Checklist: Things to do before the end of the tax year

Updated: Jul 16

Gareth Collier - Crue Invest (Pty) Ltd

Use your capital gains tax exemption

As an investor, you are granted a R40 000 capital gains tax (CGT) exemption per year in respect of events that trigger a disposal of assets, which includes the sale of unit trusts.


Although it is never ideal to be disinvested if your intention is to invest for the long term, investors may find merit in switching from an invested fund to cash, and then back into an invested fund without attracting CGT – provided that the gain is no greater than R40 000. In doing so, you will be able to rebase your investment at a higher base cost, effectively enabling you to earn this tax-free.


Keep in mind, if you have a poor-performing investment that has experienced a capital loss and you wish to take it in another direction, this capital loss is added to the R40 000 annual exemption. This effectively raises the amount of tax-exempt gain you can yield and rebase for strong performing investments while changing strategy on the poor performers.


As a word of warning, investment markets are highly unpredictable and attempting to time the markets is not a good investment strategy. Exiting and re-entering the markets is a risky strategy but can be highly tax-efficient if done consistently over the long term.


Use your tax-free savings account allowance

Although your contributions to a tax-free savings account (TFSA) are not tax deductible, all interest income, capital gains and dividends earned from a TFSA are exempt from tax. Not being taxed on the growth in your TFSA is still a benefit not to be ignored, and now is the perfect time to determine whether a TFSA is appropriate for your personal circumstances.


As a TFSA investor you are currently permitted to contribute up to R33 000 per year towards this investment, with a maximum lifetime contribution of R500 000.


However, before setting up a TFSA, chat with your financial advisor about how to use it optimally in your portfolio – bearing in mind that it is best viewed as a long-term investment. Your income, debt, investment horizon, together with your specific goals, will all play a role in determining the suitability of incorporating a TFSA into your financial plan.


Get certification of your donations

Tax legislation allows you to donate up to 10% of your taxable income to charity on a tax-deductible basis, although it is important to know that this tax deduction is not automatic.


In order to claim a tax deduction, the South African Revenue Service (Sars) requires that a number of strict requirements are met – including that the taxpayer be in possession of a Section 18A certificate. Only organisations that have been approved by Sars as a Public Benefit Organisation (PBO) are able to issue Section 18A certificates to donors in respect of bona fide donations made to the organisation.


A bona fide donation is one that is made with ‘no strings attached’ and therefore cannot be for the benefit of the donor or a person connected to the donor. When doing your eFiling you will need to upload your Section 18A certificate, which needs to include the PBO’s reference number, date of receipt of the donation, the name and address of the donor, and the amount or nature of the donation.


To make it easier for taxpayers, Sars has published an up-to-date list of all Section 18A-approved PBOs on its website at www.sars.gov.za.


Top up your retirement fund

As an investor in a retirement fund, which includes pension funds, provident funds and retirement annuities (RAs), you are permitted to invest up to 27.5% of your taxable income per year (subject to a maximum of R350 000 per year) on a tax-deductible basis.


This is a significant benefit because it effectively allows you to invest with pre-tax money and reduce the amount of tax payable to Sars. If you are currently contributing towards a registered retirement fund but are not making full use of your 27.5% per year tax-deductible allowance, now is the time to consider topping up your retirement funds so as to reduce your overall tax burden.


If you are unsure as to your taxable income, ask your accountant or financial advisor to assist with the calculation – bearing in mind that rental income, dividends from real estate investment trusts (Reits), gains derived from realising assets, and interest earned on investments are included in calculating your taxable income.


With new-generation RAs offering complete contribution flexibility, you can choose the most convenient way of making payments into your RA before the end of the tax-year. Bear in mind, however, that Sars requires the application forms to be processed and for the money to reflect in your investment before February 29, 2020, in order to qualify for the tax deduction – so be sure to check the administrative deadlines with your financial advisor.


Claim for your Section 12 J investments

Sars provides a tax incentive for individuals to invest in approved venture capital companies (VCCs) under Section 12J of the Income Tax Act.


Current legislation permits you to invest up to R2.5 million towards a Section 12J investment scheme and receive a 100% tax deduction on the contribution, bearing in mind that the investment must be held for a minimum period of five years in order to retain the tax deduction. Disinvestments or withdrawals are, however, subject to capital gains tax from the first rand.


While Section 12J is a great way to reduce your tax liability, it is advisable to do your research before investing in a VCC. Rather than rushing into a Section 12J investment scheme, consider taking advice and/or doing your due diligence to ensure that you select a scheme that meets your needs. Specifically, do your homework in respect of fees, what percentage of capital is being invested, the internal rate of return, fund manager experience and market comparisons.

It is best to approach a Section 12J investment scheme cautiously and not merely to obtain a tax deduction.

Businesses with VCC status are private companies and there is always a risk that you could lose your full investment should the underlying business fail, so don’t rush your decision-making.


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