21 November 2016
After age 65, the 7.5% limit in terms of how much of your medical expenses you can deduct falls away. A third of your qualifying medical expenses are tax-deductible – as long as there’s proof of the expense. As far as possible, keep all medical receipts.
After the 2014 amendment to the Income Tax Act, it’s no longer necessary to retire from your employer’s fund (if the fund rules now allow for continued membership) or from your personal retirement annuity (RA) when you retire from your job.
This means you can phase in your retirement over many years to build up a larger tax-free savings pot and make your money last longer. An RA can also be a great estate-planning tool. It has the added benefit of the assets being exempt from estate duty, bar all excess contributions that weren’t tax-deductible, as per the Treasury’s 2015 proposal.
Professor Lester advised against leaving assets intended for your spouse in an RA, as your spouse already enjoys the ‘spouse’s rebate’ – so you wouldn’t reduce the estate duty payable if your spouse is nominated as beneficiary. From an estate duty point of view, your children or any heir other than your spouse would make more sense as a beneficiary. (Bear in mind that the trustees ultimately decide who will get your client’s share in the retirement fund. The nomination will guide them, though.)
If you have discretionary savings, such as those in a unit trust or personal share portfolio, in addition to your living or life annuity optimise your discretionary money drawdowns, by keeping a close eye on the value and the type of investment you cash in. Make sure you use as much as possible of the annual R30 000 capital gains exemption without becoming liable for capital gains tax – and not by cashing in investments that lost money because of temporary market adjustments.
Lastly, remember that all individuals, irrespective of their age, may deduct donations to public benefit organisations of up to 10% of their taxable income (excluding retirement fund lump sums and severance benefits).
This list is not exhaustive; it simply highlights the most common and easiest ways to minimise your tax bill. While tax is unavoidable, the excess returns a financial planner can add to your total portfolio is invaluable.