IOL
MONEY
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October 2020
THE TAX ISSUE Tips on filing your return Ways to reduce your tax
CONTENTS FEATURES 5 countries with the highest income tax rates 2020 tax season – how to save on tax and avoid penalties
Filing your return online in 2020
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The tax-saving benefits of retirement annuities
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In the service of taxpayers for 7 years
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Tax tables for the 2020/21 tax year
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REGULARS Rands and Sense
Money Basics with Martin Hesse
CONTACT US PUBLISHER Vasantha Angamuthu vasantha@africannewsagency.com
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PERSONAL FINANCE EDITOR Martin Hesse martin.hesse@inl.co.za
Money Quiz
Important contacts and links
DESIGN Dominique Owen dominique.owen@inl.co.za BUSINESS DEVELOPMENT Keshni Odayan keshni@africannewsagency.com SALES Charl Reineke charl@africannewsagency com Kyle Villet kyle.villet@africannewsagency.com
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Planning Perspectives
PRODUCTION Renata Ford renata.ford@inl.co.za
ENQUIRIES info@anapublishing.com
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Don’t tell me what you value, show me your budget, and I’ll tell you what you value. JOE BIDEN
AMERICAN PRESIDENTIAL CANDIDATE
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FROM THE EDITOR AT THE TIME of writing it had just been revealed by the New York Times that US president Donald Trump paid $750 in tax last year, and in many of the preceding years he paid no tax at all. One writer observed that his housekeeper paid more in tax than he did. Businessmen who wriggle out of paying taxes (usually with the help of devious-minded, high-earning lawyers) are often regarded as folk heroes who “beat the system”. It’s ironic that Trump beat the system that he heads. The fact is that it is a serious offence to avoid paying taxes, and tax authorities around the world are tightening up on tax avoidance and closing legal loopholes. Tax dodgers may get away with it for a few years, but few get away with it for any length of time, and when they are eventually caught, the massive tax bills and fines they face can be crippling. They may even face jail time. So, while it is a grudge expense for most of us – especially if you don’t see your tax money being used effectively or efficiently by government, and much of it ending up in the pockets of corrupt civil servants – it is an unavoidable one. The best we can do is reduce our tax liability through legitimate tax breaks, and render what is due unto Caesar without unnecessary fuss or delay. Among other things, this edition of MONEY provides tips on reducing tax and on filing your annual return in accordance with SARS’s wishes, so as to avoid penalties, fines, or even, in the worst cases, incarceration. And if you are unhappy about how SARS is treating you, you can lodge a complaint with the Tax Ombud, whose details and services are outlined on page 13. I hope you find the content useful.
Martin Hesse EDITOR | MARTIN HESSE | martin.hesse@inl.co.za
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C O U N TRI E S WI TH TH E H I GH E S T PE RS O N A L TA X RATE S
WHERE do taxpayers pay the highest income taxes? Last year, the top marginal rate for the highest income earners in Sweden was about 57%, significantly more than the Organisation for Economic Co-operation and Development average of 41.65%. In general, income taxes are high in the Nordic countries, but Japan and Austria also tax their citizens heavily. At the other end of the spectrum, some countries do not have income tax at all. Examples include oil-rich
countries such as Saudi Arabia, Qatar and Kuwait, and certain islands in the Caribbean and the English Channel. It is not a simple exercise to compare taxes across countries because of the differing tax systems, the various local and national taxes applied, and differing incentives and deductions. Also, employers in many countries must contribute relatively high amounts to the state on behalf of their employees, which are not part of their remuneration. One must also consider what people receive in return
for the tax they pay. Citizens of developed countries with high tax rates receive a great deal in return, including free health care, education to tertiary level in some countries, unemployment benefits, generous state pensions and elderly care. Most countries use a progressive income tax system, whereby the more you earn, the higher the marginal tax rate. This rate applies only to earnings within the stipulated tax bracket, not to all earnings. (See “Money Basics� on page 14).
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1. SWEDEN
Sweden’s income tax is split into a national tax and a municipal tax, so taxation varies depending on where you live. On average, on earnings above 675 700 kronor (about R1.2 million), the marginal rate is 57%. In addition, Swedes have a high VAT rate of 25% (but a lower 12% on food).
3. JAPAN
The Japanese have a top marginal rate of 45%, on income over 40 million yen (about R6.4 million). This is the same top rate as South Africa, although here it kicks in at a much lower R1.58 million. However, all residents of Japan also pay 10% in local tax, bringing the total to 55%. VAT is 10% (8% on food).
4. AUSTRIA
2. DENMARK
Like Sweden, income tax in Denmark is split into national and municipal taxes. Danes also pay a church tax and labour tax. Altogether, these total about 55.9% for top earners. Like their northern neighbours, the people of Denmark pay VAT of 25%. Unlike in Sweden, food is not taxed at a lower rate.
The top marginal income tax rate in Austria, for individuals earning over one million euros (about R20 million) is 55%. However, people earning the equivalent of South Africa’s top-bracket earners (80 000 euros) have a marginal rate of 48%. VAT is 20%, with basic foodstuffs taxed at 10%.
5. FINLAND
In this Nordic country, individuals pay a top rate of 31.75% on income over 72 200 euros (about R1.4 million). However, there is also a municipal tax (19.17%, on average) church tax (1.34%), and health insurance (a further 2.01%), totalling 54.27%. Compulsory pension fees for employees are 4.7%. VAT is 24% (14% on food and 10% on books).
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2020 TAX SEASON: HOW TO SAVE and avoid penalties Fadia Arnold writes that there is no way of avoiding tax if you are eligible to pay it, and procrastinating could cost you in penalties
IT WAS on 13 November 1789 that Benjamin Franklin wrote in a letter to Jean-Baptiste Leroy – a phrase that has reverberated ever since: “Our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes”. The thought had been expressed by two earlier writers. Daniel Defoe in The Political History of the Devil (1726) had said: “Things as certain as death and taxes, can be more firmly believ’d”, and even earlier in Christopher Bullock’s The Cobbler of Preston (1716) appears the line, “Tis impossible to be sure of anything but Death and Taxes”. The above quotes have been used throughout the last several centuries as a reminder that tax is a finite part of one’s life and there is no way of avoiding it if you are eligible to pay it, most notably, if you earn an income. Many taxpayers, despite the fact that the South African Revenue Service (SARS) has made the manner in which an individual is required to pay income tax simplified by means of its online system, still find the idea of paying tax complicated and rely heavily on tax practitioners to assist them in filing their tax returns or in reducing their overall tax to be paid. There are several types of taxes to be paid in South Africa; however this piece will focus on income tax only, being what I have personally
found to be the bane of my existence during busy and difficult times. I recall quite vividly the year I was pregnant and on maternity leave for another year thereafter that I merely did not have the time or the energy to deal with filing tax returns and working out the online system all by myself. Note to those who have found themselves in similar forgetful and preoccupied periods: not filing your returns may lead to penalties and fines. Income tax, already being burdensome, is not more appealing if you are left with penalties for late filing of returns or not filing at all. Lesson: file your returns, even if you have to resort to paying a tax practitioner to assist you. In addition to finding a tax practitioner to assist me this season, I requested some advice from my wealth management consultant, Nazeem Samodien, who has been working in the banking and finance industry for well over a decade, on ways to reduce one’s taxable income and increase one’s savings, and received the following handy tips I was not previously aware of: Medical scheme deductions: If you are contributing to a private medical aid scheme, you are able to claim back medical expenses. Tax-free investments: These are investments that are not taxed on interest, dividends or
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ASSISTANCE WILL HELP YOU TO AVOID UNNECESSARY EXPENSES, FIND ALL AVAILABLE LEGAL TAX BREAKS, AND MAXIMISE YOUR TAX REFUNDS capital gains. Contributions to a tax-free investment during the year of assessment should not exceed R36 000. Donations: You can claim as much as 10% of your taxable income as deductions if donating to a charity or public benefit organisation. However, these organisations need to provide proof that they are registered as governmentrecognised charity or public-benefit organisations. Reimbursed travel allowance: If you receive an allowance for business kilometers travelled; you will not pay tax on it if you can prove that you were travelling for work purposes.
Home office expenses: With the rise of work-from-home due to the Covid-19 pandemic, it is possible to claim home office expenses. This requires assistance from your employer to prove that you are using your own funds to pay for expenses related to your work, such as an internet connection. It would be prudent to understand your individual income and tax situation and couple it to your financial goals. It helps to have a dedicated tax practitioner, financial adviser or wealth management consultant to assist you with your finances, if financial planning is not your strong point. Assistance will help you to avoid unnecessary expenses, find all available legal tax breaks,
and maximise your tax refunds. Finally, to ensure no penalties for late filing of your tax returns, diarise the following dates: due to Covid-19, SARS has extended the tax return submission process. The dates are: 1 September - 16 November 2020: Taxpayers who file online. 1 September - 22 October 2020: Taxpayers who cannot file electronically can do so at a SARS branch by appointment. 1 September 2020 - 29 January 2021: Provisional taxpayers who file electronically. Fadia Arnold is a legal consultant at Arnold Law
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Filing your return online in 2020 Nicci Courtney-Clark offers the following guidelines for doing your eFiling this year
1. Ensure you have a tax number and eFiling profile If you have not registered for SARS eFiling or you don’t have a tax number don’t worry, SARS has made things a lot easier this year. Getting a tax number is now as easy as registering on SARS eFiling. SARS will automatically issue you with a tax reference number on registration. You are required to have a valid South African ID. 2. Make sure your bank details are correct You can do this online via your SARS eFiling profile. If you are unable to do this online, you can take all your documents to a SARS branch and a consultant should be able to update your records for you. Be sure to call ahead (SARS: 0800 007 277) to check Covid-19 protocols at the branch. 3. Don’t accept autoassessments if you want to claim deductions SARS may have contacted you in August via SMS to auto-assess your taxes. We advise you not to accept the auto-assessment and rather file your tax return yourself. This will prevent you from losing out on your full refund, or in the worstcase scenario, not receive a refund at all. The autoassessment does not allow you to claim tax deductions like travel expenses, donations, home office, wear and tear of assets, etc. Nor will it include any extra medical expenses you paid yourself. 4. File your tax return for the following reasons: l Don’t miss out on
your tax refund. A tax refund may be due to you. Something as simple as claiming medical expenses or working for less than twelve months of the year may trigger a tax refund, depending on your situation. l You may not be able to borrow money. Often banks require a tax clearance certificate in order to offer you a loan or mortgage. This can only be obtained if all your returns are up to date and filed appropriately. l You may incur penalties. If you normally submit, but this year you don’t, SARS could charge you administrative penalties later on for not being compliant. And no one wants that. l You may not be able to access your retirement fund. Filing a tax return each and every year means that if you receive a pay-out from a fund at any stage, then you won’t have hassles in getting your money. If you retire or are retrenched, or just need to take money out of your fund early, you need to be tax compliant. l A complete record stands in your favour. Don’t be shady. Having an unbroken filing record leaves SARS with no reason to suspect that you’re hiding information from them, which is a good thing. Filing a tax return also means that you’re being a decent citizen and contributing towards society! 5. Get your documents ready Here’s six of the most common documents you will need: l IRP5/IT3a from your
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A COMPLETE RECORD STANDS IN YOUR FAVOUR
employer / pension provider l Medical aid certificate l IT3b/IT3c showing your investments l Retirement annuity certificate l Public benefit organisation certificate showing your donations l Travel logbook for business travel 6. Claim for all your expenses Too often, taxpayers rush when completing their tax return, and then they miss out on some expenses they are eligible to claim for. Don’t overpay tax by overlooking these seven common tax breaks: l Saving for retirement
l Medical expenses l Giving to a SARS-registered charity l Wear and tear on personal assets used for work (for example, laptop and cellphone) l Home office expenses l Business travel expenses l Business expenses for entrepreneurs or commission earners 7. File with confidence With the ever changing environment in which we live, it’s important that when you do take tax matters in your own hands, that you do so with confidence. Filing online can be daunting at times, especially
when you hear news about SARS wanting to make it a criminal offence if you make mistakes on your tax return. If you are not comfortable enough doing your own tax return on eFiling, try a service such as TaxTim. TaxTim is a tax practitioner-assisted DIY tax return system that asks you all the right questions in simple language that anyone can follow. It then uses your answers to fill out your tax return for submission directly to SARS. Go to www.taxtim.com to find out more. Nicci Courtney-Clarke is financial manager and head of tax at TaxTim
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The tax-saving benefits of
RETIREMENT ANNUITIES ALWAYS ENSURE THAT YOU LIST ALL YOUR BENEFICIARIES FOR YOUR RETIREMENT INVESTMENTS
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Gerard Visser explains why, if you want to save for retirement above what you contribute to your pension fund, an RA is an option you should consider THERE are a number of ways to save, and a retirement annuity fund (RA) offers a tax-efficient way to save towards retirement. You can invest lump sums or make regular contributions into your own investment portfolios within an RA. The earliest age you can retire from the fund and make withdrawals is 55 years. At retirement you can take up to one-third of your fund value in cash, subject to taxation, and the remainder must be used to buy a pension, to pay yourself an income at retirement. When choosing your investment portfolios for your RA, it is important to understand that an RA, as well as any other preretirement investment vehicles, follow Regulation 28 of the Pension Funds Act, which limits the amount of exposure in certain asset classes. For example, you cannot have more than 75% in equities (this includes local and offshore equities). This is to decrease risk for the investor and help protect and diversify portfolios. What happens to your funds when you die? The trustees of the RA fund will allo cate your fund value to your dependents and nominated beneficiaries, as is required by law. You can nominate beneficiaries for consideration with an RA and this nomination will assist the trustees of the fund in allocating the funds on your death. Typically, people who are financially dependent on you will receive funds. Always ensure that you list all your beneficiaries for your retirement investments or contact your adviser
for the necessary forms to have them listed. Why save in an RA? Some of us might already have pension or provident funds which we use to save towards retirement and it might seem like you and/or your employer are making sufficient contributions, but in many cases this alone might not be enough to retire on, depending on your specific need. When your contributions for your pension or provident funds are calculated, it is based on your pensionable salary and not your
cost to company. The rule of thumb is that if you save 15% of your salary over 35 years, you could potentially receive 75% of your salary as a pension, as long as you received reasonable investment returns. The problem is that your pensionable salary is usually only about 70% of your cost to company (depending on the company you work for). For example, if your monthly package is R15 000, you would need to retire on the equivalent of R11 250 (75%). However, your pensionable salary which your contributions are based on, is less, at R10 500 (R15 000 x 70%). If we use the general rule of thumb it provides a pension income of only R7 875 (R10 500 x 75%), which is much lower than you might have thought. You can make up the shortfall by investing additional contributions of your non-pensionable income into an RA. Besides making up shortfalls,
probably the biggest benefit of an RA are the tax benefits and deductions individual tax payers get for investing in an RA. With an RA you can deduct your contributions from your taxable income. Currently the limit you can deduct is 27.5% of the greater of remuneration or taxable income limited at R350 000 per year. Excess contributions are carried forward to the next tax year. More benefits Other advantages of a RA are: l Compound interest – as you are investing over a long period, you earn growth on the growth. l Provision for your dependants – your RA benefit is not subject to estate duty, and creditors cannot access your hard-earned retirement funds. l Long-term stability –you can ride out short-term fluctuations in the market in order to target long-term real growth, which pays off when you retire. l Freedom of choice (subject to regulation 28 mentioned above) – you can choose your underlying investment portfolios, giving you flexibility in how your contributions are invested and how they grow. l Disciplined savings – not being able to access your retirement savings before age 55 is a good thing. l No tax on returns – there is no tax on interest, dividends or capital gains on your investment in the fund. According to Alexander Forbes Member Watch, only 6% of members retire with a replacement ratio of 75% or more. What this means is that if your pensionable salary is R20 000 then a 75% replacement ratio means an income of R15 000 in retirement. Therefore, keeping up with your contributions and preserving your benefits should be at the top of your list when it comes to saving for retirement. Gerard Visser is a financial planning consultant at Alexander Forbes
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Rands & Sense Tips to ensure a smooth filing season There are ways you can make filing easier for yourself, says Yolandi Esterhuizen
In August, many South Africans received autoassessments for their 2019/20 personal income tax returns from SARS. For those who didn’t receive an autoassessment, tax filing season got under way on September 1. Taxpayers who file online using e-filing have until November 16 to submit their returns. Other taxpayers who cannot file electronically can visit SARS branches with an appointment until October 22. Provisional taxpayers who file electronically have until January 29, 2021. The year of assessment runs from the first day of March to the last day of February. The income you should declare on your return is for March 1, 2019 to February 29, 2020. Here are some tips to make filing easier for you: 1. Declare all sources of income Your employer will report your remuneration to SARS and pay tax on your behalf throughout the year. But you also need to declare extra income you make from sources such as side hustles or freelance gigs, renting a property to a tenant, or interest. You will also need to declare capital gains. SARS may already have information available to them submitted by third parties - for example, interest earned and contributions to retirement funds or medical schemes. Confirm the data you submit to SARS is correct by comparing it to the tax certificate issued by the financial institution, bank or fund. In most cases, these will be emailed to you, but you can usually also download them from the institution’s website.
2. Gather supporting documents for any expenses you can claim Remember to claim any allowable expenses you incurred while you were earning your income. If you received a travel allowance from your employer, be sure to claim your business expenditure, otherwise the full amount of the allowance will be taxable. If you rent out a property, some maintenance and running costs may be taxdeductible. If you earn mainly commission or freelance income using your own equipment and facilities (such as computers, tools, and phone), some of the costs may be tax-deductible. Also ensure that SARS is aware of your allowable taxdeductible donations. Medical expenses such as prescription medicine or doctors’ visits that your medical scheme didn’t cover should also be indicated on your return, as SARS will apply a formula to calculate how much you will be allowed as a tax credit. Make sure you have the necessary statements and certificates to substantiate your claims. It’s a good idea to scan and file paperwork throughout the year and to track your expenses on a spreadsheet. 3. Consult with a registered tax practitioner A registered tax practitioner can be helpful when you’re filing your return, especially if your affairs are relatively complex. He or she might be able to identify legitimate tax deductions that can help you to bring your tax bill down. Yolandi Esterhuizen is a registered tax practitioner and compliance manager at Sage Africa & Middle East
In the service of taxpayers for seven years THE beginning of October marks seven years since the inception of the Tax Ombud – a period that has seen the ombud’s office not only make a significant impact in promoting awareness about the rights of taxpayers, but also in the protection of those rights against possible abuse by the South African Revenue Service (SARS). The period has been characterised by improved fairness in the South African tax administration system. Tax Ombud Judge Bernard Ngoepe says the role his office has played in the country’s tax administration should not only be measured by its impact on the taxpayers’ morale, but also on the money saved to them. “How many businesses could have been shut down, homes sold and families left destitute but for our intervention? The fact that, on average, more than 80% of complaints received have been
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The Tax Ombud, Judge Bernard Ngoepe
ruled in favour of taxpayers is a clear indication of the need for this office. This is also demonstrated by the fact that the revenue collector implemented about 90% of our recommendations in the past three years. Our commitment ensures that taxpayers do not pay a cent more or a cent less than what is due. To us, saving a taxpayer R500 is just as important as saving a business millions,” Ngoepe says. He says his office has provided access to justice for thousands of taxpayers who would not have been able to afford to take SARS to court. “We have been providing independent, impartial and free recourse to taxpayers and we are motivated by the support we have been getting from stakeholders, including taxpayers, parliamentarians, recognised controlling bodies and even SARS itself. They have acknowledged our positive
contribution towards the country’s tax administration system by helping restore some trust in it. This bodes well for revenue collection, and although we are proud of our achievements, we are aware that a lot more still needs to be done,” Ngoepe says. An ombud spokesperson says the extension of Judge Ngoepe’s term of office has provided stability and continuity in the institution. “And while the office is grateful for the support so far, more still needs to be done; in particular, by ensuring that the ombud’s office is structurally independent of SARS. Such independence is necessary for the credibility of the office as an institution. It would be good for tax morale and a culture of tax compliance.” l Page 20 provides the contact details for the Tax Ombud, if you have a complaint or query.
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MONEY BASICS
with MARTIN HESSE
THE TAXES YOU PAY AS AN individual, you probably pay more to the government than you realise. It’s to your advantage to know about the different types of taxes, as you can then look at ways to pay less tax or, as the financial planning experts say, become more “tax efficient”. Note that finding ways to reduce tax should not be confused with avoiding paying taxes that are rightfully due – that is against the law. To paraphrase a well-known
poem, “How does the government tax thee? Let me count the ways.” INCOME TAX If you earn an income, you must pay tax on that income, whether it is in the form of a salary, commission, pension income, or earnings from investments or rental property (taxes on investments are discussed separately below). Against what you earn in a tax year, you may deduct expenses incurred in
producing that income – such as maintenance expenses on a rental property. You can also deduct contributions to a retirement fund and donations to designated charities. For the 2020/21 tax year, if your annual taxable income (gross income minus deductions) is below the threshold of R83 100, if you are younger than 65 years of age, you do not pay tax. If you are 65 or older, the tax threshold is R128 650, and if you are 75 or older,
15 the threshold is R143 850. Income tax in South Africa is a so-called progressive tax. You pay a higher rate the more you earn. The percentage goes up in increments, according to the marginal tax brackets. You pay less tax on the first R1 000 you earn than you do on your last R1 000. You are then eligible for rebates, depending on your age and in line with the tax thresholds mentioned above, and medical tax credits, to offset some of your medical expenses. (See the income tax tables on page 16) TAXES ON INVESTMENTS There are three taxes on investments: 1. Tax on interest Interest on bank accounts and interest-bearing investments must be added to your income and taxed as such. However, the first R23 800 is tax-free, which rises to R34 500 if you are aged 65 or older.
VALUE ADDED TAX On virtually everything you buy, from groceries to services, 15% goes to the government in the form of VAT. The tax applies at each step in the value chain, from raw materials to finished goods – hence the name. Some basic foodstuffs such as bread and milk are exempt from VAT (they will have an asterisk on your supermarket slip). DONATIONS TAX If you give money or a gift to another person or company, you, the donor, are taxed on that gift at 20%. If you are ultra-wealthy and the gift is more than R30 million, the rate is 25%. However, you are allowed to give money/gifts worth up to R100 000 each year without paying tax, and gifts or donations to a spouse are exempt. TRANSFER DUTY You pay transfer duty on the transfer of a property into your name. This
3. Capital gains tax This applies to assets that increase in value, such as shares in companies and property. You pay tax on the gain in value of the asset between its value when you bought it and its value when you sell it. (Note that the tax is only triggered when you sell.) You pay 18% as an individual, and the first R40 000 is excluded. There are higher exclusions on residential property and the sale of assets on your death. Tax-free savings accounts and retirement savings are exempt from these three taxes.
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2. Withholding tax on dividends Company dividends to shareholders are taxed at 20%. The tax comes off before you receive the dividend – it is not up to you to pay it. It applies to direct investments in shares and investments such as unit trusts in which the underlying assets are shares (equities).
progressive tax starts at zero for properties with a value of R1 million or less. For the 2020/2021 tax year, on a property of R2 million you would pay about R45 000. However, on a property of R2.5 million, just half a million more, the transfer duty doubles to about R90 000. ESTATE DUTY This is a tax on your estate when you die: 20% on estates of up to R30 million, and 25% on anything above that. If your estate is worth less than R3.5 million, you don’t pay anything, and this amount can “roll-over” to your spouse when you die, so that your spouse will not pay anything on an estate of less than R7 million. OTHER DUTIES Aside from all these taxes, you also pay duties of varying amounts on imported goods, petrol, and alcohol and tobacco products, among others.
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TAX TABLES for the 2020/21 tax year These are the tables for income tax and taxes on retirement fund withdrawals for the 2020/21 tax year (not the 2019/2020 tax year for which you must currently file a return)
INCOME TAX Your taxable income is your annual income minus deductions, such as for retirement fund contributions and work-related expenses.
TAXABLE INCOME
RATES OF TAX
R1 - R205 900 R205 901 - R321 600 R321 601 - R445 100 R445 101 - R584 200 R584 201 - R744 800 R744 801 - R1 577 300 R1 577 301 and above
18% of taxable income R37 062 + 26% of taxable income above R205 900 R67 144 + 31% of taxable income above R321 600 R105 429 + 36% of taxable income above R445 100 R155 505 + 39% of taxable income above R584 200 R218 139 + 41% of taxable income above R744 800 R559 464 + 45% of taxable income above R1 577 300
THRESHOLDS
REBATES
This is your annual taxable income on which, once the rebates below have been deducted, your tax is zero. People earning less than these amounts annually pay no tax.
These are the amounts of tax that SARS “gives back” to you, depending on your age.
AGE Under 65 65 and older 75 and older
THRESHOLD 83 100 R R128 650 R143 850
REBATE rimary P Secondary (65 and older) Tertiary (75 and older)
AMOUNT 14 958 R R8 199 (+ R14 958 = R23 157) R2 736 (+ R23 157 = R25 893)
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RETIREMENT FUND WITHDRAWALS The first table is how you are taxed if you withdraw your retirement savings in cash before you reach retirement age – typically when you change jobs. The second table is how you are taxed if you access your retirement savings when you reach retirement age or if you are forced to access them through retrenchment.
PRE-RETIREMENT FUND LUMP-SUM WITHDRAWALS TAXABLE INCOME R1 - R25 000 R25 001 - R660 000 R660 001 - R990 000 R990 001 and above
RATES OF TAX 0% 18% of amount above R25 000 R114 300 + 27% of amount above R660 000 R203 400 + 36% of amount above R990 000
PRE-RETIREMENT FUND LUMP-SUM WITHDRAWALS TAXABLE INCOME R1 - R500 000** R500 001 - R700 000 R700 001 - R1 050 000 R1 050 001 and above
RATES OF TAX 0% R18% of amount above R500 000 R36 000 + 27% of amount above R700 000 R130 500 + 36% of amount above R1 050 000
*At retirement, you may take up to one-third of savings in a retirement fund as a cash lump sum. The remaining two-thirds (or more) must be used to buy a pension.
**The tax-free amount of R500 000 applies only once over your lifetime. This means that if you use it if you are retrenched, you forfeit the right to another tax-free R500 000 when you retire.
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Money Quiz Test yourself on your financial knowledge 1. If you put R100 into an investment that offered compound interest of 10% a year, how much would you have in total after 20 years (rounded to the closest rand)? a) R300 b) R575 c) R673 d) R994 2. What is an exchange traded fund? a) A type of collective investment b) A type of derivative c) A capital venture investment d) A forex trading scheme
3. Who said compound interest was the eighth wonder of the world? a) Sir Isaac Newton b) Albert Einstein c) Margaret Thatcher d) Justin Bieber
4. What index is commonly used to measure inflation? a) JSE/FTSE All-share Index b) JSE/FTSE Industrial Index c) Producer Price Index d) Consumer Price Index
5. What are you not taxed on? a) Income below the tax threshold b) Donations to your spouse c) Contributions to a retirement fund d) All of the above
6. From what age are you liable to pay tax?
a) Any age b) 12 c) 18 d) 21
7. Who is the Tax Ombud? a) Zweli Mkhize b) Judge Bernard Ngoepe c) Judge Ron McLaren d) Tito Mboweni
8. What is the Guardian’s Fund? a) A type of unit trust fund b) A fund for children who have inherited money c) A charitable fund for underprivileged children d) A retirement fund for journalists
9. Which government body regulates the market conduct of banks? a) The Department of Trade and Industry b) The SA Reserve Bank c) The Financial Sector Conduct Authority d) The SA Revenue Service
10. What is the maximum total amount you can contribute to a tax-free savings account? a) R500 000 b) R1 million c) R5 million d) There is no limit CORRECTION: In last month’s edition the correct answer for question 3 was b, not a, as indicated. Sir Isaac Newton lost a fortune in the South Sea bubble, not the Dutch tulip mania crash. ANSWERS: 1c, 2a, 3b, 4d, 5d, 6a, 7b, 8b, 9c, 10a
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Planning Perspectives Life insurance: what’s the deal? This crucial product goes hand-in-hand with other policies and investments. Read on if you don’t have life insurance, says Lesego Monareng
LIFE insurance is like any other insurance, where a premium is debited every month for a pay-out under specific circumstances. Except that the pay-out here deals with an event much more serious than bumping your car or cracking your iPad screen – your death. Death is not an easy topic to discuss. Because it’s so emotive, it’s something that people panic about and overcompensate for. Or they push it to the back of their minds and don’t plan for it at all! Life insurance is a crucial product that goes hand-inhand with other policies and investments. Read on if you don’t have life insurance, or if you do have insurance but you’re not sure if the amount of the cover is correct for your circumstances. Calculate your financial worth What makes death so unfortunate is obviously the emotional aspect of losing a loved one, but also the loss of the ability to earn future income. The latter risk is catastrophic when you are the breadwinner and you have people who are financially dependent on you, like children, elderly people or people who are unable to earn their own income as a result of ill health. Life cover should protect your future income, but the amount of the cover shouldn’t be a thumb-suck. It must be calculated to match your financial worth using these criteria: • Liabilities: The total amount of all debt to be settled in the event of your death.
• Death expenses: All funeral costs, death taxes and administration costs related to the winding up of your estate. • Maintenance of your financial dependants: Monthly income required by your loved ones to live as they are accustomed to living. A Certified Financial Planner can assist you in unpacking the above in some detail. You should be cautious of someone who recommends an amount of life cover that has no basis. Be careful not to overspend Obviously, it’s dangerous to be under-insured. You don’t want your dependents to suffer a shortfall that compromises their lifestyle. But it’s not great to be over-insured either. You’ll spend years, maybe even decades, paying too much for insurance instead of using that money for other investments. As with other financial products, it’s important to reassess your needs as your circumstances change. For example, younger people might have less life cover since they have fewer financial responsibilities. It makes more sense for a young person to use the time to invest smartly and build his or her savings. But if you decide to marry or have children, or if you buy a house, it will probably be a good idea to increase your premium to make sure all your liabilities are covered. Lastly, life insurance is highly dependent on your health – the healthier you are, the cheaper your premium. Take care of your health and you’ll save in the long run. Lesego Monareng, CFP®, is Managing Director at KLU Wealth & Legacy Management
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Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider.
FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/ OMBUDSMAN & REGULATORS BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za CREDIT AND DEBT Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za www.ncr.org.za
FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 Email: info@fsca.co.za www.fsca.co.za LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com www.medicalschemes.com RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za
TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za
FINANCIAL DATA ◆◆ For the latest financial market indicators, go to https://www.iol.co.za/business-report/ market-indicators ◆◆ For the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments ◆◆ To look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up
