In this month's Chartered Wealth Solutions' Money Blog, Pat Blamire shares some important points to consider the tax year end.

29 February is fast approaching, and now is your last chance to address several pertinent issues and make use of tax saving opportunities before the end of the current tax year.   Aspects to bear in mind are:

Contributions towards a retirement annuity

Every taxpayer is entitled to contribute towards a retirement annuity fund, and claim the deduction against their taxable income.   Should you contribute to a retirement annuity, you are allowed a deduction of:

• 15% of taxable income other than from retirement funding employment, or
• R3,500 less current deductions to a pension fund, or
• R1,750.

Normally if you receive income such as a bonus, rental income, or if your company does not offer you a retirement fund, this income is classified as “non retirement funding income”.   You can contribute up to 15% of this income towards a retirement annuity (either as a lump sum, or on a monthly basis) and claim the tax deduction on this contribution.   A retirement annuity is a very efficient investment as it does not form part of your dutiable estate, and you do not pay tax on income and growth within the retirement annuity.

Last February the Minister of Finance announced that with effect from 1 March 2012 legislation will change with regards to contributions to retirement funds.  Contributions towards retirement funds on which taxpayers can claim a tax deduction will be limited to 22.5% of taxable income, with a maximum of R200,000 per annum.   Contributions above this limit will not receive tax relief.  

Donations

Donations between spouses are tax-free.  However every taxpayer is also entitled to donate up to R100,000 tax-free per year to anyone, other than their spouse.   If you have a trust, we suggest that  you take advantage of this allowance every year and donate R100,000 to your trust (spouses can contribute R100,000 each, making a total of R200,000 per year).   In this way you can reduce your dutiable estate by this amount each year.   You will pay Donations tax of 20% when you donate more than R100,000 to anyone other than your spouse.

Capital Gains Tax

Now would be a good time to review your share portfolio and prepare for any Capital Gains Tax which may be due in the 2012 tax year.   To mitigate this, you can offset any current gains against current losses.  For example, say you make a loss when you sell share A but make a gain when you sell share B, you are entitled to offset the loss against the gain – thereby paying less Capital Gains Tax.

However, what you do need to bear in mind is that you ideally need to have owned the shares in question for a period of three years or more to avoid being seen as a trader by SARS.   This whole area of share trading and offsetting losses can become quite complex, so it is best to ask for advice from your financial planner before taking any action.

If you need advice on any of the opportunities mentioned above we suggest you contact your financial planner to discuss them in further detail.