How to pay less tax in 2021, legally

While a retirement annuity isn’t a silver bullet, its benefits are clear.
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Almost every South African will pay some form of tax in their lifetime. Putting petrol in your car to get to work? Almost 70c of every rand spent on fuel goes towards taxes and levies. Paying for a cup of coffee? Fifteen percent of your cup will be paid over to the tax man through value-added tax (Vat). And what about the elation of seeing a gross salary figure in an offer of employment, only to be crushed by disappointment at the significantly after-tax amount?

South Africa is among the top 10 most heavily-taxed countries around the world.

It is no surprise to hear more and more people grumbling about the taxman’s slice of their pie, but what we should do instead is learn what we as ordinary taxpayers can do to reduce our tax bill in a legal manner.

One of the most effective vehicles to reduce your income tax bill is a retirement annuity (RA). RAs are, in essence, a private pension fund which you can use to save for your retirement. Contributions towards an RA are tax deductible – individuals may deduct up to 27.5% of their gross remuneration or taxable income (whichever is the higher) in respect of their total contributions to a pension, provident or retirement annuity fund. This is subject to an annual limit of R350 000 per person.

Currently, RAs are income tax, dividend tax, and capital gains tax exempt. No tax is payable on transfer from another approved pension, provident or RA fund into a RA fund.

This tax saving is best illustrated by way of an example. Smart and his twin brother, Lazy, have recently started their first jobs. They are both earning a gross income of R20 000 per month. Smart has approached a financial planner and started saving 15% of his salary towards a RA. His brother, Lazy, has decided to rather spend this portion on instalments on a brand-new car. Assuming they are both members of a medical aid, the tax payable by each of them will be determined as follows:

Smart Lazy
Age 22 22
Gross income R240 000 R240 000
Less: RA Contributions R36 000 R0
Taxable income R204 000 R240 000
Tax according to tables R36 720 R45 928
Less: Rebate R14 958 R14 958
Less: Medical aid rebate R3 828 R3 828
Tax payable R17 934 R27 142
Income after tax R222 066 R212 858


Average tax rate 8.79% 11.31%
Monthly tax payable R1 495 R2 262
Monthly after-tax income R18 506 R17 738

The tables above show that Smart will pay less tax, while at the same time putting money away for his retirement. Lazy on the other hand gets left behind.

While a RA is by no means a silver bullet that will solve all your tax problems, the benefit of investing in one is clear. There are several considerations to be aware of when determining whether this is the most appropriate investment vehicle for each individual. These considerations include – but are not limited to – accessibility of your funds, the asset allocation of your overall portfolio and financial institutional fees.

It is important to always seek impartial financial advice from a certified financial planner before making any decisions that can impact your overall portfolio.

Johann Rossouw is a CFP at Fiscal Private Client Services


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Unless Lazy uses the car to get a better job than Smart and gets paid double.

Then Lazy will a car, a RA (at a higher contribution level) and a better income – while Smart was actually dumb.

Smart and Lazy have a half brother called Brawler for their dad’s adultery. Noone knows if the affair of his dad really ended. There are rumors that, anyway.

Brawler is an aggressive investor who looks for real growth in his capital. He invests in everything except scams and comoggy schemes that mushroom by the hour nowadays.

What was the question again?

Anyway, selling retirement annuities for minimizing tax liabilities is cheap advice.

I am gonna watch the comments come in as the boys here give their contributions. The guys comments will be made by the guys with the correct blood to alcohol ratio. Is it alcohol to blood? I cannot remember.

Agreed- Using an RA, just delays the tax until retirement.

Correct. Which tax rate may or may not be lower than your current tax rate.

Fly now, pay later

Not entirely sound position. You have 40 odd years for the oldest contribution’s tax rebate to grow assuming you start at 25 and retire at 65. In other words what would have been tax now grows in your balance sheet

Brawler sells contraband cigarettes and owns a fleet of taxis. What was that tax thing again ?

I would like to see a comparative calculation assuming the Lazy brother invests the money he saves by not buying the RA but putting it into an index tracker for 40 years. i.e. keeps same monthly disposable income as per Smart brother.

Investment advisers don’t show that when you draw down your RA after retirement then you pay tax and your marginal tax rate is up to 45% for the wealthy investor – compared to a maximum of 18% (40% of 45%) on capital gains tax.

If I do the calc for a R600 thou per annum taxable income, invest the full 27.5% allowed, I can save the 2-3%pa “management fees” I see all my RAs returning below a lazy JSE index tracker. I then reckon I have 15-45% more disposable income after tax when I retire.

In addition to that I have more flexibility with the money – I can invest more offshore etc and do even better than the 2-3%.

The caveat though is that you have to be disciplined with the capital. Advantage of a RA is its hard to get hold of that money to fund a new luxury car or holiday house or latest toys…

This I agree with except in the JSE situation; as you note, even the lazy index tracker does better than RA’s but still poor. That is my boat except a basket of shares; no Naspers (sob) but Steinhoff, Sasol, Tongaat. construction shares etc and it all goes upside down. I tried to escape an endowment taken in my 20’s that paid a princely R270 000 at 55 unless you opted for compounding the contribution at 15% pa or so! I helped the broker and investment company get nicely fat.

SA “savings” are in the grip of lobbying and vested interests so one is very lucky to keep pace with inflation after tax in a stagnant economy. My view; spend on qualifications to become an international citizen, save with offshore index trackers on bonds and equities paid with after tax money. Too late for me though.

Yes , you pay tax later.

But use your tax rebate to invest again.

Example , invest R100k in an RA. Then get R45k back , use the R45k to invest elsewhere.

All of a sudden you have R145k worth of investments.

If you put the R100k into a non reg 28 investment , then you would have to grow 45% just to break even and then pay tax on the growth anyway.

You are limited with this contribution to the greater of 27.5% of your Gross Income, or 27.5% of your taxable income, with overall max of R360000.

With an investment into a Section 12 J Venture Capital company, although the risk is higher, you also get the full amount invested, up to a maximum of R2.5M as a deduction. Many VCC pays dividends, which gives you another income, besides the saving on lower tax bracket.

It’s R350k , not R360k

Also , you can’t invest your retirement on 12J, thats a huge risk and you can die a very poor man , but hey you won’t pay tax. How on earth does that make sense.

I might as well stop working , I’ll also stop paying tax then

In general when people want to score every percentage point available,
that is when the risk starts to get higher and sometimes they lose their money for an extra 1%

You’re right! R350k not R360k… You can invest part of your retirement lumpsum into VCC. I did it and I am currently getting approx. 13% after tax dividends from the VCC. Also the entire amount, I can use next tax year to lessen my tax burden. Not too shabby.

So say you had put only R100k into the VCC, with a tax bracket like in my case, 36%, I have already gotten approx. 62% of your investment back.

Fortunately, my entire investment portfolio is as diversified as can be, however no funds in banks, bonds or those low paying ventures.

There’s nothing stopping you from contributing more than 27.5% of your total income or R350, whichever is the lower. I’ve gone over the annual limit a few times. Yes, you don’t enjoy income tax deductibility in that specific tax year on the excess. But you have decades of no dividends tax, no tax on interest and ultimately no CGT to look forward to. Just make sure your income tax rate in retirement is lower than while contributing. And that you first allocated your annual R36 000 to a TFSA. TFSA comes first as a true tax-free product. RA is a fine second best for tax deferral. (And the first R500k of the lump sum taken when you retire is tax free). Then immediately retire from your RA when you turn 55 and put it all in a living annuity where you can allocate 100% to equities and offshore indices, if you please.

The author did not disclose what the fees and commissions on the RA are or what the average returns on the investment are, over it’s lifetime.

I posted the below comment in 2016…boy oh boy was I right. My life savings are up 20X since then, my stupid forced company RA with Sygnia still sitting in SA…FLAT. Its just a pity leaving SA now a bit more difficult with covid, but that will change.

“Anything that locks your money away is a scam. If you are planning your investments around tax and regulation 40 years into the future you are a brave soul. Im so proud to see millennials shun these old world products. Who says you ever going to see that money? Who says the tax rate wont change tomorrow? who says that the government wont “special tax” your RA in the future when they short, ie Greece and Cyprus? Get your money as far away from the government as possible and look after it yourself. You will surprise yourself how easy it is and how capable you are.”

Move back in with your parents.
Ask your boss for a 50% pay cut on order to work half-day.
Earn R120k per annum. Pay no tax.
Spend the free time to educate yourself online.
Pay your parents something for rent every month. Take R5k per month and invest 50% in the Nasdaq (only going up with all the money printing) and invest the other 50% in bitcoin.
Everyone wins.

Until the cANCer government comes and expropriates the pension and then Smart will wish he was Lazy.
Investing in your future is excellent advice, investing in an RA in South Africa, I’m not so sure. Pop quiz, have returns on RA’s after fees outperformed inflation in the past five years?

End of comments.




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