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Securing tax revenues – Moneyweb

SIMON BROWN: I’m now chatting with Kelin Pottier of 10X Investments, talking about delineation of income from taxes. Of course, it’s about doing it in a legitimate and legal way, not in an avoidance way. Kelin, I appreciate the early hour. Monday [marks] end of February, which is of course the end of the tax year for individuals. There are opportunities out there where we can kind of delineate income from tax. We have Tax Free Savings Accounts, we also have Retirement Annuities and Regulation 28 (Reg 28) products, which are very legitimate ways to reduce taxes in the future.

KÉLIN POTTIER: Hello Simon. Yes absolutely. As you mentioned, the tax year ends on February 28, and this is a real opportunity for investors to contribute all the money they have, that they would like to invest in the future and protect their money from the negative effects of tax. What a lot of people don’t realize is that taxes, like fees, actually eat away at the returns on your investments, and those returns add up over time.

SIMON BROWN: That’s actually a great point. Essentially, taxes accrue from your benefits, profits and [perhaps] we can get smarter around it. The only thing, and I’ve pointed this out before, is that people shouldn’t wait until the last minute. Don’t do it at 4pm on Mondays because the banks are slow to move the money.

There are limits. tax refund [annual savings limit] is still R36,000. The minister might change it tomorrow, but probably not. And of course there are also limits on your Reg 28 in terms of how much you can directly benefit from the tax savings.

KÉLIN POTTIER: Correct. So, regarding a tax-free savings account [is concerned], investors can contribute up to R36,000 per tax year, up to a lifetime contribution limit of R500,000. When it comes to your retirement annuities and Regulation 28 retirement funds, investors can actually contribute up to 27.5% of their salary or R350,000 per tax year. . The lower of the two is of course what applies. Investors should therefore make the most of it.

Although it is worth noting, when it comes to tax-free savings accounts, investors should be very, very careful not to exceed the R36,000 contribution limit as there is a tax penalty 40% on excess contributions.

SIMON BROWN: Yes, that’s a good point. If you put more in your Reg 28, that’s fine. You can postpone it to next year. You don’t get the benefit this year, but you don’t get the penalty.

You also argue that there are actually opportunities here, especially in the tax-free space. Investing for a child, or maybe a grandchild, [you are] turbo-charging investments by simply giving them decades of time.

KÉLIN POTTIER: The real benefit of tax-free investing comes with time. Every rand that is not refunded in tax is a rand that is reinvested in your peripheral investments, and this tax saving accumulates over time.

If you were to simply compare a tax-free savings account to a traditional investment, 20 years from now, if you maximize your tax-free contributions each year and invest in a high-growth index fund, you would have actually 30% more money than a traditional investment. In actual rand, that’s about half a million rand more.

SIMON BROWN: And it’s pretty big. This allows you to retire with some extra cash in your pocket.

Kelin Pottier, Product Development Specialist at 10X Investments, I appreciate my time this morning.