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Don't let the taxman or Santa Claus hijack your bonus
Use your 13th cheque to get onto a firmer financial footing, writes TERRY BETTY
IT'S that time of the year again. Your annual bonus is nearly in your clutches and, what with everything being so expensive these days, you really need it this year.
But do you? Or have you fallen into the Christmas trap of buying simply because you have money to spend?
Take some good advice and resist the urge to splurge your bonus. Instead, give yourself and your family the gift of a debt-free and more financially secure new year.
Minimise tax
The taxman takes an exorbitant chunk out of your Christmas box. If you're in the top tax bracket, he swipes 45% of it. What's worse, you often end up paying a higher tax rate on your bonus than you do on your normal salary because the bonus pushes you into the next tax bracket.
If you go on a shopping spree with the balance, you will pay 14% VAT on all you spend. This means up to 52.7% of your bonus can end up in the state's coffers.
To prevent this, find out whether you can minimise tax payable on your bonus.
If you are legally entitled to a cash bonus and this is stipulated in your employment contract, you have already earned it and it's too late for tax structuring.
If this is not the case, there are ways in which the company can pay you in non-cash perks.
Here are some tips on tax savings from three experts: Mark Silver of Deloitte & Touche, Noel de Charmoy of KPMG, and Brendan Dardis of Ernst & Young.
Your employer can pay you a tax-free long-service award (which must not be in cash) worth R2 000 once you have been with the company for 15 years, and every 10 years thereafter.
Companies may make "occasional" service payments of up to R500 a year and you will not be taxed on this. It should not be given to you in cash but rather paid, for example, to the garage that has serviced your car.
Ask for a "subsistence allowance" where the company pays you, tax-free, R65 for every night you have been away from home on business during the year - even if your employer has paid for your accommodation and meals.
If you earn R50 000 or less a year, your company can pay you in the form of a tax-free bursary of R1 600 a year per child (or other close relative).
You can take a course, such as an MBA, which the company can pay for provided it is related to your job. (But first try to get your company to pay for the course out of its training budget.)
The company can top up their contributions to your provident or pension fund. The taxman allows your employer to pay up to 20% of your gross annual remuneration as contributions to all benefit funds (these include a provident fund, pension fund, medical aid fund and retirement annuity fund).
But you need to look at the after-tax returns your fund is earning and decide whether it's worthwhile.
Settle debt
The first thing to do when you receive your bonus is settle your most expensive debts.
These are probably your chain store charge accounts. If you are a victim of chain stores' 12-months "low-interest" payment options, you're probably paying between 26% and 29.5% for this facility.
Your overdue balance on your credit card can cost you about 27% interest.
A loan from your bank may be costing you about 24.25%, and your mortgage bond about 19% interest.
Invest the rest
If you have any money left over after paying off debts, there are various investment options to consider so that you can start the year on a firmer financial footing.
If you won't need the cash in a hurry, you could top up your retirement annuity contributions - and get a tax deduction to boot.
To claim a deduction on your contributions, you can invest the greater of R1 750, or 15% of your non-retirement funding income (which is broadly all your taxable income other than the salary on which your pension is based).
You can pay up to R1 800 in arrear contributions to a pension or provident fund.
Create an "emergency fund" for unexpected costs, such as replacing your tyres or a burst geyser. This means you will not be forced to borrow money at a high interest rate or pay astronomical hire purchase rates. The best place to store this money is in your access mortgage bond (or in a money market fund if you are bond-free).
Invest in your bond or in quality unit trust funds.
Finally, start the year with some cash in hand by putting money aside to tide you through January.
ý See Tip of the Week: P18
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