The 28th of February is around the corner, and it is time to be strategic and tax savvy. Open a new or top up your existing Fairtree Retirement Annuity and / or Fairtree Tax-Free Savings Account and maximise your tax benefits for this tax year.
How to make the most of your tax benefits
Tax-Free Savings Account
To maximise your annual tax benefit, you can contribute up to R36,000 per tax year and up to R500,000 over your lifetime. These investments attract no tax on interest, dividends or capital gains and you will save a substantial amount in tax over the long-term.
How Jane saved R410,888 in tax
Jane earns R50,000 per month and contributes R3,000 per month (R36,000 per year) to her Tax-Free Investment. If she keeps this up until she reaches her lifetime limit of R500,000 (in about 13 – 14 years) and lets the investment grow for another 7 years after that, the investment value would be R1,919,984. If she however invested in another typical taxable investment, the value would be only R1,509,096 as R410,888 was paid away to the tax man.
Retirement Funds
To maximise your annual tax benefit, you can contribute up to 27,5% of your annual remuneration or taxable income (whichever is higher) across Retirement Funds (Pension Funds, Provident Funds and Retirement Annuities). The tax benefit is capped at R350,000 per year and contributions exceeding this amount will roll over to the next year.
How John saved R30,776 in tax for the 2021/2022 tax year:
John earned R60,000 per month (before deductions) and received R80,000 as an annual bonus.
Scenario 1
John did not contribute to any Retirement Funds during the year and must pay tax to the amount of R220,673.
Scenario 2
John contributed R4,000 per month (R48,000 for the year) to his Fairtree Retirement Annuity and will only have to pay tax of R201,597. He managed to boost his retirement savings by R48,000 and saved R19,076 tax in the process.
Scenario 3
John contributed R4,000 per month (R48,000 for the year) to his Fairtree Retirement Annuity and decided to top up his investment with R30,000 from his annual bonus. These wise decisions saved him R30,776 in tax (compared to Scenario 1) and has fuelled his retirement savings for exponential growth in the long term.
Key Takeaways
- Take maximum advantage of the annual tax benefits – you forfeit it if you don’t make use of it each year.
- Retirement Annuities and Tax-Free Savings Account are products for long-term investing and every Rand you contribute has a substantial impact on the future growth of your investment.
- Now is a great time to revise what portion of your monthly income you allocate to saving and investing. Consider increasing this for the next tax year starting on 1 March 2022.
- Apart from the tax benefits set out above, Retirement Annuities and Tax-Free Savings Account offer various additional advantages. Contact us to learn more about these investment products.
Contact Us To Assist You
Don’t miss out on these benefits and contact your Financial Adviser or email us directly.
Disclaimers and Assumptions: All calculations are based on assumptions and the values presented are for illustrative purposes only and are not guaranteed. The focus is on portraying tax relief opportunities available to individual investors, specifically pertaining to contributions to Retirement Funds and Tax-Free Savings Accounts. While every effort has been made to ensure that the information is accurate and up to date, it is not intended to, nor does it constitute investment, tax, legal, financial or any other type of advice and Fairtree shall not be liable or responsible for any damages or loss (direct or indirect) which may be incurred arising out of the use of this article. It is recommended that you consult your financial adviser, before making any decision regarding your specific financial situation. John is 40 years old, had no additional sources of income and did not have any other tax-deductible expenses (medical aid premiums, donations to Public Benefit Organisations and so forth).Jane is a 32 year old salaried employee and was invested in a standard balanced investment portfolio, gross return rate of 10.2%. She has used her annual Capital Gains Tax exclusion and annual interest exemption. Tax was calculated using the applicable South African Income Tax Tables, Capital Gains Tax rates and exclusion, annual interest exemption and annual rebate of the 2021/2022 tax year. All investment and performance figures are quoted in Present Value.
