How to maximise your tax benefits before the end of the tax year.
The end of the tax year is around the corner and what better way to take advantage of tax concessions than by boosting your savings? If you top up your retirement annuity (RA) or Tax-Free Savings Account (TFSA) before 28 February you can benefit from tax concessions for the 2017/2018 tax year and still be able to claim a tax refund on your RA contributions this year.
Stanleur Financial Services says most individuals are unaware of the extent to which they can make the most of their tax exemptions and deductions, or how they can benefit from tax laws designed to encourage a culture of saving.
Invest in retirement savings products
The amount you invest in retirement savings products can be deducted from your taxable income. This can be up to 27.5% of your annual income, capped at R350 000 per tax year across different retirement savings products (including RAs, pension and provident funds). In addition, the investment returns on your RA contributions are free of dividends tax, income tax on interest and capital gains tax.
If you have not reached the annual contribution limit you still have a chance to contribute more before the end of February. When you contribute to an RA, you defer some of your taxable income to the period after retirement where your income tax rate will likely be lower.
Boost your tax-free savings
South Africans are allowed to invest up to R33 000 per year in TFSAs (up to a maximum of R500 000 over your lifetime). You invest part of your after-tax income, but the dividends, capital gains and interest that accrue in your account while you are invested are not taxed.
“The funds in your TFSA are available to you at any time and you do not pay tax on withdrawals. However, if you do a withdrawal, you will not be able to reinvest it later in a TFSA without affecting your annual and lifetime limits. You may therefore miss out on the tax-free benefit on future investment returns,” says Stanleur.
The choice of product
RAs and TFSAs fulfil different objectives and need to be regarded in that light.
In most cases, RAs provide the best tax-effective vehicle for providing retirement savings. For long-term discretionary savings, it would make sense to invest the first R33 000 per annum in a TFSA.
We suggest that you contact an accredited financial planner to help you decide on the product best suited to your individual needs and circumstances.
Contact Stanleur – Caring for your financial future. Call 012 942 1401 or email firstname.lastname@example.org