Enhancing returns with appropriate tax planning

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The last few years have been very difficult for South African investors with relatively poor market returns while the associated costs and taxes remain at high levels.

Tax planning is critically important when it comes to your holistic financial planning and can add significantly value to a well-managed investment portfolio.

Although every individual has unique planning requirements there are some basic options to consider. We have listed a few below.

  1. Retirement Savings

Retirement products offer significant tax advantages which every tax payer should be taking advantage of.

All investment returns earned are exempt from tax, contributions are tax deductible within certain limits and surplus savings can be added on an ad hoc basis as needed. Done consistently this strategy can greatly enhance the final benefit in retirement.

  1. Tax Free Savings Account “TFSA”

Once your retirement savings have been maximised a TFSA offers access to additional tax-free investment returns. Annual contribution limits are low, currently R 33 000 with a lifetime limit of R 500 000, however the tax savings compounded over the long-term will add value.

  1. Annual Capital Gains Exclusion

Many investors fail to utilise their annual capital gain exclusion of R 40 000. Although rather administratively intensive, investors have the option to realise a portion of their existing investments gain, use the annual exclusion and thereby reset the capital base at a higher rate without paying any tax. Again, consistently done this can add significant value over the wealth creation phase of a financial plan.

Applying generic information of this nature is possible and potentially beneficial, we do however strongly advice seeking the input of a reputable, independent financial advisor to assist with your overall financial planning.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)