Avenues that can help reduce your tax liability

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By Achmat Kazie BA (SA)

There are many ways in which people can reduce their tax liability, for example saving via normal avenues such as the Retirement Annuity, Pension Funds or Provident Funds. These vehicles however can be complicated and also require fixed monthly contributions.  Also, these mechanisms carry very high penalty fees should for some reasons the contributions cannot be maintatined.

There are however a few companies that offer less complicated Retirement Annuities,  with the minimum monthly contributions of R1 000.00 per month – a still relatively high amount.

There are no adequate products available for lower to middle income earners.

The finance Minister announced last year the introduction of a new type of savings account called Tax Free Investment Accounts (TFIA). The incentive is available from 01 March 2015.

The basics of TFIAs are listed below:

• No Income Tax, Dividend Tax or Capital Gains Tax.
• The amount that you can put away is capped at R30 000 per year.
• It is also has a lifetime cap of R500 000 per person.
• Parents can invest in their children’s name thus increasing the limits above by the number of children. (Great savings mechanism for future education fees).
• This is only applicable to new accounts.
• Capitalised income does not contribute to caps

Some negative comments:
• If you go over the limits above there is a 40% penalty payable to SARS. As an example, if you save R35 000 in a year, the penalty payable to SARS will be R2 000 (40% of R5 000).
• Unutilised amounts do not carry forward. Not really an issue is you planning to save a little every year as there is no time limit on when you must reach the R500 000 limit.
• No transfers in the first year of implementation (01/03/2015 – 29/02/2016)
• Contributions made to a TFIA are not tax deductible like contributions to retirement annuities or pension funds are.

The accounts that will qualify under this scheme are:
• Fixed Deposits
• Unit Trusts
• Retail Savings Bonds
• Certain Endowment Policies
• Linked Investment Products
• Exchange Traded Funds (ETFs)

For higher income earners who have exceeded the limits of their contributions towards their RAs, this is a perfect vehicle to put additional retirement savings away instead of through normal unit trust accounts.

All the banks have launched various accounts that qualify to be a TFIA. I am not going to recommend any particular bank but would be more than willing to advise!

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