Pay no retirement tax

GUIDE: WHAT YOU CAN DO TO CIRCUMVENT REVENUE DUTIES IN OLD AGE

Share portfolios outside an annuity can supplement your income.

At age 65, individuals get an additional tax rebate. A higher annual interest exemption also becomes available. What type of income would a couple be able to draw in retirement before they would have to start paying tax?

Naturally, there are various ways of reducing one’s tax liability, particularly if you use clever structures, avoidance techniques and the like, but what if you kept it simple?

In other words, no contributions to retirement annuities or investments in Section 12J venture capital companies – just using the main tax thresholds, rebates and exemptions allowed?

The example below is intended as an illustration and covers the tax year that will end on February 28, 2019. The assumption is that the taxpayer and her spouse are 65 or older, but not yet 75, that they have retired and don’t have any additional income beside their annuities and discretionary investments.

At age 65, the income tax threshold is R121 000 per annum, meaning an individual can draw an annual income of R121 000 from an annuity without paying any income tax.

The interest exemption is R34 500, and the same individual would be able to draw this from an interest-bearing investment before the tax man would come knocking.

Assuming the taxpayer contributed the maximum amounts allowed to tax-free accounts every year, the capital value would be R126 000, says Martin de Kock, director at Ascor Independent Wealth Managers.

The assumption is that there has been no growth on these accounts and that the return on the investments for 2019 was 7%, giving the investor a tax-free income of R8 820, he adds.

This means that the couple could get a tax-free income of around R328 640 per year, amounting to R27 387 a month.

Share portfolios or other equity-type investments outside a retirement annuity vehicle can be used to supplement the R27 387. Currently, the annual amount above which capital gains become taxable is R40 000.

Where a share portfolio had good capital growth over a longer period of time, an individual can sell R100 000 worth of shares before the threshold is triggered.

However, if the share portfolio did not perform well and your growth is limited, you’ll need to sell more shares for the tax-free capital gain.