I know I promised to begin covering the various investment products in this post, but so much noise has arisen around the tax changes set out in the National Budget Speech that I believe it is prudent to give some attention to this topic first.
Let us first cover the income tax rates for individuals. The new tax tables are as follows:
The tax tables have been adjusted to stay in line with inflation and also to provide some tax relief for low income earners.
There have also been two significant changes that will have an impact on your discretionary investments. The first relates to dividend tax and the second to Capital Gains Tax.
Dividends Tax
Dividends will not be taxed at company level anymore but will be collected via a withholding tax. This will apply to all discretionary savings products. The rate of tax will be 15% for all South African Investors.
Capital Gains Tax
Capital Gains Tax has increased and now applies as follows:
Now those of you familiar with the previous tax structures will note that dividends and capital gains tax have increased. This will place a further drag on the returns, transactions and income from your discretionary investments. These discretionary investments we have been referring to include Investment Plans, Endowment and Sinking fund policies.
Now would be the time to seriously reconsider your investment strategies if you invest via these products. While they have the advantage of allowing you greater access to your investment capital prior to retirement you are handing over a significant portion your returns to tax man.
To escape the burdens of dividend tax, interest income tax and capital gains tax you do have an option available that is significantly more tax efficient. This is the Retirement Annuity Fund which not only allows your investment to grow free of all the above tax burdens but also allows you to deduct up to 15% of taxable income from non-retirement-funding employment, or R3 500 less current contributions to a pension fund, or R1 750, whichever is the greater. Any excess may be carried forward to following years of assessment.
Let us make the Retirement Annuity Fund our first product for discussion. Look out for all the advantages and disadvantages of investing in a Retirement Annuity Fund in our next post.
