How South Africans Can Get Better Tax Benefits
Most South Africans leave money on the table every tax year — not because they're doing anything wrong, but because they simply don't use the deductions, credits, and exemptions SARS already allows. Unlike aggressive tax avoidance schemes (which SARS actively challenges under the General Anti-Avoidance Rules), the benefits below are ordinary, well-established provisions in the Income Tax Act 58 of 1962. Using them properly isn't a loophole — it's the tax system working as intended.
Here's where the real opportunities sit for the 2026/27 tax year (1 March 2026 – 28 February 2027), with the correct current figures.
1. Maximise Your Retirement Annuity, Pension, or Provident Fund Contributions
This is the single biggest lever most taxpayers under-use. Contributions to pension, provident, and retirement annuity funds are deductible at 27.5% of the greater of your remuneration or taxable income, subject to an annual cap of R430,000 — up from R350,000, the first adjustment to this cap since 2016. Any contributions above the cap simply carry forward to the following tax year rather than being lost.
In practice: if you earn R600,000 a year, you can deduct up to R165,000 in contributions, directly reducing your taxable income — and potentially dropping you into a lower tax bracket.
2. Use Your Full Tax-Free Savings Account (TFSA) Allowance
From 1 March 2026, the annual TFSA contribution limit increased to R46,000, up from R36,000 — the largest single-year increase since TFSAs were introduced in 2015. The lifetime limit remains R500,000. All growth, interest, and dividends inside the account are completely exempt from income tax, and withdrawals are tax-free too.
Be careful: unused annual allowance doesn't roll over — it's a use-it-or-lose-it limit each tax year — and contributing more than the annual or lifetime cap triggers a 40% SARS penalty tax on the excess. If you hold TFSAs with more than one provider, you're responsible for tracking your combined contributions yourself.
3. Claim the Medical Scheme Fees Tax Credit — and the Additional Medical Expenses Credit
Most salaried employees already get the basic medical credit automatically through payroll, but many miss the second, larger one.
- For 2026/27, the Medical Scheme Fees Tax Credit is R376 per month for the taxpayer, R376 for the first dependant, and R254 for each additional dependant. For a taxpayer with a spouse and two children, that's R1,260 a month, or R15,120 over the full tax year — before any additional medical expenses credit.
- The Additional Medical Expenses Tax Credit (AMTC) is where real, often-unclaimed value sits. If you're under 65 and have no recognised disability, you get 25% of the amount by which your excess medical contributions (above four times your monthly credit) plus qualifying out-of-pocket expenses exceed 7.5% of your taxable income. If you, your spouse, or your child is 65 or older, or has a SARS-recognised disability, you get 33.3% of contributions above three times your annual credit, plus 33.3% of qualifying expenses — with no taxable-income threshold at all.
Keep every out-of-pocket medical receipt (dentist, optometrist, physio, prescription medicine) — this credit is calculated on annual assessment, not through payroll, so it's easy to under-claim.
4. Use the Interest Exemption — and Understand Where TFSAs Fit In
Interest earned from a South African source is exempt from income tax up to R23,800 a year for taxpayers under 65, and R34,500 a year for those 65 and older. Interest earned inside a TFSA falls outside these limits entirely — it's fully exempt regardless of amount. If you're holding a large cash balance in an ordinary savings or money market account earning taxable interest, moving part of it into your TFSA allowance first is usually the more tax-efficient order of operations.
5. Structure Your Small Business Correctly
If you run a business through a private company or close corporation, whether it qualifies as a Small Business Corporation (SBC) under Section 12E of the Income Tax Act makes a dramatic difference to your tax bill.
For years of assessment ending 1 April 2026 to 31 March 2027, SBC tax rates are: 0% on the first R99,000 of taxable income; 7% on the portion from R99,001 to R365,000; 21% (plus R18,620) on the portion from R365,001 to R550,000; and 27% (plus R57,470) above R550,000. To qualify, all shareholders or members must be natural persons, gross income must not exceed R20 million, and the entity must not be a personal-service company or a holding company. Compare that to the flat 27% rate every other company pays from the first rand of profit — the difference at moderate income levels is substantial.
If your turnover is small and simple, it's also worth checking Turnover Tax, a simplified regime for micro-businesses. Turnover Tax replaces Income Tax, Provisional Tax, and Capital Gains Tax for businesses that qualify, and the threshold has increased from R1 million to R2.3 million.
6. Understand the Capital Gains Tax Annual Exclusion
Budget 2026 proposed increasing the annual exclusion on capital gains tax from R40,000 to R50,000. This applies to individuals disposing of assets like shares, unit trusts, or a second property — the first portion of any capital gain in a tax year simply falls away before the inclusion rate and your marginal tax rate are applied. If you're planning to realise gains, timing disposals across tax years to use each year's exclusion, rather than triggering one large gain at once, can meaningfully reduce the tax owed.
7. Donations to Registered PBOs
Donations to a registered Public Benefit Organisation (PBO) with an approved Section 18A certificate are deductible, generally up to 10% of your taxable income, with the excess carried forward. This is one of the few deductions that lets you reduce your tax bill while directing money toward a cause you actually choose, rather than to SARS.
8. Get the Order of Operations Right
The biggest mistake isn't missing any single benefit — it's not sequencing them. A common, well-structured approach for a salaried professional is:
- Maximise the retirement annuity/pension deduction first (reduces taxable income and may drop you a tax bracket)
- Use the medical tax credits you're entitled to (automatic and claimed)
- Direct spare cash into your TFSA up to the annual limit (tax-free growth)
- Consider a Section 18A donation if you have room left and a cause you want to support
- Only then hold any remaining savings in ordinary taxable accounts
Retirement annuity contributions reduce tax now but lock funds until age 55, with tax charged later on withdrawal. A TFSA is fully liquid and never taxed on the way out. Which one deserves priority depends on your age, liquidity needs, and how close you are to retirement — this is where a registered tax practitioner or financial adviser adds real value, since the right mix is personal, not universal.
FAQ
Is tax avoidance the same as these strategies? No. Tax avoidance in the pejorative sense refers to artificial arrangements designed solely to obtain a tax benefit, which SARS can challenge and unwind under Sections 80A–80L of the Income Tax Act. The benefits above are ordinary statutory deductions, exemptions, and credits Parliament built into the tax system for everyone to use. There's no legal or ethical grey area here.
Do I need to be a high earner to benefit from these? No. The TFSA, medical tax credits, and interest exemption apply regardless of income level. The retirement annuity deduction and SBC company rates scale with what you earn or your business turnover, but even modest contributions or a correctly structured small business produce a real tax saving.
How do I claim the Additional Medical Expenses Tax Credit — does SARS calculate it automatically? No. Unlike the basic Medical Scheme Fees Tax Credit (applied automatically through PAYE), the Additional Medical Expenses Tax Credit must be claimed on your annual tax return (ITR12), supported by proof of out-of-pocket medical spend. Keep all receipts throughout the year.
What happens if I contribute more than the TFSA annual or lifetime limit? SARS charges a 40% penalty tax on the amount over the limit — not on your total contribution, just the excess. This applies whether you exceed the R46,000 annual cap or the R500,000 lifetime cap, and applies in aggregate if you hold TFSAs across multiple providers.
Can I deduct retirement annuity contributions if I'm also in a workplace pension fund? Yes. The R430,000 annual cap and 27.5% limit apply to the combined total of pension, provident, and retirement annuity contributions across all funds — not to each fund separately.
Is a Small Business Corporation the same as a "small business" generally? No. SBC status is a specific tax classification under Section 12E with strict requirements — natural-person shareholders only, gross income under R20 million, and no personal-service or holding-company activity. Many small businesses don't automatically qualify; it's worth checking eligibility with a tax practitioner or accountant before assuming the lower rates apply.
Are these limits and rates permanent? No. SARS and National Treasury adjust most of these figures — tax brackets, TFSA limits, medical credits, retirement caps, CGT exclusions — in most annual Budget Speeches, generally effective from 1 March each year for individuals. Always confirm the current year's figures on sars.gov.za before relying on them for tax planning.
Sources
- Income Tax Act 58 of 1962 (ss 6A, 6B, 11(k), 12E, 18A)
- SARS, "Budget 2026 Frequently Asked Questions" — sars.gov.za
- SARS, "Small Businesses – Taxpayers" — sars.gov.za
- SARS, Guide on the Determination of Medical Tax Credits, Issue 18 (June 2026)
- Moonstone Information Refinery, "Changes to CGT, tax-free savings, retirement contributions, and donations" (Budget 2026 coverage)
- Moonstone Information Refinery, "Income tax brackets, medical tax credits adjusted for inflation"
This article is for general informational purposes and does not constitute personalised tax or financial advice. Confirm current thresholds on sars.gov.za and consult a registered tax practitioner before making decisions based on your specific circumstances.