The end of the 2020 tax year is fast approaching with many of our clients looking to maximise the benefits afforded to them by the tax man.
This can be done by “topping-up” your retirement annuity and tax-free savings account.
Retirement Annuities
Currently all individual tax payers who contribute towards a retirement fund will qualify for a tax deduction up to 27.5% of the greater of gross remuneration or taxable income. This rate applies to the aggregate of contributions made to an individual’s pension, provident and retirement annuity funds.The annual tax deduction cap is R350 000.
Individuals who contribute more in any one year can carry forward any unclaimed amount and deduct these from tax in subsequent years, subject to the deduction limits in those years.

If, to date, you have contributed less than the maximum tax-deductible amount to your RA, you can use any additional cash to top up your RA and enjoy the full tax benefit.

Tax-Free Savings Accounts
Similarly, you are able to maximise your investment returns by contributing the maximum R33,000 per annum to a tax-free savings account (lifetime limit R500,000) as the interest, capital gains and dividends you earn on these investments are completely tax free.

Things to consider before you invest
When “topping-up” one should consider the following: 
Do I invest in my retirement annuity or in my tax-free savings account?
The general principle is that investors should first adequately provide to their retirement annuity before any additions to their tax-free savings account. The potential compounded tax saving from contributions to a retirement fund early on in your career overshadows the tax benefits on a tax-free savings account.

Do I have adequate “emergency” savings?
Investors are afforded an annual tax-free interest exemption (currently R23 800 for individuals under age 65 and R34 500 for people aged 65 and older). With current money market rates of around 7%, you can keep around R300 000 in a money market fund before paying any tax on the interest earned. Ideally, this allowance should be used to set up an investor’s emergency cash pool.  Typically, an emergency pool consists of at least 3 times your monthly salary.