I’m sure by know you’re aware that as South Africans we pay a lot of tax over to SARS. Unfortunately our investments are not exempt from this. However, I want to share an investment vehicle hack with you to help you with this tax dilemma and inform you about the taxes that your investments attract.

Feeling like you need to brush up on investments knowledge to get the most out of this read? This Guide is just the thing for you.

What are Tax Free Investments?

Tax free investments (TFI) accounts are a popular choice when it comes to investing for the medium to long term largely due to the fact that there is no tax payable on the interest, dividends and growth within your investment.

My personal approach is always to use a TFI as a long-term investment vehicle. This means having an investment time horizon of 10 years plus to truly benefit from the tax free advantages. 

Important T&C’s to remember: TFI contributions are limited to R36 000 per tax year or R3 000 p.m. and R500 000 over your lifetime.

Need help setting up your TFI. Hit the button below and ask me.

Investments that are not tax free will attract these three types of taxes:

Bonds and cash in unit trust investments will incur interest tax. Interest earned on bond or cash investments are exempt up to an amount of R23 800 per year for individuals younger than 65. This means that if the interest generated by your investment is less than R23 800 per year, you wont pay interest tax anyway. However, if it is greater you will. 

Your interest earned in a TFI is not subject to this limit and there is no tax owing on your interest. This is why it is important to remain invested over the long term to maximise growth and to benefit from the tax free structure.

Dividends received by individuals are generally exempt from income tax but dividends tax, at a rate of 20%, is withheld. This means that 20% of your dividends will be held back before the balance is paid out to you or reinvested. When investing in a tax free investment, there is no dividend withholdings tax applicable. 

CGT comes into play when you decide to partially or fully withdraw your investment. If the value of your investment has increased since its inception, you will be liable for tax on the growth/gains you have earned.

Only 40% of the capital gain is included and there is also an annual exclusion of R40,000. If the capital gain is less than R40 000 for the year, there will be no CGT payable. However, when investing in a TFI, there is no CGT payable.

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