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How to make Sarsa repay money

The December holidays came and went, and I was lucky to spend some time with my family on the coast. Thus, because of the long-forgotten holidays, it is important to allocate time for the budget for the next year and, hopefully, have enough money for another relaxing December holiday at the end of 2019.

In these politically and economically unstable times, when opposition parties in parliament expect that former President Jacob Zuma — among other things — will “return the money”, you can save some money by using some of the tax benefits offered by the South Africa Revenue Service (Sars) . When Sars "pays my money", you get a double benefit: we get the support of our savings and pay a little less tax.

Like you, I diligently pay my taxes, although sometimes I utter a few curses. However, when I can lawfully save some taxes, either by reducing my tax bill, or completely denying some taxable income, I see this as a victory. Any amount you can invest develops in the long term, so if you can save only 200 rubles a month, do it. Then you will have more money than if you did nothing.

There are investment products that offer you tax breaks, so Sars can really get your money back.

Let the buyer be alert: I have been involved in asset management for 16 years and found that investing only with tax benefits can lead to frustration. So, before I go into the details of investment proposals, let me say that first you must always take into account the merits of the investment product itself and only then assess the tax advantages, if any.

Tax free savings accounts (TFSA)

The reason for introducing TFSA was to stimulate household savings. This practice may reduce the vulnerability that some households face with unexpected expenses, which, in turn, leads to an increase in debt.

Increasing household savings increases the overall level of savings in the economy, finances higher levels of investment in fixed assets and contributes to growth prospects.

TFSA provides tax benefits, so that all savings, regardless of source – income, capital or dividends – are not taxed, and subsequent exemptions are not taxable.

The product offers a wide range of investment options ranging from cash to offshore stocks. The annual contribution limit is 33,000 rubles., And the service life is 500,000 rubles. However, it is subject to property tax in case of death.

It is better to start earlier when it comes to the start of TFSA, since long-term investments will benefit from the complex effect of tax-free growth.

Pension annuities (RA)

The second tax investment product is RA. RAs got more than their fair share of bad press. But this is not justified for related RAs, which can add value to your investment portfolio.

Simply put, an RA is a separate pension fund that can be stored in addition to the employer's fund, which allows people who are not part of a group scheme or who need additional savings to enjoy the benefits of investing in a pension. fund.

In terms of tax benefits, these contributions are not taxable to less than 350,000 rubles per year, or 27.5% of the larger amount of remuneration or taxable income, including any taxable capital gains, but before deduction for donations.

If you can afford to make contributions of, say, 50,000 rubles a year and have an average tax rate of 30%, you will save 15,000 rubles a year in tax. You can pay 50,000 rubles, but physically invest 65,000 rubles if you reinvest your tax refund from your contribution to Armenia.

All growth, regardless of source – income, capital or dividends – is not taxable. There are also no property duties or fees for the death contractor. However, in accordance with the Prudential Principles of investing in equity, no more than 75% can be invested, and no more than 30% in offshore.

Many financial commentators claim that limited offshore exposure negates all tax benefits of this product. But, in my opinion, these offshore investments and any other investments should be extremely effective to offset tax deductions on your contributions and non-tax growth.

The second caution from such commentators is that you get tax on income received from a RA after retirement from a product, and therefore it would be better, for example, in stocks where you pay only capital gains tax and income dividends tax, which is below the marginal rate of income tax. Again, I allow myself to disagree. If you look at the difference in value, for example, the portfolio of shares and RA for 25 years – taking into account the deductibility of contributions and their reinvestment, as well as tax-free growth – this (complex savings) more than compensates for income after retirement taxed by income tax.

I hope that after reading this you decide to take RA if you don’t have it yet. However, it is important to have a balance of discretionary and non-discretionary savings in your portfolio so that you can create different tax and liquidity profiles.

Section 12J Investment

Investment under section 12J has existed since 2009, when the South African government amended the Income Tax Act to stimulate the private sector and the economy.

These amendments introduced tax incentives for investors — private individuals, trusts, or small business corporations — through tax-free investments in venture capital companies of Section 12J. Section 12J companies must be licensed with the Financial Sector Supervision Authority (formerly Financial Services Board) and registered with Sars.

While contributions to section 12J are useful to those who receive high returns, the bulk of support for this sector has been provided by investors seeking to reduce the impact of the CGT.

Definitely, this is a category of investments where you have to carefully look at the main investments, the investment strategy and the issuer's compliance, before you get too carried away with potential tax savings.

In terms of tax benefits, you can make unlimited contributions that are deductible from taxable income. Do not pay too much, as this contribution is deducted before the value-added tax is deducted from the tax calculation, and you may not receive the full tax benefit from your contribution to RA. You must remain invested for at least five years, otherwise your tax savings will be refunded by Sars. When exiting, your base cost when determining the CGT will be set to zero.

Whether I pay less tax (getting the same income) or return some tax, I have more money than I would if I didn’t do anything. You have to make your investments by the end of February, so immediately proceed to them – there is no time to spend money on returning your money!

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