Floris Slabbert talks about effective tax planning opportunities for investors on Die Groot Ontbyt.

 

Market and currency update

  • The rand remained stable after the tabling of the Budget last week. The currency is currently trading at R12.92 to the US dollar.
  • The dollar is likely to be affected by President Trumps’s US federal budget outline to discussed in Congress tomorrow. This budget, referred to as the skinny budget, is likely to affect the dollar price.
  • In the meantime, the rand’s strength has contributed to the JSE All Share Index trading 600 points lower yesterday.
  • International markets and gold followed the same trend but platinum traded higher.

 

With Budget 2017/2018 now tabled, where does the bulk of our tax revenue come from?

  • The short answer is the middle class. Income tax brackets were adjusted by 1%, while salaries are expected to rise by 5 – 6%. This means that due to bracket creep, taxpayers could find themselves in new, and higher, income tax brackets.
  • However, the approximately upper-income earners, i.e. those earning R1.5 million or more per year, will contribute significantly more in future.
  • With this in mind, it is noteworthy that a mere 6.6% of taxpayers are contributing to 50% of South Africa’s entire tax burden.

 

For every tax increase, there is an opportunity for effective tax planning

  • Investment plans should always include tax planning and make use of the tax deductions and incentives available.
  • For example, make use of the retirement fund deduction of up to 27.5% of your taxable income. By reducing your taxable income, you are also protecting yourself from bracket creep.
  • If it suits your investment plan, consider investing in tax-free savings accounts. The annual tax-free contribution amount has been increased from R 30,000 to R 33,000 per annum, capped at R 500,000 in your lifetime.
  • Dividend tax at 20% still offers a tax-friendly investment option for anyone whose net tax rate exceeds 20%.
  • Consider investments in registered venture capital funds, also known as Section 12J funds. Contributions to these funds are 100% tax deductible.
  • Speak to a professional financial advisor to help you maximise your returns and minimise your tax liability.
  • Download Ecsponent’s 2017 Investors’ Tax Guide for individuals and trusts or the Afrikaans version, 2017 Beleggers Belastinggids vir individue en trusts. These guides provide the 2017/2018 tax highlights that apply to investors. To receive a copy of a comprehensive tax guide, please contact us.

 

Why does government offer these tax deductions?

  • Treasury aims to stimulate entrepreneurial activity by offering the Section 12J deductions. By developing entrepreneurs, we can create economic growth and create jobs.
  • Additionally, by encouraging taxpayers to contribute to retirement funds government is reducing its future social grant liability. The more people have their own provisions for old age, the less likely they will be to rely on government.