Your first reaction would be that this is not possible. But it is absolutely true, legal and makes use of existing tax and foreign investment laws in order to get up to R500 000 offshore over a period of two years, which the tax-man is funding. Isn’t this just about as good as it gets?
If done correctly in terms of timing by making judicious use of the tax-year an investor can move approximately R500 000 offshore in less than 13 months.
However, there are (unfortunately) certain terms and conditions, and they are as follows:
- It only applies to taxpayers older than 55 (so there are certain advantages to being older than 55 after all!).
- It only applies to taxpayers who have not made use of the current R500 000 tax-free withdrawal from RA’s and retirement funds.
- It is only recommended for taxpayers being taxed at high marginal rates of taxes.
The scheme is quite simple, and it has been tested with various investment companies. It combines (a) the tax relief granted to tax payers on lump-sum contributions to retirement annuities with (b) the R500 000 lifetime tax-relief members of retirement funds, which includes Retirement Annuities, with a lesser-known (c) withdrawal benefit from existing retirement annuities, currently any amount below R247 500.
Take for example a taxpayer earning a gross income of R1 million.
In terms of this scheme, he will contribute R247 500 into a single premium RA during the month of February. This will bring his taxable income down to R752 500, which means R101 475 less in taxes.
This money is invested in a cash account (just in case the market goes screaming upwards which, in this case, you don’t want) in order to ensure that value remains below R247 500. The scheme won’t work if the amount is higher than R247 500.
This amount is immediately withdrawn in the first week of March – and remember it is tax-free and is then sent abroad into your chosen investment vehicle on an investment platform, using your R1 million discretionary allowance.
The only drawback is that there is a considerable amount of paperwork that needs to be done in order to proceed with the strategy. Best is to consult an advisor for assistance or get in touch with Brenthurst offices countrywide.