Financial Year End: Tax Planning

The financial year end in February is approaching, and it is time to review your current financial situation and optimize the tax breaks granted to you. The following options are available:

Retirement Annuities:
One of the most effective tools in tax planning is Retirement Annuities (RA’s). You can benefit from the following significant tax benefits: The voluntary contributions you pay into a RA are tax-deductible, up to 27.5% or (R350 000) of taxable income (The so-called tax break of an individual). This means that the money you save in a RA can be considered in your income tax calculation and deducted from the tax you owe to SARS.

• There is no income, capital gains tax or dividend tax applicable during the term of the investment.
• On retirement, up to R500 000 of your lump sum benefit can be tax-free, depending on previous lump sum withdrawals. The balance is then taxed according to the tax rates as per the retirement lump sum tax table.
• There is no estate duty payable on a RA or on a living annuity.
• On the death of an RA investor, lump sums received by beneficiaries are exempt from estate duty (excluding disallowed contributions).

Tax free savings:
Other than a RA, the contributions to a tax-free savings account are made from post-tax income as you don’t get the tax benefit on contributions. But you can withdraw from your investment at any time. Great way to supplement your retirement savings or save for a long term goal like children’s university fees.

Like with a RA there is no income, capital gains tax or dividend tax applicable during the term of the investment. Keep in mind that your contributions to all your tax free savings accounts across all providers are limited to R36 000 per year (i.e. R3 000 per month) and a lifetime contribution limit of R500 000.

Other tax strategies you can follow:
• Tax loss harvesting:Tax loss harvesting is a strategy in which certain investment assets are sold at a loss in order to reduce your tax liability at the end of the year. You can use tax loss harvesting to offset capital gains that result from selling other investments or assets at a profit.
• Make use of your exemptions:
You have a Capital Gains Exemption of R 40 000 per year. Maybe it is time to take some profit on an investment done well or switch between investment funds.
There is also an interest exemption for R 23 800 (Persons over 65: R 34 500) that you can benefit from. If your interest is more than that your investment structure could be reconsidered.
• Donations:
Every year you can make a R 100 000 donation without triggering donation tax. It is a good time to donate R 100 000 to a family trust or children to reduce your estate for estate duty purposes.
If you donate to charity that is registered with a Section 18A approval, you will get a deduction on the contribution as well.

Please contact your Bovest Wealth Manager if you need assistance with calculating your most tax efficient contributions or if you would like to top up your RA or Tax free savings.

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