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RA season 2016 to give retirement investors tax advantage

11 February 2016 Steven Nathan, 10X Investments
Steven Nathan, CEO of 10X Investments.

Steven Nathan, CEO of 10X Investments.

Like Retirement Annuity (RA) Seasons in the past, tax payers will once again get the chance this February to reduce their income tax by making a top-up contribution to their retirement annuity. With the upcoming taxation laws being introduced on 1 March 2016, however, this month presents one last opportunity to reap even greater rewards.

This is according to Steven Nathan, CEO of 10X Investments, who explains that presently, different contribution caps and deduction bases apply to pension, provident and retirement annuity funds respectively.

“Under the current regime (effective until 1 March 2016), members of retirement annuities can claim contributions up to 15% of their non-pensionable income for tax. There is no rand cap on this amount, and it also does not matter how much you contributed to any workplace pension or provident fund.”

“From 1 March 2016, the deduction cap for all retirement fund contributions increases to 27.5% of the greater of remuneration or taxable income, but taxpayers will be limited to depositing a maximum of R 350 000 per annum tax free,” says Nathan.

For those who earn substantial amounts of non-pensionable income (that is income not subject to a pension or provident fund contribution at the workplace), this is therefore the last chance to claim contributions in excess of R 350 000.

For example, if a business owner makes an annual income of R 2 700 000 she can contribute up to 15% of this value to a retirement annuity over one year tax free. This means she can effectively write R 405 000 off her annual income to tax. However from 1 March the rand value of the annual contribution to a retirement annuity is capped. She’ll only receive a tax break on the first R 350 000 she deposits.

“For those investors who haven’t reached their annual 15% limit, the upcoming RA Season will be the last opportunity to save in excess of R 350,000 and significantly reduce their current year tax liability” he adds.

Nathan explains that by topping up their annuity to the maximum before the new legalisation kicks in, tax payers can significantly increase the final value of their retirement investment.

How the tax changes will be good for investors

“Making use of a retirement annuity to save for your golden years confers significant tax advantages,” says Nathan.

Whether under the new or the old retirement regime, retirement annuities remain excellent investment vehicles.

He says that retirement annuities will be positively impacted by retirement reforms. From 1 March 2016, retirement annuity investors will receive the same tax deductions as provident and pension fund members” explains Nathan.

Nathan adds that the money accumulated in a retirement annuity is protected against the claims of creditors. “No person, other than yourself or your beneficiaries can access your retirement annuity.”

He explains that under the new regime, the returns from retirement annuities will remain tax free. “Members will continue to pay no income, dividend withholding or capital gains tax on the investment return earned in a retirement annuity.”

In addition, no estate duty is levied on retirement annuities in the event of death (other than contributions not claimed for tax). “Benefits can be paid to financial dependents or nominated beneficiaries without having to go through the estate process,” says Nathan.

“Retirement Annuity Season encourages all people, irrespective of income, to take advantage of the tax break. This year, however, high income earners will have one final opportunity to max out their savings,” concludes Nathan. “Depositing additional cash during the upcoming RA Season will go a long way to guarantee retirement investors’ financial freedom.”

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