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by Colin Horwitz

When it comes to investing, I have always been a fan of the big, fat and in most cases ugly financial institutions and FSP’s and with good reason. Anything that promises an abnormal return has a hook or scam attached to it.

 

But now, if you act before the end of February you can get an immediate once-off fantastic return on your money. It may have to vest for a while and in that time grow as a normal investment, but it is a worthwhile boost to your retirement. Here’s how it works.

 

The Income Tax Act provides for the annual deduction of contributions made towards a Pension, Provident, or Retirement Annuity Fund from your gross income. This is capped at 27,5% of your taxable income to a maximum of R350 000 per annum. As an example, let’s assume that Joe has a taxable income of R450 000 for this tax year. His contribution to his Provident Fund is 12,5% of his total package which is R500 000 (Cost to Company). So, his contribution to his Fund is R62 500 for the 2019 year. He can actually contribute and deduct R123 750 (the 27,5%) for the year.

He decides to invest an extra R40 000 toward his retirement.

 

Here’s the calculation before he makes the investment.

 

Taxable Income                                                                            R450 000

Less: Provident Fund Contribution                                          R  62 500

Taxable Income                                                                            R387 500

 

Tax payable after rebates                                                          R   76 040

 

And here’s the calculation after he makes the investment.

 

Taxable Income                                                                            R450 000

Less:      Provident Fund Contribution       R  62 500

               ADHOC Payment                             R  40 000             R102 500

Taxable Income                                                                            R347 500

 

Tax payable after rebates                                                          R   63 640

 

So, by investing R40 000 Joe has saved R12 400 in tax. This is an immediate return of 31% on the R40 000 – No Scam or Hook!

 

Please feel free to contact us if you would like some advice on how to go about this or if you would like to chat to someone in general about your saving needs. You can e-mail us on info@morebo.co.za and we will get back to you within 1 working day.

 

Just remember that the end of the tax year is 29 February, which is a Saturday. If you want to take advantage of this bit of legislation, the investment has to be completed by 25 February.

 

Looking forward to hearing from you.

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Morebo Financial Solutions (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act. (No. 2409)
Morebo Wealth (Pty) Ltd, an affiliate of Liberty, the Liberty Group Ltd is an authorised Financial Services Provider in terms of the FAIS Act (no. 2409)
Morebo Brokerage (Pty) Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no. 48360)

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