11/04/2018
Cashing in on your tax refund
Between April 2017 and February 2018, the South African Revenue Service (SARS) paid out more than R205 billion to taxpayers. If you are lucky enough to have received a refund, you may have big spending plans. But before you splurge, think strategically about how you use your money and try to make decisions that are in line with your financial goals, with the help of an independent financial adviser if necessary. Looking at your tax refund in this way will help you get the most out of it.
If you have committed to a savings plan and receive an unexpected windfall, try to remain committed to your goals; don’t let your emotions derail your plans.
Here are three top tips on how to best maximise your tax refund.
1) Pay off debt
South Africans are becoming known as big borrowers. Statistics by the National Credit Monitor suggest that less than 50% of the 24 million credit active consumers in the country were up to date with their credit repayments in the first quarter of 2017.
If you are drowning in expensive credit card debt, the interest you owe will continue to compound against you. Ask yourself whether you are directing enough towards your future. Maximise your tax refund by allocating at least a portion to pay-off outstanding debt.
2) Invest your tax refund to earn real returns
To create long-term wealth consider starting an investment, or adding to an existing investment, with your tax refund.
Carefully invested money has the potential to earn real (above-inflation) returns over time, and also to benefit from compound growth – returns on returns.
Starting a unit trust or a tax-free investment can cost as little as R500 per month, which is less than a DSTV subscription, for example. Your tax refund could be the beginning of new, positive habit.
3) Grow your retirement savings pot
A tax refund gives you a great opportunity to increase your retirement savings pot. SARS offers you a generous tax deduction of 27.5% of the greater of your taxable income or remuneration for the tax year, capped at R350 000 per annum, when you make contributions to your retirement annuity (RA), pension or provident fund. By adding to your retirement savings, you could reduce the amount of tax you pay next year.
It may also help to keep in mind that investing is just deferred spending – you put money away to grow so that it can meet your needs in the future. Eventually that money should return to you as spending; delaying your gratification just means that you may have more to spend later.
