Annual Tax Incentives from SARS that will help you Save Money!

There are only two and a half weeks left of this tax year and we would like to remind you to take advantage of the annual tax incentives that the South African Revenue Services (SARS) have put in place to help South Africans save.

Retirement Annuities and Tax-Free Savings Investments are both perfect opportunities to maximize your tax savings. Below are the advantages and differences between these two tax-efficient saving vehicles to help you select the right solution for you. Don’t have either of these, don’t worry we at Global and Local can help you.

The advantages of investing in a Retirement Annuity

• Your contributions into your Retirement Annuity are tax-deductible and your money is preserved for your retirement.
• You may deduct the amount(s) you have contributed from your annual income and lower your taxable income, which means you pay less income tax now.
• Interest, dividends, and capital earned on the investment are tax-free.
• There are further tax benefits when you retire. You are allowed to withdraw up to one-third of your investment as cash (the first R500 000 is tax-free but this includes all previous taxable lump sums from retirement products and applies once-off over your lifetime). The remaining amount must be transferred to a product that can provide you with an income in your retirement.
• You can nominate beneficiaries on your retirement annuity.

The advantages of investing in a Tax-Free Savings Investment

• You can withdraw from your Tax-Free Savings Investments at any time.
• Interest, dividends, and capital earned on the investment are tax-free.
• Switching between underlying funds will not trigger tax.
• You can have as many Tax-Free Savings accounts as you like, limited to R36 000 per tax year across all accounts.

Differences between a Retirement Annuity and Tax-Free Savings Investments 

	Retirement Annuity	Tax-Free Savings Investment
How much can I invest?	You can invest any amount. Your investments are tax-deductible; however, this deduction is limited to 27.5% of the greater of your taxable income or remuneration, capped at R350 000 per tax year.	One can invest anything up to R36 000 per tax year, capped at R500 000 over your lifetime (across all service providers).
What if I invest more than the limits?	Your tax benefit for investments over the limits will be carried over to the following tax year until you’ve received the full amount.	A tax penalty of 40% will have to be paid on the amount you invest above the maximum (mentioned above).
When can I access my money?	Any time after retirement; age 55. You will only be allowed to access your money earlier in certain circumstances.	At any time, however, your contribution limits do not change so you cannot re-contribute amounts you have already withdrawn. This makes your TFI more suited as a long-term investment.
Estate Planning	The proceeds of a retirement annuity do not form part of your estate. The trustees will have to decide who receives your money to ensure your financial dependents are taken care of, but you can nominate whom you want to be considered.	Upon death, your Tax-Free Savings Investment will form part of your estate and may be subjected to estate duty.

When looking at Retirement Annuity and Tax-Free Savings Investments, they have different objectives. It may not be an either/or decision, but rather a question of using both for the purposes they were designed for.

It is of utmost importance to evaluate your entire portfolio to ensure that your decisions align with your long-term investment plans.

If you haven’t reached these limits yet, you have until the end of February 2023 to maximize your tax savings for this year. Michael Haldane and his team at Global & Local The Investment Experts are ready and waiting to help you

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