We are back at work and look
forward to seeing all our friends, colleagues and clients early in the
New Year! If you are in the area please pop in for a cup of coffee and say
“hello!”
We trust that you and your
families have had a blessed Christmas and we wish you all a happy and
prosperous New Year. May 2019 bring you peace, happiness and all the wonderful
things that you wish yourselves!
Minimise your taxable income, maximise your tax savings
With the end of the
tax year fast approaching, clients are reminded of the opportunity to minimise
their tax liability and maximise their tax savings by contributing to a
retirement annuity or a tax free investment.
Both investments offer attractive tax benefits to help individuals minimise their tax liability. To find out more on how you can reduce your tax liability or invest in either a retirement annuity or a tax-free investment please click here.
“Whether we want them or not the New Year will bring new challenges; whether we seize them or not, the New Year will bring new opportunities.” – Michael Josephson
With the end of the financial tax year, fast approaching investors are reminded of the opportunity to minimise their tax liability by contributing into a retirement annuity. The South African Revenue Service (SARS) has put in place tax incentives to help encourage South Africans to save more for their retirement.
Investors are able to claim a deduction against their taxable income of up to 27.5% of the greater of their taxable income or remuneration capped at R350, 000 per tax year. Retirement annuities do have certain restrictions, and funds cannot be accessed before the investor turns 55. However, retirement annuities also offer protection against creditors and fall outside of investors estates. Any over contributions to a retirement annuity are automatically rolled over to the following tax year.
Tax-free investments are another way for investors to maximise their tax benefits. All tax-free investments are completely free of tax. That means individuals pay no capital gains tax, no income tax and no dividends withholding tax. Current legislation limits annual contributions to R33, 000 per annum with a lifetime allowance of R500, 000. Any over contributions into a tax-free investment are taxed at 40%.
With both, retirement annuities and tax-free investments, investors can invest in unit trusts that best align their investment needs with their future financial goals. Investors can choose between being invested into equities, property, fixed income, money market instruments or a combination of the above.
For more information or to find out how to invest into a retirement annuity or tax-free investment please click on the link. Start saving today
On the 1st of March 2015, the National Treasury introduced tax-free investments to encourage individual investors to save. Tax-free investments are free from all tax, this means:
No tax on interest or other income
No dividends tax
No capital gains tax on withdrawal from your investment
National Treasury has placed limits on the amount that an investor can save in a tax-free investment. The total annual contribution in one tax year may not exceed R33, 000. The total lifetime contribution may not exceed R500, 000. If an investor has more than one tax-free plan, the maximum of R33, 000 per tax year applies to all their tax-free plans and not per plan.
It is important for investors not to exceed these limits as the South African Revenue Services will impose a 40% tax on any amount above the annual or lifetime allowance. If an investor contributed R40, 000 in a tax year the R7, 000 above the threshold would be taxed at 40%. (R7, 000 * 40% = R2, 800 tax would be payable to the South African Revenue Services.)
Investors may nominate one or more beneficiaries to receive the proceeds of the tax-free investment. This means in the event of the death of the investor, the investment will not incur executor’s fees and the investment will be paid to the beneficiaries.
Earning ‘interest on interest’
The mechanics of a tax-free investment work exactly the same as a unit trust investment. The investor is free to choose how much risk he or she wishes to assume in the investment. Unit trust funds that have a focus on providing investors with a growing income can be particularly beneficial in a tax-free investment. As the interest and dividends are earned they are reinvested into the tax-free investment. The compounding effect of this over time will provide the investor with meaningful long-term returns.
Let’s look at a practical example of how a tax-free investment could help supplement a tax-free income in retirement.
Annie is 20 years old and wants to invest in a tax-free investment. Annie realises her investment needs to increase ahead of inflation and invests in a fund that will deliver returns of 10% per annum over the long term.
After 15 years of contributing to her tax-free investment, Annie finally reaches her lifetime contribution limit of R500, 000. Her investment is now worth R1, 174, 095. Annie is too young to consider retiring and so chooses to leave the funds to continue to grow for another 20 years.
Annie is now 55 years old and would like to use her tax-free investment to supplement her income in retirement. Annie’s tax-free investment is now R7, 898, 724. Annie decides that she would like to withdraw 5% of the capital to provide her with an income. Annie will receive R400, 000 tax-free.
Isn’t it time that you started contributing to your tax-free investment? For more information or to start your tax-free investment contact us today!
