Don’t let the tax­man bite

The Citizen (KZN) - - PERSONAL FINANCE - 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

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