Final warning for South Africans who want to pay less tax
South Africans are being warned to take advantage of all the avenues to reduce their tax bill before the tax year closes at the end of February 2025.
This is the feedback from Sinawo Makalima, a financial adviser at Alexforbes, who said the end of the tax year is one deadline that should not be ignored.
Makalima noted that the final weeks before the tax year closes present a valuable opportunity to make financial decisions that immediately reduce your tax bill while strengthening long-term wealth.
Two options in particular stand out because they are simple, accessible and effective. These are the Tax-Free Savings Accounts (TFSAs) and Retirement Annuities (RAs).
He highlighted that a TFSA is often the easiest starting point for investors. “If there is one investment every South African should consider, it’s a Tax-Free Savings Account,” he said.
Makalima added that you do not need a large income to begin. Many providers allow contributions from as little as R250 a month.
Investors can contribute up to R36,000 per tax year, and staying within this limit is important to avoid penalties.
Makalima stressed that timing is crucial. If an investor contributes the full R36,000 before the end of February, they can contribute another R36,000 immediately after the new tax year starts in March.
This effectively places R72,000 into tax-free growth within a short period. He explained that the “tax-free” benefit is more powerful than many people realise because every form of investment return remains untouched by SARS.
“In a Tax-Free Savings Account, you don’t pay capital gains tax, dividend tax, or tax on interest,” he said.
Over time, the compounding effect of avoiding these taxes can substantially increase the final investment value.
Unlike retirement products, TFSAs also offer flexibility. Investors can withdraw money when needed, which makes them useful not only for long-term goals but also for emergencies.
Choosing between the two products depends on financial goals
However, Makalima warned that withdrawals come with a permanent consequence. “Any amount you withdraw cannot be replaced later,” he said.
He added that the real strength of a TFSA emerges over longer periods and can play an important role in retirement planning because withdrawals taken during retirement do not increase taxable income.
While TFSAs offer accessibility, retirement annuities provide a powerful immediate tax benefit. Contributions to an RA reduce taxable income, meaning taxpayers pay less tax in the current year.
“You can contribute up to 27.5% of your taxable income, capped at R350,000 per year, and your taxable income is reduced by the amount you contributed,” Makalima explained.
He gave a simple example of someone earning R250,000 annually who contributes R1,800 per month (R21,600 a year) to a retirement annuity would reduce taxable income by that amount and save roughly R4,920 in tax.
“You are investing towards your retirement while SARS effectively covers part of the cost through lower tax,” he said, noting that the investment growth inside the RA is also tax-free.
The trade-off is access. Retirement annuity funds are preserved until retirement and must comply with Regulation 28 investment limits. Makalima said this reduces flexibility but protects investors through diversification.
Choosing between the two products depends on financial goals, but ideally, investors should use both.
“Choose a Retirement Annuity if you want to reduce your tax bill now and are investing for the long term. Choose a Tax-Free Savings Account if flexibility and tax-free growth are your priorities,” he said.
For those starting out or working with a tight budget, he suggested beginning with a TFSA and adding an RA as income grows to improve tax efficiency.
With the tax year ending within weeks, Makalima stressed urgency.
“Whether you are topping up your Tax-Free Savings Account or making a final Retirement Annuity contribution, acting before the deadline can have lasting benefits,” he said.
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