No fancy schemes, loopholes, or expensive lawyers required – and it’s all perfectly legal!
Paying tax is a legal responsibility, but that doesn’t mean you can’t make the most of legal avenues to reduce your tax burden.
SARS provides a number of tax-efficient strategies that individuals and businesses can use to reduce their taxable income. Here are some of the easiest and most effective ways to save tax.
1. Maximise your retirement contributions
One of the most effective ways to reduce your taxable income is by contributing to a retirement fund. SARS allows you to deduct contributions to pension funds, provident funds, and retirement annuities (RAs)
You can deduct up to 27.5% of your taxable income or R350,000 per year, whichever is lower. Contributions to RAs are especially beneficial for self-employed individuals or those without employer-sponsored funds, but can also be used by pension and/or provident fund members to supplement their funds.
2. Use a tax-free savings account (TFSA)
The TFSA allows South Africans to invest without paying any tax on interest, dividends, and capital gains.
Each individual can contribute up to R36,000 per year, with a lifetime limit of R500,000. While contributions are not tax-deductible, the tax-free growth can yield massive long-term benefits.
3. Claim medical scheme fees tax credits
If you’re a member of a registered medical aid, you qualify for a medical tax credit, which directly reduces your tax liability (not just taxable income).
As of the 2025/26 tax year, the medical tax credits are:
- R364 per month for both the primary member and the first two beneficiaries
- R246 per month for each additional beneficiary
You can also claim additional deductions for out-of-pocket medical expenses if they exceed a certain threshold based on your taxable income.
4. Travel and subsistence allowances
If you use your personal vehicle for business purposes (excluding commuting), you can claim a deduction based on the actual business kilometres travelled, with supporting logs
Ensure that you keep a valid logbook and proper records of business-related trips to avoid disputes with SARS.
5. Home office deductions
If you’re a remote worker or self-employed and have a dedicated home office space, you may qualify for a deduction. You can claim a portion of your rent or bond interest, utilities, cleaning costs, internet and telephones, and depreciation of office equipment
It’s important to note that the workspace must be a clearly defined and exclusive area used regularly and exclusively for work purposes.
Costs can also only be claimed against a specific home office allowance (with supporting documents including employment contracts), unless you are a commission earner, sole trader, or part of a partnership.
6. Donate to a SARS-Approved Public Benefit Organisation (PBO)
Donations made to registered PBOs are tax-deductible up to 10% of your taxable income. You must obtain a Section 18A certificate from the organisation to qualify for this deduction.
7. Use Capital Gains Tax (CGT) exemptions
Every individual receives an annual exclusion of R40,000 for capital gains. This means the first R40,000 of gains in a tax year is tax-free.
You can also strategically time asset disposals across tax years to avoid exceeding this limit in a single year.
A lesser-known technique for saving CGT is to sell assets sufficient to realise a R40,000 capital gain at the end of a tax year, and reinvest the proceeds at the beginning of the new tax year. This technique resets the ‘base cost’ R40,000 higher each year, resulting in a substantial CGT saving over time.
8. Restructure your income
If you’re a business owner or freelancer, you can reduce your effective tax rate by:
- Paying a salary to a spouse who is actively involved in the business;
- Splitting income through trusts or companies (subject to anti-avoidance rules); and/or
- Delaying or deferring income to future tax years where your tax bracket may be lower.
Professional tax advice is essential here to stay compliant with SARS rules.
9. Transfer your cash savings into your home loan
We all know that it’s good practice to maintain a cash emergency fund equivalent to 6-12 months’ household expenditure, but that doesn’t mean that such funds need to be kept in a savings account.
If you have a home loan with an ‘access bond’ facility which allows you to withdraw surplus funds that have been paid in advance), this is the best way to maximise your returns on your cash reserves.
Using Standard Bank as an example, the rate offered on instant access savings account is currently 5.05% per annum (for amounts exceeding R1,000, they offer 5.45%; while for amounts exceeding R100,000, they offer 7.90%.
Interest earned on these funds is fully taxable (once you have breached the exempt interest threshold) at your marginal rate of tax, which could reduce these returns by up to 45%.
However, by parking these surplus funds in your access bond facility, the interest saved is likely to be at a rate of around 11% per annum. What’s more, there are no tax consequences for interest saved on a home loan.
Compared to the best interest rates available on instant-access funds, your returns (net of tax) on the interest saved in your home loan can be as much as four times higher. The fact that your home loan will be settled far earlier (assuming that you maintain your normal repayment) is an added bonus!
10. Never make decisions solely ‘for tax purposes’
During my corporate days, many of my colleagues would replace their cars every five years as a matter of course, not because their existing car was becoming unreliable, but because they had exhausted their available wear and tear allowance.
Their argument, therefore, was that they had to replace their car ‘for tax purposes’.
However, without resorting to any fancy calculations, if they simply made one phone call to the payroll department to ask what their marginal tax rate was, they would soon realise that – depending on their marginal tax rate – they would end up (at best) spending R1 in order to save 45 cents!
Final thoughts
Saving tax in South Africa doesn’t require complex schemes or risky loopholes. The key is to take advantage of the legal deductions, exemptions, and tax credits available to you. Keep proper records, plan your finances with a long-term view, and consult a qualified tax practitioner if needed.
WRITTEN BY STEVEN JONES
Steven Jones is a retired tax practitioner and member of the South African Institute of Professional Accountants
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.
