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Make Use Of Treasury Tax Breaks

It is never too late to start saving for a rainy day and following the announced April 1 VAT increase in the February Budget Speech, now is a better time than most as South Africans face a rise in their cost of living. The higher VAT rate was the stand-out item of the Speech and will assist to raise an additional R36 billion in 2018/2019.

Minister Gigaba also announced that the Capital Gains Tax (CGT) inclusion rate remained at 40% of gains above the R40 000 annual CGT threshold. This implies that no CGT is payable on tax free savings accounts and makes it crucial for consumers to make use of this tax-efficient investment vehicle to boost their savings.

Government introduced tax free investments back in March of 2015 as incentive to encourage household savings. These tax free investment and savings accounts may only be provided by authorized institutions such banks or long-term insurers. The types of accounts that qualify as a tax-free investment includes savings accounts, fixed deposit accounts, unit trusts (collective investment schemes), retail savings bonds, as well as Exchange Traded Funds (ETFs) that are classified as collective investment schemes.

For these types of accounts and investments, consumers do not have to pay income tax, dividends tax or capital gains tax on the returns that these generate. However, they are limited in terms of maximum amount a consumer may contribute over the course of a tax year (R33 000 annually).

In addition, there is also a life time limit on each account or investment of half a million Rand (R500 000) per consumer. Unlike the Lotto, shortfalls to the limitations do not roll over. This means the following: if you allocate R30 000 towards your tax-free savings account in year one, it doesn’t mean that you can now save R36 000 in year two.

A consumer may open multiple tax-free investments or savings accounts, but they will still be limited to the annual limits per tax year. This limitation also applies if a consumer opens these types of accounts on behalf of their children. In this instance, the account must be opened in the name of the child, so it does not reduce the threshold of the guardian or parent.

Consumers can employ ABSA’s tax-free savings account to increase their investment year-on-year, without paying tax on the interest earned. Interest rates for the tax-free savings account starts at 3.75% and go up to 7.25% per annum.

Furthermore, they are able to access their money immediately online or at any ABSA branch. Opening this account is a great way of starting an easily accessible emergency fund, saving towards the education of your children, or putting money away for retirement.

Consumers need R1 000 to open a Tax free Savings Account and can add to their savings whenever it suits them, conveniently via a debit order, with the only limitation being that they do so subject to the current annual tax-free limit of R33 000.

Contact us today to speak to one of our Financial Advisers for a free consultation. +27 14 594 2388