Taxman wants your cash
South Africa is one of the highest taxed nations on the planet, with its citizens being subject to numerous taxes such as income tax, pay as you earn tax (PAYE), capital gains tax, donations tax, value-added tax (VAT), mineral royalties, transfer duty, securities transfer tax and estate duty.
When it comes to your investments, you are taxed by the South African Revenue Service (SARS) on any interest you earn, on a percentage of any dividends you receive by way of dividends withholding tax and on a portion of any profit you make when you switch or cash in your investments through capital gains tax. The impact of these taxes is to substantially reduce the value of your investments, and make it more difficult for you to accumulate wealth and keep pace with inflation.
The South African economy has experienced benign growth over the past few years. As a result, the former Minister of Finance announced measures in his 2017 Budget Speech that would enable the fiscus to gen- erate additional income from individuals. These measures include “bracket creep” (when income tax tables are not adjusted adequately to account for inflation), higher dividends withholding tax, a higher tax bracket for top income earners and measures that will ensure that Trusts become increasingly less attractive tools for estate planning purposes.
Fortunately for you, there are opportunities to reduce the amount of tax that you are required to pay. The first is through investing in a tax-free investment. An attractive feature of this investment is that all growth is completely free of interest, dividends and capital gains tax.
This is a significant benefit, especially in light of the recent increase of dividends withholding tax from 15% to 20%. One of the few areas of respite provided to individuals by the Minister in the 2017 budget speech was to increase the amount one can invest in a tax-free investment from R 30 000 to R 33 000 per annum. It is important to note that not all tax-free investments are the same, and careful consideration should be given to identify a plan most suitable to your needs.
The second method is through investing in a retirement annuity. You are able to invest in a retirement annuity irrespective of whether or not you already contribute towards an employer-sponsored pension or provident fund. You are entitled to deduct contributions to any type of retirement fund of up to 27.5% of your income or remuneration from your taxable income. By so doing you immediately reduce the amount of tax you are obliged to pay. All growth within a retirement annuity fund is completely free of in- terest, dividends and capital gains tax and estate duty. Unlike the tax-free investment, you will be taxed at your marginal rate when you access the proceeds of your retirement annuity upon retirement. You have every right to structure your financial affairs in the most tax efficient matter possible. A Certified Financial Planner will be able to assist you to take advantage of the various tax saving opportunities available to you. • Rands and Sense is a monthly column, written by Ross Marriner, a Certified Financial Planner® with PSG Wealth. His Financial Planning Office number is 046 622 2891