On that note, did you know that SARS is not just a receiver of money but actually has incentives to reward you for saving and even give you money back? In this current volatile economic climate, our finances could sure use a boost and SARS can help.
Here are five useful “Did You Know” facts about our local Receiver of Revenue or in this case our “Giver of Revenue” that can help grow our financial wealth.
1. Did you know the first R40 000 capital gain you make in a tax year (1 March to 28 February) is exempt from tax?
Capital Gains Tax (CGT) is tax charged on all gains (profit) made on most investments and assets one owns that increase in value over time and payable when you sell these.
For example, if you invested R50 000 in a unit trust (not a money market/cash unit trust) that grew to R90 000 and you cashed it out, you would have made a capital gain of R40 000. CGT would be calculated at 40% on the R40 000 gain. However the first R40 000 gain in a tax year is tax free, so in this basic example, no tax is payable.
This R40 000 gift from SARS applies on a cumulative basis and is always available to utilise once in each tax year. So if you sold many investments in a tax year that were subject to CGT, you would need to add all these gains up and only then deduct R40 000 from your total gains amount.
2. Did you know you can earn R23 800 interest income in a tax year if you are under 65 years old without paying any tax, and even more (R34 500) if you are over 65?
If you are under the age of 65, the first R23 800 in combined interest that you receive from all investments that earn interest (money market funds, savings accounts, fixed deposits, bank accounts, cash investments etc.) in a tax year, is free from paying tax.
Put differently if under 65, you could earn interest income of up to R1 983 pm tax free. It’s even better for those older than 65, as they can earn up to R2 875 pm interest income tax free.
3. Did you know that contributions you make to retirement funds (Pension, Provident, and Retirement Annuities) can reduce your tax bill, and even get you money back?
All cumulative contributions you make to retirement funds - can reduce your tax liability and could even get SARS to give you some money back. These cumulative contributions are currently limited by law to a maximum of up to 27.5% of your taxable income or gross income, whichever is higher.
As an example, if your sole source of income was a salary of R 500 000 from your company in the 2021/2022 tax year and you contributed R1 500 pm to a Retirement Annuity Fund, you could have received a cool R6 480 cash back “bonus” from SARS.
4. Did you know that all growth on your money in a Tax Free Savings Investment is tax free, thus the compounding effect on your money is way better than investments attracting tax?
A tax free savings account (TFSA) is an investment vehicle that currently allows one to invest a maximum of R36 000 per annum in a tax year, without ever having to pay tax on any withdrawals or growth made within the TFSA.
Just take note that the R36 000 maximum amount is cumulative and not per TFSA investment that you might have. Hence it is important to ensure you do not exceed this annual cumulative limit or there will be tax consequences.
If you were contributing money equally towards two identical unit trust funds and one was placed in a TFSA investment, this fund will generate greater returns over time than the fund not in the TFSA investment. As no tax is levied in the TFSA, your money will compound at a greater rate giving you better investment returns and outcomes compared to investments that attract tax.
5. Did you know that all growth on your money in retirement funds are also tax free with the same powerful compounding effect as in the Tax Free Savings Investment?
The same compounding effect applies to your money in a retirement fund as in the TFSA, but with the added bonus of being able to reduce your tax bill, where contributions are being made.
In our March 2023 Client Newsletter, we will explore some practical steps on how to use these tax incentives to enhance your financial wealth. Until then, did you know that the first known taxation took place in Ancient Egypt around 3000 - 2800 BC (Tax - Wikipedia).
Gareth van Deventer CFP®
Technical Advice Service Manager