Tax efficient salary structure

[Maelly]

Hi

I read on the 2011 Budget Speech something along these lines "

from 1 March, it is proposed that contributions paid by employers for pension, provident and RA funds on behalf of their employees be treated as a fringe benefit. As a result, it is proposed that employees be allowed to deduct up to 22.5% of their taxable income for these contributions to a maximum of R200 000 p/a....”

So, it got me wondering as to how can I better structure my salary to be tax efficient, and how do I go about? I have approached my Finance Manager but he seems clueless....

I pay 10% towards my Pension and 50% towards my wife's Medical Aid (Employer pays 10% Pension and 100% principal member Medical Aid and 50% for dependants).

Thanks

 

[daniel.bigred]

Hi

I read on the 2011 Budget Speech something along these lines "

So, it got me wondering as to how can I better structure my salary to be tax efficient, and how do I go about? I have approached my Finance Manager but he seems clueless....

I pay 10% towards my Pension and 50% towards my wife's Medical Aid (Employer pays 10% Pension and 100% principal member Medical Aid and 50% for dependants).

Thanks

From what you've quoted from the speech, Mr Gordhan is referring to the tax relief that you get by your employer contributing towards your pension, as a result people who do not receive this employer contribution are effectively missing out on this tax break. To try & rectify the imbalance, he is proposing that the percentage that you can claim back from Retirement Annuity contributions be increased from 15% to 22.5%.

In terms of how you might re-structure your package better, it really depends on how flexible your company is & what your personal situation is. An example: if you earned R10,000pm & you would be able to claim back a maximum of R1,500pm; simply put this effectively "reduces" your taxable income. You would essentially only pay tax on the R8,500pm that is left over. This normally translates into a nice rebate once a year & is a cheaper way to save for retirement.

It's always best to talk to a qualified Financial Advisor about these things rather than HR & I have to admit my knowledge isn't 100% on these matters.

 

[Maelly]

Thanks for reserving your maiden comment just for me (ever since you joined in 2009). But you would at least expect your Snr finance people to know these things... apparently not, in my case.

 

[HavocXphere]

how can I better structure my salary to be tax efficient, and how do I go about?

The simple answer is you can't. Amounts for services rendered fall under the specific inclusions per s1(c) and the deductions you can claim against it are very limited by s23(m).

Effectively you can max out the s18, s11(n) and s11(l) (thats medical, RAF & pension) with regard to salary. (See s23(m) for a complete list, but those are the important ones).

Look at those section to see exactly what you can deduct. Both (n) and (l) have "greatest of" clauses, so its not a straight 15% calc etc.