Be a tax-savvy investor
You have until the end of the month to maximise your tax incentives and be a tax-savvy investor.
With the tax-year end nearing, let’s summarise the main benefits of tax-free investing.
Benefit from generous tax savings by contributing to retirement funds
Your contributions to retirement funds, like Retirement Annuities (RAs), are tax deductible up to 27.5% of your total taxable income/remuneration, capped at a maximum of R350 000 p.a.
This means that you can reduce your tax liability by contributing to RAs. However, few investors know that they can enjoy further tax deductions by re-investing the taxes that they saved in the first place. The re-investment of the tax saving, on top of a tax saving, results in a compound savings effect that few, if any other, investments can achieve.
Saving in a non-tax-deductible investment
Saving in a tax-deductible RA
R 1 000 000
R 1 000 000
Contribution to investment
Tax saving reinvested in current year
Tax saving on tax saving reinvested in following year
Investment after 2 years (contributions only)
Other benefits of investing in an RA include tax-free growth within the investment, protection from creditors and the fact that an RA doesn’t form part of your estate for estate duty and executor’s fee purposes.