Are you looking for an investment that is tax-free?
In South Africa, there is tax-free savings. If you invest in tax-free savings, as long as you comply. You will not be paying any tax. Some people use tax-free savings to supplement their pension benefits and/or retirement annuity. Some are using it to save for their children’s education. However, you have to disclose the investment to SARS when you are filing during Tax Season. This investment is only for registered individual registered taxpayers.
The tax free investments may only be provided by a licenced bank, long-term insurers, a manager of registered collective schemes (with certain exceptions), the National Government, a mutual bank a co-operative bank, the South African Postbank, and administrative financial services provider and a person authorised by a licensed exchange to perform one or more securities services in terms of the exchange rule.
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R500 000 over a lifetime
Currently, the maximum tax-free contribution per month is R3000 (and R36 000 per annum) and up to R500 000 over life time. If you are complying with these maximum contributions. Taxman won’t penalise you. If you exceed the maximum contribution. Then you will be subjected to 40% tax rate in excess amount. Using the maximum benefits, is beneficial. You know at least that, if you continue contributing. You will reach R500 000 and pay no tax on gains made.
Savings will not be taxed. That means there will be no tax on gains, dividends and interest earned. That is good news for the country and community at large. We never imagine that one day. Government will encourage people to do savings and not tax them on gains.
Imagine if you had R500 000 in tax-free savings and R1500 000 in your pension funds. You take out One-Third which is equivalent to R500 000 and leave the R1 million for monthly annuities. You will not pay Tax on tax-free withdrawal and also no tax on pension up to R500 000 when you retire. That means you will get R1 million without paying any tax.
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