Although tax considerations should not be the sole driver of an investment decision, it is nevertheless an important one as it may well erode substantially from your returns further down the line.

Below we look at what taxes are applicable to a number of common investment vehicles and exactly how they will impact your investments.

 Investment vehicle Contributions income tax deductible Life office tax Personal income tax on benefits / proceeds Capital gains tax Estate

Duty

Shares trading (short term) No No Yes Yes Yes
Shares investing (long term) No No No Yes Yes
Bank investments No No Yes No Yes
Unit trust No No Yes Yes Yes
LISP No No Yes Yes Yes
Life policy No Yes No No Yes
Endowment policy No Yes No No Yes
Sinking fund policy No Yes No No Yes
Retirement annuity Yes No Yes No Yes
Pension/provident funds Yes No Yes No Yes
Compulsory annuity No No Yes No No
Voluntary annuity No No Yes No No
Disability income

replacement policy

Yes Yes No No No

 

TAX Explanation  

Example

 

Personal Income Tax on benefits/proceeds

 

Income tax is the normal tax that is paid on your taxable income.

Examples of amounts an individual may receive, and from which the taxable income is determined, include –

  • Remuneration (income from employment), such as, salaries, wages, bonuses, overtime pay, taxable (fringe) benefits
  • Allowances and certain lump sum benefits
  • Profits or losses from a business or trade
  • Income or profits arising from an individual being a beneficiary of a trust
  • Director’s fees
  • Investment income, such as interest and foreign dividends
  • Rental income or losses
  • Income from royalties
  • Annuities
  • Pension income
  • Certain capital gains
  • If you buy and sell shares many times at short intervals any capital gain will be subject to income tax

 

For the 2017 year of assessment (1 March 2016 – 28 February 2017)

  • R75 000 if you are younger than 65 years.
  • If you are 65 years of age or older, the tax threshold (i.e. the amount above which income tax becomes payable) increases to R116 150.
  • For taxpayers aged 75 years and older, this threshold is R129 850.

 

 

Capital Gains Tax

 

40% of a capital gain (less the CGT exclusion amount of R40, 000) is included in the individual’s taxable income and taxed at applicable marginal tax rate. For capital gains tax purposes, a taxpayer may disregard any capital gain on the disposal of a primary residence, owned by a natural person not exceeding R 2million.

 

If you hold shares as a long-term investment, any capital growth (appreciation) upon disposal will be subject to CGT.

 

 

(Capital gain – CGT Exclusion Amount) x CGT Exclusion Amount x Marginal Tax Rate, or then R350 000 – R40 000 = R310 000 x 40% = R127 100 x 41% = R52 111.

 

Estate Duty

 

Estate duty is payable on the estate of every person who dies and whose net estate value exceeds R3, 5 million. It is charged at the rate of 20%.

 

For example, Mr Brown’s dutiable estate is worth R1 million. Estate duty is calculated at 20% of the dutiable estate so this equates to 20% times R1 million which amounts to R200 000.

 

 

Individual tax rates

 2017 tax year (1 March 2016 – 28 February 2017)

Taxable income (R) Rates of tax (R)
0 – 188 000 18% of taxable income
188 001 – 293 600 33 840 + 26% of taxable income above 188 000
293 601 – 406 400 61 296 + 31% of taxable income above 293 600
406 401 – 550 100 96 264 + 36% of taxable income above 406 400
550 101 – 701 300 147 996 + 39% of taxable income above 550 100
701 301 and above 206 964 + 41% of taxable income above 701 300

Source: SARS

 

Interest and dividends

Interest exemptions

Interest from a South African source earned by a natural person is exempt, annually, up to an amount of:

2017 2016 2015 2014 2013
Person younger than 65 R23 800 R23 800 R23 800 R23 800 R22 800
Person 65 and older R34 500 R34 500 R34 500 R34 500 R33 000

Source: SARS

 

From 1 March 2015 (2016 tax year), a final withholding tax at a rate of 15% will be charged on interest from a South African source payable to non-residents.

Interest is exempt where earned by a non-resident who is physically absent from South Africa for at least 183 days during the tax year and doesn’t carry on a business in South Africa.

 Dividends Tax

As from 1 April 2012, dividends tax is charged at 15% on shareholders when dividends are paid to them by a South African tax resident company or Foreign Company whose shares are listed on the JSE.

STC was payable by South African resident companies at a rate of 10% on dividends declared on or before 31 March 2012.  STC was replaced with dividends tax on 1 April 2012.

Foreign Dividends

For tax years 2013 – 2017 – Most foreign dividends received by individuals from foreign companies (shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 15%. No deductions are allowed for expenditure to produce foreign dividends.

Retirement lump sum benefits

Tax relief on retirement lump sum benefits is allocated once in a lifetime in other words if it’s used up you can’t claim it again. For example, if a person used R300 000 of the R500 000 with the first lump sum, the balance left is R200 000 and once this is used up, this relief is not available again. For more details on how it works, consult SARS’ Budget Tax Guide

Withdrawal Benefit

 

2017 tax year (1 March 2016 – 28 February 2017)

Taxable income (R) Rate of tax (R)
0 – 25 000 0%
25 001 – 660 000 18% of taxable income above 25 000
660 001 – 990 000 114 300 + 27% of taxable income above 660 000
990 001 and above 203 400 + 36% of taxable income above 990 000

Source: SARS

 

Capital gains tax (CGT)

Type 2017* 2016 2015 2014 2013
Individuals and Special Trusts 16.4% 13.65% 13.32% 13.32% 13.32%
Companies 22.4% 18.65% 18.65% 18.65% 18.65%
Other Trusts 32.8% 27.31% 26.64% 26.64% 26.64%

*Proposed rates as announced by the Minister of Finance in the 2017 Budget.

 

Average income tax rates comparisons

See how the changes in tax rates affect the various age groups per income level from last year 2015/6 to this year, 2016/17.

 

Taxpayers below 65

Taxable Income (R) 2015/16 rates (R) Proposed 2016/17 rates (R) Tax change (R) % change Average tax rates
Old rates New rates
85 000 2 043 1 800 -243 -11.9% 2.4% 2.1%
90 000 2 943 2 700 -243 -8.3% 3.3% 3.0%
100 000 4 743 4 500 -243 -5.1% 4.7% 4.5%
120 000 8 343 8 100 -243 -2.9% 7.0% 6.8%
150 000 13 743 13 500 -243 -1.8% 9.2% 9.0%
200 000 24 191 23 460 -731 -3.0% 12.1% 11.7%
250 000 37 191 36 460 -731 -2.0% 14.9% 14.6%
300 000 50 986 49 780 -1 206 -2.4% 17.0% 16.6%
400 000 82 326 80 780 -1 546 -1.9% 20.6% 20.2%
500 000 118 326 116 460 -1 866 -1.6% 23.7% 23.3%
750 000 215 297 213 431 -1 866 -0.9% 28.7% 28.5%
1 000 000 317 797 315 931 -1 866 -0.6% 31.8% 31.6%

Source: National Treasury

 

Taxpayers aged 65 to 74

Taxable Income (R) 2015/16 rates (R) Proposed 2016/17 rates (R) Tax change (R) % change Average tax rates
Old rates New rates
120 000 936 693 -243 -26.0% 0.8% 0.6%
150 000 6 336 6 093 -243 -3.8% 4.2% 4.1%
200 000 16 784 16 053 -731 -4.4% 8.4% 8.0%
250 000 29 784 29 053 -731 -2.5% 11.9% 11.6%
300 000 43 579 42 373 -1 206 -2.8% 14.5% 14.1%
400 000 74 919 73 373 -1 546 -2.1% 18.7% 18.3%
500 000 110 919 109 053 -1 866 -1.7% 22.2% 21.8%
750 000 207 890 206 024 -1 866 -0.9% 27.7% 27.5%
1 000 000 310 390 308 524 -1 866 -0.6% 31.0% 30.9%

Source: National Treasury

 

Taxpayers aged 75 and over

Taxable Income (R) 2015/16 rates (R) Proposed 2016/17 rates (R) Tax change (R) % change Average tax rates
Old rates New rates
150 000 3 870 3 627 -243 -6.3% 2.6% 2.4%
200 000 14 318 13 587 -731 -5.1% 7.2% 6.8%
250 000 27 318 26 587 -731 -2.7% 10.9% 10.6%
300 000 41 113 39 907 -1 206 -2.9% 13.7% 13.3%
400 000 72 453 70 907 -1 546 -2.1% 18.1% 17.7%
500 000 108 453 106 587 -1 866 -1.7% 21.7% 21.3%
750 000 205 424 203 558 -1 866 -0.9% 27.4% 27.1%
1 000 000 307 924 306 058 -1 866 -0.6% 30.8% 30.6%

Source: National Treasury

 

Sources:

https://www.fnb.co.za/share-investing/my-shares-and-tax.html

https://www.moneyweb.co.za/financial-advisor-views/tax-considerations-in-an-investment-decision/

https://www.sars.gov.za/Pages/default.aspx

https://www.treasury.gov.za/