Financial Fitness starts with Effective Tax Planning

We are fast approaching the end of the South African tax year, with closure at the end of February. While most taxpayers treat tax planning as a once-a-year event, effective tax planning is not done as a last-minute calculation but shaped by decisions taken throughout the financial year.

Given that our tax system works as an annual assessment period, what you do and don’t do before financial year-end affects what you pay at the end.

Right now, three aspects deserve your immediate attention: allowances, timing, and planning.

Allowances

Although South African legislation provides generous allowances, most of these don’t roll over to the next financial year.

It is imperative for businesses to familiarise themselves with the allowances applicable to them whether for their business or personal taxes. These opportunities can be lost permanently, so it is critical to “use it” rather than “lose it”.

Individuals often miss a few key individual tax allowances that can make a meaningful difference to their overall tax position when properly understood and applied:

• Retirement funding is one of the most valuable considerations. Contributions of up to 27.5% of taxable income (subject to the annual cap) are deductible, making it an effective way to build long-term savings while reducing taxable income.

• Tax-free savings accounts offer another powerful benefit. Investment growth and withdrawals are tax-free, which makes them an attractive vehicle for supplementing personal wealth over time, within the prescribed contribution limits. Medical tax credits and related expenses also provide relief, particularly where qualifying out-of-pocket medical costs have been incurred and can be claimed as part of the individual’s tax assessment.

• Donations made to approved Public Benefit Organisations present a further allowance opportunity, as qualifying contributions are deductible and can reduce overall taxable income while supporting recognised charitable causes.

  
  

Business allowances are another area that can create valuable tax relief when properly identified and applied:

• Wear-and-tear or capital allowances allow businesses to claim deductions on qualifying assets used in the production of income, providing relief on the cost of equipment, machinery, and other operational assets.

• Building allowances offer further opportunities, particularly for developers and property investors. Those qualifying for urban development or commercial building allowances can claim deductions linked to the construction or improvement of eligible buildings used for business purposes.

Timing

When you act is just as important as what you do in tax planning, because tax outcomes are tied to fixed assessment periods. Two identical transactions can produce very different results depending on when they occur.

For example, a business buying R1 million in manufacturing equipment can claim capital allowances immediately if the asset is in use before year-end. If delivery slips into the next tax year, the deduction is delayed by a full year. The same applies to staff bonuses: Approved but unpaid bonuses may not be deductible, while those paid before year-end generally are. This means that a February approval with a March payment postpones the relief.

Even for individuals, timing matters. A retirement annuity contribution on 28 February reduces taxable income for that year, while the same contribution on 1 March shifts the benefit to the next year.

In all cases, the allowance itself hasn’t changed – only the timing does. That timing determines when tax relief is received, affects cash flow, and shapes the effectiveness of your decisions.

Planning

Good tax planning is all about bringing timing and allowances together to get the best outcome based on smart decisions before deadlines leave you no choice.

A company expecting a big profit jump can buy assets early, pay bonuses, boost pension contributions, or write off old stock – and all of these are fully above board if done before year-end.

Selling multiple properties or investments in the same year can push up capital gains tax, but spreading sales across tax years helps to make the most of annual exclusions and keeps the effective rate down.

Even with payroll, timing matters: Structuring travel allowances and retirement contributions, or deciding between paying bonuses and dividends can make a real difference, but only if it’s done during the year.

Leave these too late, and most opportunities simply vanish.

Make Tax work for You

The choices you make, and the timing of those choices, can have a real impact on the tax you pay and the opportunities that you might miss.

At the end of the day, the people and businesses benefiting most are those thinking about tax all year long. By combining knowledge of your allowances, good timing, and proactive planning, tax stops being just a compliance task and starts working for you.