South Africa's tax system is relatively favourable, compared to certain Western countries, in allowing salaried employees to be paid a number of allowances which can lower their overall tax burden.
As long as this situation prevails, you would be foolish not to exploit it.
But the current Government is not happy with the tax structures it has inherited. Trevor Manuel, the Minister of Finance, said in the March Budget that "aggressive structuring of salary packages erodes the tax base and puts lower-paid workers who do not enjoy the same degree of tax mobility at a disadvantage. Moreover, it discriminates against smaller firms who generally do not have the capacity to manage complex remuneration packages".
If you have joined a new company or been given a promotion in your existing firm, your employer may tell you that that the company is prepared to pay, for example, R12 000 a month as your "package", including all the company's contributions on your behalf to the pension or provident fund and medical aid fund. You may be invited to structure this amount as you wish.
The first point to bear in mind is the difference between your total package and what the Receiver of Revenue regards as your "gross remuneration" - your basic salary, plus allowances, plus the taxable value of fringe benefits.
Jenny Klein, tax manager at Deloitte & Touche, warns you to be aware that if, with salary sacrifices, your total package is greater than your gross remuneration, and you are paying the maximum allowed - 7,5 percent of your total package - to a pension fund, the Receiver of Revenue is likely to disallow some of your retirement funding contribution.
Barry Knoetze, legal and tax adviser at accountants Arthur Andersen, says employers will usually only take into account your basic salary when making contributions to the Unemployment Insurance Fund (if you are eligible), or calculating your Christmas bonus (if you get one). Too many allowances and dodges to lower your tax may not be in your long-term interest.
But Ron Warren of Pay Squad, which runs tax seminars, says your Christmas bonus, pension fund and Unemployment Insurance Fund calculation could be based on 70 percent of your total package - if you are able to negotiate this.
The Christmas bonus is an election by the employee of how he wants his total package paid. If the employer calculates the Christmas bonus, this is not a true salary package and can be attacked by the Receiver of Revenue.
The second point is that you should not include allowances in your package which you really cannot justify as necessary for your job.
If you receive amounts for a car or entertainment which you will not make the best use of, you may find yourself embroiled in some elaborate lies to persuade the taxman to give you a tax deduction. Also, if your salary package becomes too complex you could find it necessary to employ a tax consultant to help you, at a cost of several hundred rands a year.
Thirdly, if a tax package is quite detailed because you need to use things like a car, a cellphone or accommodation owned by your employer, you should make sure your arrangements are checked by a tax expert before this is all in writing. Hopefully your employer will provide an expert at no charge if it is a large, well-run company.
Fourthly, if you are an employee who earns less than R60 000 a year and pays Standard Income Tax on Employees (SITE), there may be little point in your getting extra allowances. As a SITE taxpayer you do not have to submit a tax return. But once you receive an allowance as part of your salary package, you will pay Pay As You Earn (PAYE) tax, which means you will have to register as a taxpayer and submit a return. The extra administration may not be worth it.
Klein and Knoetze emphasise you must have a correctly-worded letter of employment detailing the different aspects of your salary package, and your pay slips should correctly reflect the structure you have agreed to. Warren says, though, there is no clarification about what this actually means.
The rules of the company's pension or provident fund, and medical aid fund, should also allow your contribution arrangement.
This series of articles is aimed at salaried employees. The series may have some tips for the self-employed but if you are self-employed there may be other items you can claim, and at the same time some items in the series for which you will not be eligible.