Tax Matters

It is almost time to close off the 2024 tax year which will be on 29 February. Anything tax-related has to be finalized before that date. There is the usual checklist you have to go through, and here are some of the things that should be on that list:

• If you are a provisional taxpayer, you have to submit your second IRP6.
• Last chance to make use of the tax deduction on retirement annuity contributions.
• Last chance to make your R36 000 tax-free investment contribution.
• Last chance to realize those capital gains tax profit or loss transactions and benefit from the rebate of R40 000.
• Tax-free donations of up to R100 000 per year.

Although tax is an important consideration when evaluating your investments, it should not be the only consideration. To illustrate this statement, consider the following: If you make a contribution to your retirement annuity, you get the tax deduction benefit, but you sacrifice the ability to invest 100% in offshore assets and the ability to withdraw all the funds at any time and you are under the obligation to invest the bulk of the funds in a restrictive living annuity when you retire from the fund.

Another example is the payment of capital gains tax (CGT). If your investment performed very well, it is sometimes very difficult to sell that investment and pay the 18% CGT to SARS before re-investing the balance in something that offers better value. If paying CGT becomes your only consideration, you might stay invested in an overvalued asset and either lose all the gains when that asset deflates, or you might miss out on the stellar potential of some other asset.

Our advice would be to do everything offered by SARS to limit the tax you pay on your investments, but not to be blinded by the inevitable obligation of paying tax at some stage.

During the week I read an article by Anchor Capital regarding the tax we pay as South Africans. We all know about the impact of tax on our investments and that nothing escapes the tax net, not even trusts or companies. If you earn more than R1 817 000 as an individual taxpayer, every cent you earn over and above that amount will be taxed at 45%. If a company pays you a dividend, 20% of that dividend will be paid to SARS; and your trust will pay 45% on taxable income not distributed to beneficiaries.

On top of these direct taxes, we have the indirect taxes like VAT, fuel levy, property transfer tax – basically anything you can think of carries a tax. There are a few things we can do about these taxes when we structure our investments and our estates. The best way to minimize these taxes is to come and have a chat to us, so that we can analyze your situation and make suggestions. But, in the meantime, here are some ways to limit the tax you have to pay:

Tax-free savings account: A tax-free savings account grows your investment while you benefit – with no tax on interest or dividends received, and no capital gains tax on funds withdrawn. There is a lifetime limit of R500 000 and you can invest up to R36 000 per year.

Retirement Annuity: A large portion of your contributions to your RA will be tax-deductible, and up to R500 000 can be withdrawn in cash, tax-free, when you retire from it. You have to be invested until age 55 (this will change in 2024) and the amount above R500 000 will be taxed if you do not transfer it to a living annuity.

Interest income: You will pay tax on any interest received, except for the first R23 800 (younger than 65), and R34 500 (65 and older). So it is better to put your interest-bearing investments in your tax-free savings account, your RA, or your Living Annuity, because there you are not taxed on interest earned.

Estate duty: At your death your estate will pay 20% of the dutiable amount of your estate that does not exceed R30 million, and 25% on anything over R30 million. If you are married, estate duty is not payable on any assets left to the remaining spouse and the first R3,5 million is exempt per individual.

There are other ways to minimize the tax burden on your investments and estate, but perhaps another way of not paying all your hard-earned savings and savvy investment growth over to the government, is to actually use it to enjoy your own life. There is a balance between saving and spending, and once again we will be able to help you find that balance over a cup of coffee.

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