How to tax revolt legally…

You can take advantage of the benefits of a tax efficient investment vehicle before tax year end (28 February). There is still enough time to top-up or even open a new Retirement annuity OR Tax free investment.

We offer flexible retirement annuity and tax-free investment solutions from as little as R500 p.m. through some of the country’s leading providers including Allan Gray, Investec, Momentum, Liberty and Sanlam.


1. Retirement annuity (RA)

RA’s are ideal investment vehicles if you are self-employed, your employer doesn’t provide a retirement fund or if you want to contribute in addition to your existing retirement fund.

      1.1 RA’s offer a number of attractive tax benefits:

  • Contributions up to 27.5% of gross remuneration are tax deductible (limited to R350k p.a.)
  • At retirement, proceeds taken in cash are tax free up to a certain amount, and there is no tax on the amount that is transferred to the post-retirement income product.
  • The investment growth in an RA is tax free, there is no capital gains tax, or tax on dividends and interest.
  • When you die, there are estate benefits, as the proceeds from an RA are paid directly to your dependants or beneficiaries.

      1.2 Reasons a retirement annuity may not be suitable for you:

  • Prescribed legal investment limits restrict how much you can invest in the types of investments that are considered higher risk, for example equities and offshore investments.
  • You can only access your money after the age of 55, except in certain circumstances.
  • When you retire you can only withdraw up to one-third of your investment as cash. The rest must be transferred to a product that can provide you with retirement income.

      1.3 Depending on your level of income, below is an indication of the expected tax refund:

            * Assuming a contribution rate of 15% of your annual income

RA top up refund


3. Group Retirement Annuity

With a Group RA, a company recognises that their staff may encounter change in their personal lives, employment and their financial requirements.

Each employee individually applies to become a member of the Group RA. Then each month, each member’s agreed monthly contribution is received by a Link Investment Service Provider (LISP), from the employer, on a group basis. As individual members of an RA, members choose their investment portfolios and receive quarterly statements.

The minimum contribution is R500 per month, per member. A minimum of five employees is required to make use of the Group RA system.


4. Umbrella Pension or Provident Fund

An umbrella fund pools the contributions of various employers and members in one fund and the greater number of participants allows for cost savings and for delivering true value to the umbrella fund members.

An umbrella fund is governed as a single legal entity overseen by a professional board of trustees. This has the advantage that professionals are accountable for ensuring the umbrella fund’s governance complies with all legislation.

The minimum total contribution amount required from the scheme is R50 000 per month. The average contribution from members must be R1 000 per month.


5. Tax free savings investment

If you feel that a retirement annuity is not for you, but would still like to benefit from the advantages of tax-free investment growth, you can invest in unit trusts via a tax-free investment account.

      5.1 Advantages of the tax-free investment:

  • You will not pay any tax on investment returns as the interest, capital gains and dividends you earn are completely tax free.
  • There are no limits on when you can access your investment, and there are no exit fees.
  • You can start and stop contributions at any time.

      5.2 Reasons a tax-free investment may not be suitable for you:

  • You are limited to investing R33,000 per year and R500,000 over your entire lifetime.
  • You will pay a tax penalty of 40% of any amount you invest above the maximum of R33,000 per tax year and R500,000 over your lifetime.
  • You do not receive any tax deductions for your contributions to a tax-free investment.


6. Endowments

Endowment is an investment product that offers tax benefits to investors with a marginal tax rate of more than 30%. If you invest in an endowment product, the life assurer pays tax on your behalf and the proceeds are tax-free in your hands. For individuals, life assurers pay tax at 30% on all income in the policy. This means an individual’s effective capital gains tax rate in an endowment is 12% as oppose to 18% for high income earners affected by the new super taxes in South Africa.


7. Be tax efficient in your share portfolio

By doing this yearly, the investor limits the amount of tax they will pay in the future when they sell or start living off the investment.

      7.1 Share portfolio tax efficiency rules

Firstly, shares held as trading stock are bought for the main purpose of resale at a profit. Any gain or loss made on disposal of a share held as trading stock will be of a revenue nature. Revenue gains of a natural person are subject to income tax at the marginal tax rate, which may vary between 18% (but effectively 0% if tax rebates are taken into account) and 45%, depending on the level of taxable income.

By contrast, if a share is held as a capital asset (that is, as a long-term dividend-producing investment), any gain or loss upon its disposal will be of a capital nature. Further any capital gain or loss in respect of a share held for at least three years will be of a capital nature and subject to CGT.

Secondly, remember the “bed and breakfast” rule. As the name suggest, investors sell loss making shares at the end of the financial year (“before bed”) in order to realise a capital loss and buy them back in the new financial year (“at breakfast”). This will not work in South Africa! For us, if you dispose of shares at a loss and buy back those shares within a 45-day period on either side of the disposal, you must disregard the loss.

      7.2 Tax loss harvesting (offsetting gains and losses)

Best explained through an example: Steinhoff share holders can sell this share out of their portfolios and realise a loss before 28 February. At the same time they can also sell some Naspers that performed well and realise a gain to the same amount of their Steinhoff losses. Thus offsetting gains with losses. The sold shares can be replaced by a similar shares, maintaining an optimal asset allocation and expected returns. Remember though, you can’t buy back the same shares sold within 45 days.

      7.3 Utilising your annual tax free capital gains allowance of R40k

Best explained through an example: Naspers shares holders who held the share as a capital asset, can sell some of this share out of their portfolio and realise a profit of up to R40k before 28 February utilising their annual tax free capital gains allowance of R40k. Remember the “bed and breakfast” rule though.

*There are many companies claiming they are stockbrokers. At Vista you partner with a South African Institute of Stockbrokers (SAIS) qualified stockbroker


8. Section 12J Venture Capital Company (VCC) structures

Section 12J companies which is a structure that allow taxpayers an income tax deduction for investments in qualifying assets or companies. By therefore investing the equivalent of your annual income in approved funds that support small enterprises, you can receive a 100% tax deduction if held for a period of 5 years or longer. This means you can invest in what South Africa needs most — growth and jobs — while ensuring that none of your hard-earned money goes to fund criminals. The premise of Section 12J is that SARS foregoes otherwise payable income tax now, in return for future income tax payments from the investee company, capital gains from the VCC on exit, and dividends tax or capital gains tax from the investor when funds are paid out. This risk of foregoing something now in return for a possible big payout in the future is similar to how a normal venture capital investor should think. As an example:

  • If the taxpayer is an individual with a marginal tax rate of 45%, the taxpayer can invest R1m and will effectively be paying R550k (R1m – R450k) for a R1m investment since the full investment amount is tax deductible in the year of investment
  • A company can invest R1m and will effectively be paying R720k (R1m – R280k) for a R1m investment since the full investment amount is tax deductible in the year of investment


9. Need tax advice or assistance with your tax submissions

Our trusted partner with regards to tax matters is TAXWISEOnline365. TWO365 is a personal services online tax services provider, specialising in individual income tax returns, compliance, query resolution and tax clearance certificates. It was founded in 1993 by Corné Struwig and specialises in online tax return services. Contact them for quick, cost effective tax advice.


At Vista Wealth Management we are committed to making a difference in our customers’ lives. Helping them understand and invest in tax efficient investment vehicles is our priority. Contact us for more information or if you have any questions regarding any of the above listed tax efficient products.