We all need to pay taxes. This is obvious and not something that can be argued with. No country can survive without taxation and it is the chief source of income for any Governing party. For many reasons, however, which we don’t need to go into here, a lot of tax money is misappropriated and so the general feeling is let’s pay our taxes but why pay more than what is due?

No doubt, therefore, you as an investor will in 2023 be looking to find some ways to save on taxes, as in so doing you can not only maximise your returns but keep your monthly budget in check too. Tax-free, or tax-saving investments, therefore, clearly have a dual benefit.

Now is the time to invest surplus capital

We said it this time last year and we’ll say it again, right now before the end of the tax year on February 28th (if you handled your finances astutely and are one of the lucky ones to have any surplus capital) is the time to invest in tax-free savings.

There are a couple of these that are particularly good for topping up at this time of the year but let’s remember that we can utilise investments with tax benefits throughout the year and it is important to look at other investments with tax benefits too if we are to create a diverse portfolio – always the best kind!

The must-haves

The two best tax savings or investments from a tax saving point of view, are Retirement Annuities (or RAs) and TFSAs.

Retirement Annuities – These are said to be the ‘superheroes’ of tax savings benefits so watch this space as we unpack these in more detail in our next article. Suffice it to say you can invest with before-tax funds and your contributions, including those made by your employer (if you have one) in respect of a group retirement fund, are tax deductible up to 27.5% of your taxable income.

This is capped at R350 000 per year which is an impressive tax saving and investors don’t pay capital gains tax, dividends withholding tax or income tax on the investment growth which includes pension, provident and retirement annuity funds.

There are several strict restrictions and limitations in terms of at what age and how much can be withdrawn to still gain the best tax advantages, so we advise you to speak to a Financial Advisor for details and watch for the next article!

TFSA – The tax benefits of a TFSA derive from tax-free interest and dividends generated in the TFSA and no capital gains tax is paid on withdrawal, so your return potential is better than a unit trust. There are limitations to the amount you can invest though – a maximum of R36 000 per tax year and your total lifetime contribution is also capped. Any amount exceeding these limits is taxed at 40%, so TFSA contributions need to be carefully monitored.

A nice to have

Unit trusts

Very flexible, and often seen as a good medium-term investment option, unit trust investments are popular but offer the least of the aforementioned in terms of tax savings. However, If you are under 65 up to R23 800 of interest paid locally is tax exempt, or up to R34 500 for over 65s.

Talk to the experts now

We have just touched the tip of the iceberg in terms of this somewhat complicated subject as the combination of the right investments, utilising the best strategies for a holistic approach to a diversified portfolio, is subject to deciding what investments you should choose, in what order and in what time within your wealth creation journey.

Hereford Group’s expert Financial Advisors train for years and remain constantly abreast of any shifts in investment benefits or restrictions. It costs you very little to get this kind of expertise on your side, in comparison to what you can save in taxes and gain in profits. Talk to us today to ensure you capitalise on tax-saving investments in 2023 – starting right now!