I am 69 years old and still working. How can I maximise my tax benefits?

From time to time Moneyweb publishes answers to reader’s questions, as provided by financial advisors. Rosebank Wealth Group’s Trevor Lee was asked to answer the following quesiton: I am 69 years old and still working. I contribute to a medical aid and two RAs. Is my medical aid fully tax deductible and would I be able to gain a bigger tax relief by paying extra money into my RA? What would be the formula for me to use to calculate if I can benefit taking above into consideration?

Trevor split his answer into two sections; the question about tax on medical scheme contributions and the question on tax relief and the RA.

Medical scheme contributions

Calculations for medical tax credits are calculated on a formula that takes the following into account:

  • Your age (over or under 65)
  • How much you spend on your medical scheme premiums and on additional qualifying medical expenses not covered by your medical scheme
  • The standard medical tax credit (currently R310.00 per month per adult)
  • Your or your dependent’s ‘disability status’.

More details of the terms and conditions of these rules, and which expenses can be claimed for are available on the SARS website.

Tax liability is calculated after taking all normal rebates into account and then deducting allowable medical tax credits and additional medical tax credits, as applicable. Over 65s are eligible for rebates on the following medical scheme and out of pocket qualifying medical expenses: 33% of the total of the total contribution paid to the medical scheme, less (3 x the medical scheme fees credit of R310 per adult beneficiary per month), plus qualifying additional medical expenses.

To answer your question; medical scheme contributions are not fully tax deductible. The medical tax credits ‘awarded’ (and deducted from your income tax payable) depend on your claimed ‘medical tax credits’ and claimed additional qualifying expenses.

Retirement annuity

With respect to paying extra money into a retirement annuity; it is difficult to give specific advice without knowing the full circumstances of the client however we have included some generic information which should be useful.  At the age of 69 it would be vital to seek advice from a financial advisor as there are specific regulations surrounding RAs that must be considered.

Retirement annuity contributions are deductible but limited to 27.5% of the greater of remuneration or taxable income (including capital gains prior to 1 March 2019), but excluding lump sums and severance benefits, prior to the deductions for donations, limited to R350 000.00.

So as long as the contributions fall within the above parameters you will receive tax relief by paying extra money into a retirement annuity.  However, as mentioned above, you need to be aware of the regulations that apply to retirement annuities.  These include, but not limited to:-

  1. Estate duty implications
  2. Lump sum payments
  3. Annuitisation rules

As an example, it might be better to commence a new retirement annuity rather than contribute to your existing ones.  This is due to the annuitisation rules and the ability to take lump sums from retirement annuities. It is also important to fully understand the taxation of retirement annuities pre and post your actual retirement. 

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