January has come and gone, and I hope you have had an incredible start to 2022! I certainly feel something in the air and have a strong feeling it is going to be a much better year for many.
As we approach the end of the tax year on the 28th of February 2022 there are a few important aspects to consider. However, before implementing one or more of the commonly used strategies outlined below, keep in mind that tax planning should form part of the overall planning process and should therefore be approached strategically with a holistic view of your whole portfolio.
Here are three ways you can maximise your tax deductions for this year.
If you are currently contributing towards a pension or provident fund or your employer is contributing towards your fund on your behalf, you will have a tax deduction of the actual total contributions made towards your fund If you are not contributing towards a pension or provident fund via your employment, you can reduce our tax liability by starting your own retirement annuity. Thus, you would contribute towards a retirement annuity in the form of a lump sum or monthly contributions. You would also have the option to add funds to the retirement annuity as and when funds are available. Remember, if you are already contributing towards a pension or provident fund via your employment, you can still start your personal retirement annuity and make contributions towards the retirement annuity. Likewise, if you have an existing retirement annuity, you can just make a once-off contribution towards your fund. In turn, you would be maximising your tax deduction for the year of assessment.
In all the above scenarios. you would qualify for a tax deduction to the maximum of R350 000 or 27.5% of vour taxable income. For instance, if you are investing 12% of taxable earnings towards your company pension fund, you can still invest up to 15.5% of your taxable income towards your retirement annuity, being the most flexible vehicle when it comes to topping up your retirement funding.
Tax-free savings accounts (TSA) also offer tax benefits to investors to the extent that no tax is paid on dividends and interest earned in the investment, and no capital gains tax is paid on investment growth or when disinvesting However, keep in mind that your contributions towards a TSA are made with after-tax money meaning that you A distinct difference between RAs and TEAs is that the underling investment strategy of your TSA is not subject to Regulation 28 of the Pension Funds Act which currently limits equity exposure to 70% of one's portfolio and offshore exposure to 30%. This means that, as an investor. you can take on much more investment risk in a TFSA structure which is well-suited to a longer time horizon.
As it currently stands, the legislation permits you to invest R36 000 per year towards a tax-free savings account with a total lifetime contribution of R500 000. What is important to bear in mind is that the tax benefits achieved bY investing in a TFSA are not realised early on, with the investment returns and tax saving only really becoming meaningful after about ten years. As a result, TPSAs actually make better long-term investment vehicles and can be used constructively to supplement your retirement savings
If you are an individual investor, you can use your annual capital gains tax exemption, being the first R40 000 of gains made on vour investment portfolio, to rebalance our portfolios if necessary. While 40% of any gain triggered in a tax year is included in your taxable income, the annual exclusion can provide investors with an opportunity to review and potentially rebalance their investments in order to keep them aligned with their goals and objectives. Often referred to as 'SWitching, rebalancing really means adjusting the asset allocation in your portfolio where appropriate to make sure that your investment strategy remains on track. In rebalancing your investment portfolio keep in mind that your base cost will be reset at a higher level which, in turn, has the effect of reducing the gain if and when you sell unit trusts in the future. Rebalancing can also take place when you choose to make additional contributions or withdrawals from your unit trust portfolio
Remember, if you're invested through a multi-manager, part of the multi-manager's function is to rebalance your portfolio throughout the year, so it is important to check whether any other CGT events have taken place in your portfolio during the course of the tax year.
For now, we can only grow from last year's low base, and 2022 still looks strong. In the longer term, there are too many factors in the mix. Beyond 2022, forecasts are highly subject to revision. You are welcome to consult with my accountant, who will gladly assist you and lead you toward making the best…………..