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Optimising your tax benefits before end of February

Now is the perfect time to review your investment portfolio to ensure you’re optimising your annual tax benefits.

Dear investor,

I hope your 2022 has started off well! With new hope for the year ahead (even though we all have a little fear and doubt after the past two years). May this be a year filled with health and happiness.

We have about a month left until we reach the financial year-end. This makes it imperative to review your investment portfolio and to ensure you are optimising your annual tax benefits.

1. Firstly, referring to retirement funds.

This can consist of a combination of a retirement annuity in your personal capacity, and a provident and/or pension fund with your company.

You are allowed an income tax deduction up to 27.5% of the greater of your annual taxable income/remuneration for your total retirement fund contributions (up to a maximum of R350 000 per year). This 27.5% can also include additional income sources, like e.g. rental income.

At this stage, if you have not contributed your full 27.5% for the financial year, you can invest a lumpsum in an investment before the end of February. These additional investments normally need to be already allocated by the 24/25th of February with most investment houses.

I don’t know about you… but I quite enjoy the feeling of receiving a tax credit from Sars. And saving for retirement sufficiently at the same time.

2. Secondly, if you have a tax-free investment in place.

Now will be the time to ensure you are optimising your annual limit as well. If you don’t have one yet, get one! This product offers incredible long-term benefits.

You are allowed to save R36 000 per year in this investment, and R500 000 in your lifetime. The excess to these annual and lifetime limits will be taxed at 40%. These limits only refer to the physical contributions made. This means the investment has unlimited growth opportunities after you have invested.

This is an excellent product to also include in your portfolio as part of your retirement planning. It will take you roughly 14 years to reach the R500 000 lifetime limit. At that stage, the investment can easily have achieved a fund value of R1 million (assuming a 10% rate of return). Let’s assume you leave these funds invested for another 10 years – and you are sitting at closer to R2.5million.

These funds will be completely tax-free once you start making withdrawals from an income tax perspective. Essentially you can earn a monthly income from this investment at retirement – without paying a single cent tax on it as it is exempt from normal tax.

I would advise reaching out to your financial advisor at this stage, ensuring your portfolio strategy is up to date with global market movements and optimising your tax benefits over the next month.

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