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The December holidays came and went and I was lucky enough to spend time with my family on the coast. So now that holidays are forgotten, it's important to book time for the coming year and, hopefully, have enough money for another relaxing day in December at the end of 2019.
In this period of political and economic volatility, with opposition parties in Parliament asking former president Jacob Zuma – among others – to "pay back the money," you can save a little bit of money. Money by taking advantage of certain tax exemptions offered by the South African. Revenue Service (Sars). By forcing Sars to "pay my money back", the payoff is twofold: you and I need to boost our savings and pay a little less tax.
Like you, I pay my taxes diligently, even if sometimes I take advantage of some rudeness. However, when I can legitimately save tax by reducing my tax bill or completely eliminating taxable income, I see a gain. Any amount you can invest adds to the long term. Therefore, if you manage to keep only 200 R more per month, please do so. You will then have more money than you would by doing nothing.
Some investment products offer tax benefits, so Sars can actually pay your money back.
Caveat Emptor: I have been involved in wealth management for 16 years, and I have found that investing solely to gain a tax benefit may cause disappointment. Before going into the details of the investment offers, let me tell you that you must first always consider the merit of an investment product itself and then badess the potential tax benefits.
Tax-Free Savings Account (TFSA)
The introduction of the TFSA was intended to encourage household savings. This practice can reduce the vulnerability of some households to unforeseen expenses, leading to an increase in debt.
The increase in household savings helps to increase the overall level of savings in the economy, to finance higher capital investment and to promote growth prospects.
The TFSA provides tax benefits so that any growth in savings, regardless of its source – income, capital or dividends – is tax-free and subsequent withdrawals are tax-free.
The product offers a wide range of investment options ranging from local money to offshore shares. The annual limit of contributions is 33 000 rand, with a lifetime limit of 500 000 rand. However, he is subject to inheritance tax on death.
It is better to enter the TFSA earlier, because a long-term investment will benefit from the combined effect of tax-free growth.
Pension Annuities (AR)
The second investment product to save taxes is an AR. The RAs received more than their fair share of bad press. But this is unjustified for tied ARs, which can add great value to your investment portfolio.
In simple terms, an RA is an individual pension fund – which can be maintained in addition to an employer's fund – which allows people who are not part of a group plan or wishing to save money. additional benefits of an investment in a retirement. funds.
From the point of view of tax benefits, these contributions are tax-deductible up to an amount of 350,000 rand a year, or 27.5% of the highest amount of remuneration or taxable income, including taxable capital gains. but before deduction of donations.
For example, if you can afford to pay R50,000 a year and the average tax rate is 30%, you'll save R15,000 a year. You can contribute 50 000 rand but physically invest 65 000 rand if you reinvest your tax refund of your RA contribution.
Any growth, regardless of source – income, capital or dividends – is tax free. There is also no inheritance tax or executor's commission at death. However, in terms of prudential investment guidelines, no more than 75% can be invested in equities and no more than 30% abroad.
Many financial commentators claim that a limited offshore exposure cancels out all the tax benefits of this product. But in my opinion, these investments abroad, and in fact any other investment, must do a great deal to offset the tax deduction of your contributions and the tax free growth.
Another caveat of these commentators is that you are taxed on the income you earn from an RA when you withdraw from the product and you would therefore be better off in shares when you only pay for it. Capital gains tax and withholding tax, both of which are lower than the marginal tax rate. Once again, please postpone. If you look at the difference in value, for example, a portfolio of stocks and a 25-year AR – taking into account the deductibility of contributions and its reinvestment, as well as the Tax-free growth – it (composes savings) largely offsets the fact that post-retirement income is subject to income tax.
I hope that after reading this, you agree to subscribe to a risk badessment if you do not already have one. However, it is important to have a balanced balance of discretionary and non-discretionary savings in your portfolio to create different tax and liquidity profiles.
Section 12J Investments
Article 12J investments have been in existence since 2009, when the South African government introduced amendments to the Income Tax Act to stimulate the private sector and the economy. .
These amendments introduced tax incentives for investors – individuals, trusts or small business corporations – through tax-deductible investments in venture capital firms in Section 12J. Companies in Section 12J must be licensed by the Financial Sector Leadership Authority (formerly the Financial Services Board) and registered with Sars.
While contributions to a Section 12J investment are useful for high-income individuals, most of the badistance provided to the sector comes from investors seeking to reduce the effect of CME.
Unambiguously, it is an investment category in which you need to take a close look at the underlying investments, investment strategy and issuer compliance before you get excited. for a possible tax saving.
From the point of view of tax benefits, you can make unlimited contributions, which are deductible from taxable income. Do not contribute too much, because the contribution is deducted before the contribution of a ROA in your tax calculation and you may not get the full tax benefit of your contribution. You must remain invested for at least five years, otherwise your savings will be recovered by Sars. At the exit, your base cost to determine the CGT will be zero.
Whether I pay less tax (while earning the same income) or that I get back the tax, I have more money than I would have without anything. You have until the end of February to make your investments, so start immediately, nothing makes you waste time getting your money back!
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