Don’t let the taxman bite

Jenny Gordon

The SA tax season began on 1 July; here are some tips on how to save: 1. Save for retirement via a tax deduction of up to 27.5% of remuneration or taxable income with a maximum of R350 000. 2. Save up to R33 000 per year (R2 750) per month, with a lifetime allowance of R500 000 in a tax-free savings account. All your growth will be tax-free. 3. Investments in unit trusts provide interest and dividend distributions every year, usually twice a year. If you are under 65, up to R23 500 interest is tax-free each year. From age 65, R34 500 is tax-free. Taxes on local dividends are taxed by the time you receive them at only 20%. If you sell unit trusts every year, capital gains of up to R40 000 are free of tax. 4. Any donations to charitable organisations which are registered under section 18A of the Income Tax Act are tax deductible up to 2% of your taxable income. The charities will send you a tax certificate each year to enable you to claim the deduction from SARS. 5. Each year you may donate R100 000 to any person without paying donations tax. 6. You may make donations to your spouse without paying donations tax. This has the effect of reducing your estate for Estate Duty purposes. 7. Reasonable maintenance to your legal dependants does not constitute a donation for donations tax purposes. 8. Capital gains in an endowment policy are taxed at 12% and interest at 30%. If this is lower than one’s own tax rate, it is a worthwhile investment. It will not increase your marginal rate of tax. 9. In your will, bequests to your spouse will be estate duty-free and one has an abatement of R3 500 000. In the estate of the survivor, if the full estate was bequeathed to the surviving spouse, the abatement may be carried over to the surviving spouse who will have a R7 million abatement.

If there is more than one spouse the abatement will be apportioned between the spouses. 10. On retirement, try and reduce your maximum marginal rate of tax with a number of different types of investments, some of which are not taxed in your hands or are taxed at a lower rate of tax to take into account as many exemptions, low tax draw downs and rebates as possible.

A diverse portfolio of tax-free savings accounts; endowments; unit trusts and tax approved retirement products can allow taxfree capital drawdowns from the endowment policy and TFSA. Capital gains tax at a maximum of 18% on unit trust and share portfolios.

Lump sums from retirement funds are taxable on a table where R500 000 is tax-free if one has not yet taken withdrawals from retirement funds. Pensions are fully taxable because contributions were tax-deductible.

Jenny Gordon is the Head of Legal at Alexander Forbes Retail