a premium for a tax advisor with the hope of getting a big refund, rather save your money and spend that on a good financial planner.

Side hustle tax South Africa

It’s common practice to be running a side hustle to make extra money. There is no specific side hustle tax in South Africa. Income is income and you should be paying tax on all income.

It’s probably best to consult with a tax professional, but you should declare all your side hustle income on your tax return and there may be some valid deductible expenses. Not declaring the side hustle income could lead to fine and penalties (or worse) if you’re ever caught out.

Take a look at these tips on running your side-hustle as a business.

Common-sense tax savings

There are ways of how to pay less tax in South Africa, but they don’t involve clever maneuvering or allowances. Come to think of it, they’re all a bit boring and probably things you’ve heard before. Why’s that? Well, because the “super hacks to pay less tax” are probably not legal and if they are, they may just be costly and complex to set up.

So here are 3 ways to pay less tax in South Africa, they all look at how to reduce taxable income in South Africa.

Contribute to a pension, provident or retirement annuity fund

This is by far the most common and effective way to reduce your annual tax bill. Your contributions to retirement annuities (RA’s), pension, and provident funds are deducted off your taxable income and you therefore pay less tax. This is limited to 27.5% of your total annual income, or R350,000 per tax year.

So let’s just assume that you have some idle cash lying around. Perhaps money in an emergency fund that is superfluous to your needs; let’s go with R100,000.

If you started a retirement annuity today and made a starting R100,000 contribution, your taxable income would be reduced by R100,000. If your annual taxable income (salary) is R400,000, you would usually pay R26,959 towards tax. However, since you made a retirement contribution you’ll only pay tax on R300,000; hence R21,119. That’s around R6,000 in savings.

The more you’re able to save towards retirement, the more you will save in taxes.

Making a donation to a Public Benefit Organisation.

Making donations to Public Benefit Organisations who are registered such that they can issue you with 18A certificates, will allow you to deduct your donations made from your taxable income. Your deduction is capped at 10% of your taxable income.

You may feel that the government is incapable of spending your money wisely. If that’s the case, you could identify a charity or other Public Benefit Organisation that is doing work you think is important, and give them a big chunk of your tax bill.

Before jumping to do this, do your research on contact a tax consultant to understand the exact details.

Manage your interest income

As a natural person, you’re eligible to earn a certain amount of interest income per year, without paying tax on that amount. At present, that amount of interest is R23, 800 p.a. for someone younger than 65. Earn any more than that, and you start paying tax at your marginal rate of tax.

If you are in a position that you need to hold a certain amount of stable value for a short term need or goal, consider splitting some of your investment in something that is not interest bearing – just enough to avoid paying unnecessary tax on your return.

In our article on emergency funds, we mentioned a stable fund. These are unit trusts that might consist of half interest-bearing instruments and half dividend income. The Dividend Tax you would pay on your dividends at 20% (from March 2017 onward) is most likely a lot less than your marginal tax rate.

There are many stable funds on offer. Do some Googling and investigate some.

Also be aware that earning slightly more interest in a tax year than the tax-free limit may push you over the provisional taxpayer threshold. This would require to register as a provisional taxpayer. Not the end of the world, just more tax complexity and admin.

So, how to pay less tax in South Africa?

There are quite a few legitimate ways of how to save on tax in South Africa, but no sneaky, brilliant scheme ways. So, no, I can’t get you a huge refund.

This however is written for someone who earns a monthly salary and has a relatively simple financial life.

As you grow your wealth and your investment portfolio, things are likely to become more complex. You may own property, equity, foreign currency investments, etc. Finding tax efficient ways to build and secure wealth should definitely be part of any good financial plan. This may involve registering a business, a trust or simply dealing with an accountant for any side-hustle income.

Always be sure to understand and pay your tax dues. Not paying taxes or giving false information can read to hefty fines or penalties. Or worse.

So really, there is no magic way of how to save on tax in South Africa. Sorry.

Remember – the more taxes you pay, the more you must be earning. That can’t all be bad. LOL