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Provided by the South African National Department of Health     

Take advantage of
current tax breaks

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Stanley Broun

Head of Fiduciary and Tax

The end of the 2021/2022 tax year is just around the corner. While no one can predict what Finance Minister Enoch Godongwana will announce on the tax front in his budget speech later this month, it may be prudent to take advantage of the tax benefits still in place before the current tax year ends on 28 February 2022.

To make the most of the available tax breaks before 28 February, we encourage you to:

  • Open a tax-free savings account (TFSA), or add to your existing TFSA – you can contribute up to R36 000 in aggregate per tax year (and up to a maximum of R500 000 in aggregate)
  • Make a lump-sum, tax-deductible contribution to a retirement annuity (RA), or increase your monthly RA debit order.

TAX-FREE INVESTING: 3 FUNDS

One way to capitalise on existing tax breaks is by contributing to a TFSA – you’ll pay no tax on interest, dividends or capital gains. TFSAs offer different investment options to suit your objectives and risk profile. Sanlam Private Wealth has three funds available to you to invest in a TFSA: the Sanlam Global High Quality Feeder Fund, the Sanlam Private Wealth Equity Fund and the Sanlam Private Wealth Balanced Fund.

In addition, a TFSA provides you with a unique opportunity to make use of your annual donations tax exemption to donate up to R100 000 (R200 000 if each spouse makes use of his or her exemptions) per year to your children without incurring donations tax. It can therefore provide you with an alternative estate planning tool, as the funds will be invested in your children’s names in a tax-efficient investment.

BOOST YOUR RETIREMENT PORTFOLIO

Investing in an RA is an excellent way to save on tax and give your retirement portfolio a boost – you won’t pay any dividends tax, and income and capital gains tax won’t apply to the assets managed. You can contribute to an RA even if you’re also contributing to a pension or provident fund.

Contributions made during a tax year to all South African funds – including RAs – are tax deductible up to a maximum of 27.5% of your taxable income, but subject to an annual ceiling of R350 000. Contributions in excess of these limits that have not been allowed as a tax deduction may be carried forward.

LEAVING SA?

On 15 January 2021, President Cyril Ramaphosa signed off on new tax legislation likely to impact your RA and your preservation fund in certain instances if you decide to leave South Africa. Here’s what you need to know:

  • Until 1 March 2021, if you formally emigrated from an exchange control perspective (through the South African Reserve Bank), you could withdraw and externalise the pre-retirement capital from your RA (after paying retirement lump-sum tax).
  • As of 1 March 2021, you can now only access the pre-retirement lump-sum benefits of your RA if you’ve ceased to be an SA tax resident and remained a non-SA tax resident for an uninterrupted period of three years or more.
  • With regard to preservation funds, if you’ve already used the one-off withdrawal allowed before retirement, as of 1 March 2021 you will now also be able withdraw the full fund value once you’ve ceased to be an SA tax resident and remained a non-SA tax resident for an uninterrupted period of three years or more.
  • If you did not make use of the one-off pre-retirement withdrawal from your preservation fund, the new laws won’t apply and you will, if you ceased to be an SA tax resident, continue to have immediate and full access to the full withdrawal benefit, subject to lump-sum tax.
  • The three-year waiting period therefore doesn’t impact all retirement funds. It applies only to RAs, and to preservation funds where the one-off pre-retirement withdrawal has been utilised. The after-tax resignation value of pension, provident and preservation funds where the one-off withdrawal has not been utilised will continue to be accessible to members who have ceased to be tax resident without the three-year rule being applied.

If you need any assistance with regard to tax-efficient investments, call Stanley Broun on +27 (0)11 778 6648 or email him at stanleyb@privatewealth.sanlam.co.za.

At Sanlam Private Wealth, we also provide enhanced tax compliance and accounting services to high net worth and ultra-high net worth clients – both individuals and trusts. For further information, contact Rene Klein on +27 (0)11 778 6662 or at renek@privatewealth.sanlam.co.za.

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