Last chance to take advantage of tax breaks on RA's

With only a few days to go before the end of the 2008/9 tax year, South Africans looking for ways to cut down on their tax payments will need to move quickly if they want to beat the 28 February deadline.

According to Nico Coetzee (pictured), Head of Sales at PPS Investments, given the very short time period, one of the easiest ways to reduce your tax liability for the current tax year is through a lump sum contribution to a retirement annuity.

“A retirement annuity is a very efficient tax savings vehicle as premiums are tax deductible up to certain limits,” says Coetzee. So if you have not already been contributing on a regular monthly basis, you can benefit from a retirement annuity this year. All you would have to do is make a lump sum payment before the end of February, being the end of the tax year.”

The tax efficiency in terms of contributions is based on your taxable income in any one tax year and SARS allows different deductions from different income streams.

You can deduct the greater one of the following:

- 15% of your non-retirement funding income, excluding your pensionable salary, before other tax deductions;

- R3 500 less your current contributions to a pension fund; or

- R1 750.

The tax benefits also extend to maturity. At retirement from age 55, the first R300 000 can be taken as a tax-free lump sum pay-out. Whatever you do not take as a lump sum must be invested in an annuity product such as a living annuity which will be paid out as an annuity income on a monthly, quarterly or annual basis. Only the income is then taxable.

Coetzee says it is important for individuals to speak to a tax consultant or financial planner to assist in calculating how to structure their contributions to a retirement annuity in order to maximize their tax savings for the 2008/9 tax year. “Right now, every cent counts and people should not underestimate how much they can save through tax deductions by contributing to retirement annuities.”