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BUSINESS NEWS AND VIDEO - February is tax month. With the tax year coming to a close, we would like to touch on a few aspects of tax planning.
Remember that, irrespective of your life stage, capital growth is influenced by costs – including the tax you are liable to pay.
Whether you are in the category of having a career and still building your retirement capital, or already retired and receiving a monthly pension income – tax planning remains important. Utilising all the various tax incentives available can make a big difference to the retirement capital available to you at retirement, as well as the amount you can receive as income from your available retirement capital.
Today, we take a look at two types of products that can assist with tax planning – one being retirement annuities and pension funds, and the other tax-free savings plans.
Tax-free savings plans
This is the only product that is income tax free – this means no income tax is paid on interest or dividends, nor is any capital gains tax payable on capital growth.
There are limits to this tax-friendly investment:
- An individual may only invest R36 000 per tax year in this plan.
- The maximum investment is R500 000 over the lifetime of the individual.
Due to these limitations, the tax-free savings plan should be seen as one element of you overall financial planning, as you obviously cannot rely on this product alone.
In summary, some points to consider about the tax-free savings plan:
- Consider this to be a long-term savings plan, realising that you will have to contribute for 10 years or longer to maximise the benefit.
- Consider this plan as an additional source of retirement funds to help boost growth prior to retirement and reduce tax before and after retirement.
- Ensure that the money invested in the plan is managed wisely over time and invested in appropriate asset classes to gain maximum benefit. For example, if your capital in the plan is only invested in cash you only get the interest tax benefit. We would recommend investing the capital mainly in growth and dividend-generating assets, and not necessarily in cash.
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The second product we want to discuss is pension funds and retirement annuities:
Like tax-free savings plans, pension funds and retirement annuities are also tax planning and savings vehicles.
During our working lives, we save for and work until our date of retirement (which is not always a specific date).
It is important to remember that, like tax-free savings plans, pension funds and retirement annuities are exempt from capital gains, dividend and interest taxes. However, marginal income tax is payable by you when you start drawing an income from the annuity funds.
In addition, the South African Revenue Service (SARS) allows individuals to claim tax deductions on their contributions to pension funds and retirement annuities, at 27.5% of taxable income or remuneration, whichever is the greater. This deduction is limited to a maximum of R350 000 per year.
All individual’s circumstances are different – depending on their life stage, the number of dependants they have, and their financial position.
The most important point is that, irrespective of different circumstances, there are various ways to maximise your capital growth and preserve your capital over time. One way of doing this is to ensure that you utilise all the available tax incentives, which will help you reach your financial goals.
Our office details in the Garden Route:
PSG Mossel Bay Diaz
Sioux Building
16 Sioux Street
Mossel Bay
PSG George Central
Dynarc House, 2nd Floor
31 Courtenay Street
George
PSG Plettenberg Bay
7 Gibb Street
Plettenberg Bay
PSG Knysna
Unit 1, Heads View
Old Toll Road
Knysna
The information in this document is provided as general information. It does not constitute financial, tax, legal or investment advice and the PSG Konsult Group of Companies does not guarantee its suitability or potential value. Since individual needs and risk profiles differ, we suggest you consult your qualified financial adviser, if needed. PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.
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