Tax planning is about using provisions that Parliament explicitly provided in the tax law to reduce your liability before the end of the tax year. The distinction from tax evasion is clear: evasion hides income - which is a criminal offence. Legal planning uses deductions, credits, and timing decisions that SARS acknowledges and expects (SARS: Tax Planning, 2024).
Key Takeaways
- Retirement fund contributions are deductible up to 27.5% of income, capped at R350,000/year (2024/25) - the biggest single lever for most individuals.
- Section 18A donation deductions are capped at 10% of taxable income - a valid receipt is essential.
- CGT timing: the R40,000 annual exclusion applies each year and cannot be carried forward - spread large disposals where possible.
- Claiming home office expenses and maximising medical credits are common planning actions that require proper documentation.
Maximise retirement fund contributions
Contributions to a qualifying retirement annuity, pension fund, or provident fund are deductible up to 27.5% of the greater of remuneration or taxable income, capped at R350,000 per year of assessment for 2024/2025 (SARS: Retirement Fund Deductions). This is the most powerful single income reduction tool available to most South African individuals.
Practical step: Before the end of February each year, check your total contributions year-to-date. If you are below the 27.5% limit and the R350,000 cap, an additional voluntary contribution (AVC) to a registered retirement annuity fund reduces your taxable income by an equivalent amount for that tax year. The tax saving at a marginal rate of 45% on a R50,000 contribution is R22,500.
Excess contributions above the annual limit are not lost - they carry forward to future years and are taken into account when calculating the tax-free lump sum at retirement.
Claim all qualifying medical expenses
The section 6A medical tax credit for 2024/2025 is R364 per month for the main member and first dependant on the medical scheme, and R246 per month for additional dependants (SARS: Medical Tax Credits). This credit is automatic, but errors in pre-populated figures are common - always compare the amount on your ITR12 against your scheme’s annual tax certificate.
For those aged 65 and over, or with a qualifying disability, section 6B provides additional relief at 33.3% of qualifying out-of-pocket medical expenses that exceed three times the s6A credit for the year.
Time capital gains tax carefully
The CGT annual exclusion for individuals is R40,000 per year of assessment (2024/2025) and cannot be carried forward to a future year. If you are planning to dispose of a large asset (shares, a unit trust, or a secondary property), consider whether splitting the disposal across two tax years allows you to use two annual exclusions rather than one.
Timing also matters for the marginal rate calculation - if one year’s total taxable income will be higher than usual (a bonus, a large project payment), it may be better to realise a capital gain in a lower-income year where it is taxed at a lower marginal rate.
Use the interest income exemption
Individual taxpayers receive an annual interest income exemption - for 2024/2025 this is R23,800 for individuals under 65 and R34,500 for those 65 and over. Interest earned below the applicable threshold is not included in taxable income. When structuring savings, understanding this threshold helps you decide between interest-bearing and growth-oriented products.
Claim home office expenses if you qualify
If you meet the conditions for the home office deduction under section 23(b) (employees) or section 11(a) (self-employed) - exclusive use, more than 50% of duties performed there for employees - calculate and claim the proportionate expenses. Ensure you have the floor plan, measurements, lease or bond documents, and utility invoices before the tax year ends (SARS: Home Office).
Donate to approved public benefit organisations
Donations to organisations registered under section 18A of the Income Tax Act qualify for a deduction, capped at 10% of taxable income for the year. The deduction requires a valid section 18A receipt from the organisation - no receipt, no deduction. Plan charitable giving before year-end if you want the deduction in the current tax year.
What not to do
- Do not use artificial schemes promoted as “tax saving” - SARS’s General Anti-Avoidance Rule (GAAR) is broad and actively applied.
- Do not understate income or overstate deductions. The five-year statute of limitations and the criminal penalties for tax evasion are real consequences.
- Do not delay filing hoping a tax liability will disappear - interest and penalties compound from the assessment date.
Frequently Asked Questions
What is the difference between legal tax planning and tax avoidance?
Legal tax planning uses provisions explicitly in the law - retirement deductions, the annual CGT exclusion, s18A donation deductions. Tax avoidance involves artificial arrangements to exploit technical gaps, which SARS can challenge under the GAAR. Tax evasion - deliberately hiding income - is a criminal offence. The line between legal planning and avoidance is in the commercial substance of the transaction.
When is the best time to make an additional retirement fund contribution?
Before 28/29 February - the last day of the South African tax year. Calculate your year-to-date contributions and the amount of unused capacity under the 27.5% limit (capped at R350,000). An AVC made by year-end reduces your taxable income for that year. Contributions made after year-end apply to the next tax year’s limit.
How does the timing of an asset sale affect CGT?
The annual exclusion (R40,000 for 2024/25) applies separately to each year and cannot be carried forward. Selling in the current year versus the next allows you to use two exclusions instead of one. Spreading a large disposal also affects which marginal bracket the included gain is taxed in - a lower overall income year means a lower effective CGT rate.
Can I deduct donations to charities?
Yes, if the organisation is registered under section 18A of the Income Tax Act. The deduction is capped at 10% of taxable income. You must hold a valid section 18A certificate - not just a payment receipt. Without the certificate, SARS will disallow the deduction in a verification.
Sources
- SARS: Individual Tax Planning - overview of deductions, credits, and planning provisions for individuals
- SARS: Retirement Fund Deductions - current limits, carry-forward rules, and documentation requirements
- SARS: Medical Tax Credits - credit amounts, s6A and s6B rules, and documentation
Related guides
- Retirement Fund Contributions: Tax Deduction Guide for South Africa
- Medical Tax Credit in South Africa: How It Works
- Home Office Tax Deduction in South Africa: Who Qualifies
- Capital Gains Tax in South Africa: What It Is and How It Works
- Tax Record-Keeping in South Africa: What to Keep and For How Long
This guide is for general educational purposes. Tax planning must be verified for your specific circumstances - consult a registered tax practitioner before acting on any strategy.