2017 was certainly not a year without its ups and downs (more than you can possibly count if you hold bitcoins!) The year closed off with a shake-up in the political landscape, with the markets responding positively to the election of Cyril Ramaphosa as the new President of the ruling party, the ANC. The new leadership, however, has a significant task ahead to revive the economy and to attract foreign investment into South Africa.

A budget deficit, a trade deficit and stagnant economic growth (0.8% year-on-year) are some of the challenges we face. But it isn’t all doom and gloom! Local equity markets are off to a buoyant start, the Rand is hovering just below R12/USD, for the first time since May 2015, inflation is currently 4.7%, averaging 5.3% for 2017 (and within the target range of 3% – 6%), and the hope is that the new ANC leadership will adopt strategies that benefit both economic growth and inclusivity.

Next month sees two very important dates on South Africa’s economic calendar; the State of the Nation Address by President Zuma on the 8th of February and the Budget Speech on the 21st of February by Finance Minister Malusi Gigaba, which marks the end of the 2017/2018 tax year. The latter speaks directly to South African taxpayers (you and I) and will determine whether we pay more taxes in the 2018/2019 tax year or not.

Taxes are a painful burden but nevertheless a certainty, as the adage goes. We at Harbour Wealth, pride ourselves in optimising our clients’ returns and tax savings. In the past few years, the South African government has introduced tax incentives that promote savings and allow investors to invest their discretionary (unit trusts etc.) and non-discretionary (retirement) funds in a tax-efficient manner. The month of February is also the final opportunity for investors to top-up their Tax-Free Savings Accounts and their Retirement Annuity contributions for the tax year and we encourage all our clients to take full advantage of it!

Here are some key points to remember about Tax-Free Savings Accounts and Retirement Annuity contributions:

Tax-Free Savings Accounts (TFSA):

  • Returns are tax-free i.e. are not subject to income tax, dividend withholding tax or capital gains tax.
  • Annual contribution limit of R33 000 (R2 750 per month for debit order investors).
  • Lifetime contribution limit of R500 000.
  • Only a natural person with a valid South African Identity Document/Birth Certificate may invest.
  • Having more than 1 TFSA is allowed, but limits apply across all investments.
  • Amounts withdrawn do not create additional contribution capacity.
  • Any contributions paid by a parent on behalf of children/minors will be viewed as a donation (R100 000 annual donations tax exemption applies).

Retirement Annuity Contributions (RA):

  • 27.5% of your gross remuneration/taxable income (whichever is higher) is tax deductible.
  • The annual contribution is capped at R350 000.
  • The above applies to all retirement fund contributions; pension funds, provident funds and retirement annuity funds.

To put into perspective, if you earn R1 000 000 a year, your maximum allowable deduction from your taxable income is R275 000. If you earn R2 000 000 a year, your maximum allowable deduction is capped at R350 000. According to Sec 10c of the Income Tax Act, whatever amount you contribute towards your retirement funds that did not rank for a deduction (i.e. that is greater than the R350 000 each year) may be offset against any income earned when you eventually start to draw an income from your living annuity in retirement, and/or any lumpsum you elect to take at retirement.

A Retirement Annuity provides a tax-efficient vehicle that can maximise the value available at retirement to convert into an annuity. It also provides considerable estate planning benefits as any lump sums or annuities received by dependants on death are exempt from estate duty, capital gains tax and executor fees. However, any remaining previous contributions which did not rank for deduction, made after 1 March 2015, will be dutiable in the investor’s estate.

The compounding effects of these tax savings go a long way in achieving your investment objectives, whether it be boosting your retirement capital or providing for your children’s education needs. At Harbour Wealth we have structured a range of investment solutions to this end. Our investment team works hard in constructing an optimal investment solution that aims to maximise capital growth and tax savings.

If you would like help in opening a new Retirement Annuity or Tax Free Savings Account, or calculating your shortfall please do not hesitate to contact your Wealth Manager. Alternatively, your tax practitioner can help calculate your shortfalls.

We look forward to an amazing 2018 with you!

Please Note: All top up/ new application forms and proof of payments need to reach us no later than 23 February 2018!