Provident Fund Tax Advice/Question

[Quicky]

Hi everyone!

This question is mainly for those that are tax boffins or know the ins and outs of accounting.

Long story short, I was going through my finances and I noticed that if I contributed a bit more to my provident fund for the year, I'd be able to push myself into the previous SARS income tax bracket. I am however a little confused as to how much money I'd be "profiting/benefiting" by doing this.

Please see an example below with some fictitious values to assist with illustrating my question. I'd greatly appreciate any explanations or advice that you'd be willing to add.

1) Salary Income (After Taxable Deductions): R540 000
2) Rental Income (After Taxable Deductions): R30 000
3) Total Taxable Income Before Provident Fund (1+2): R570 000 (Would put a person in the 36% SARS bracket)

4) Regular Provident Fund Contribution: R40 000
5) Total Taxable Income After Regular Provident Fund (3-4): R530 000 (Would still remain in the 36% SARS bracket)

6) If said person had to do a lumpsum contribution into Provident Fund: R20 000
7) Total Taxable Income After Additional Provident Fund Contribution (5-6): R510 000 (The person is now in the 31% SARS bracket)

My confusion now comes in regarding how much of a return this person would get back from SARS.

If my calculations are correct, with just the normal provident fund contributions, the person would be liable to pay R127 667 in tax (121475+(0.36*(530000-512800))).
With the additional provident fund contribution, the person would be liable to pay R120 607 in tax (77362+(0.31*(510000-370500))).

Would the tax savings then amount to R127 667 - R120 607 = R7 060 or is there something I'm missing?

Any help would be greatly appreciated.

 

[Pansyfaust]

There are calculators online that can give you your answer fairly simply.

Free SARS Income Tax Calculator 2024 | TaxTim SA

For example, TaxTim calculator shows that R530 000 (the 570K-40K contribution=R530K taxable income) is a tax bill of R 110,432.00

If you contribute more to your provident fund and make your taxable income R510 000, you now pay R 103,372.00

So yes, you would get back an extra R7060 for the R20K contribution (this is not due to the lowering tax bracket really), just that the R7060 is the tax you were paying for the extra R20K income you are getting deducted from your taxable.

 

[CyNicole]

Hi everyone!

This question is mainly for those that are tax boffins or know the ins and outs of accounting.

Long story short, I was going through my finances and I noticed that if I contributed a bit more to my provident fund for the year, I'd be able to push myself into the previous SARS income tax bracket. I am however a little confused as to how much money I'd be "profiting/benefiting" by doing this.

Please see an example below with some fictitious values to assist with illustrating my question. I'd greatly appreciate any explanations or advice that you'd be willing to add.

1) Salary Income (After Taxable Deductions): R540 000
2) Rental Income (After Taxable Deductions): R30 000
3) Total Taxable Income Before Provident Fund (1+2): R570 000 (Would put a person in the 36% SARS bracket)

4) Regular Provident Fund Contribution: R40 000
5) Total Taxable Income After Regular Provident Fund (3-4): R530 000 (Would still remain in the 36% SARS bracket)

6) If said person had to do a lumpsum contribution into Provident Fund: R20 000
7) Total Taxable Income After Additional Provident Fund Contribution (5-6): R510 000 (The person is now in the 31% SARS bracket)

My confusion now comes in regarding how much of a return this person would get back from SARS.

If my calculations are correct, with just the normal provident fund contributions, the person would be liable to pay R127 667 in tax (121475+(0.36*(530000-512800))).
With the additional provident fund contribution, the person would be liable to pay R120 607 in tax (77362+(0.31*(510000-370500))).

Would the tax savings then amount to R127 667 - R120 607 = R7 060 or is there something I'm missing?

Any help would be greatly appreciated.

The only part you are missing is the tax rebate for individuals of R17 235 that will be deducted from the tax payable in both cases.

But the answer is the same: you'll save R7 060

 

[CyNicole]

They'll tax you on it when you receive it as a pension.

 

[Quicky]

Awesome, thanks a lot guys. I appreciate the responses!