Does this make sense?
Was doing provisional tax calculations for a client and was wondering about the effectiveness of her using an RA to reduce her tax liability. She does not belong to a pension fund and all her income is therefore “non-retirement funding”. As such she could put 15% of this into an RA before the end of February. Here are the figures:
Taxable income: R250839
Tax on this (after rebates): R44142
If she put 15% of her taxable income (R37626) into an RA then her tax for the year would reduce to R33243.
So if she spends R37626 (on herself now) she will save R10899…
She either pays R44142 to SARS and gets “nothing” or she spends R70869 (R37626 RA + R33243 tax) and gets R37626 in an investment for herself. It certainly puts a new “twist” on the “got to spend money to make money” saying and of course it’s all about cash flow.
In this instance, because of the tax saving on offer she effectively pays 71% of the premium into her RA (R10899/R37626).