Advertise with fastmoving.co.za
 
 

Value of tax free savings questioned
Value of tax free savings questioned

Value of tax free savings questioned

MARKETING NEWS

BusinessTech.co.za - Apr 20th 2015, 08:56

Given the low annual and lifetime limits for contributions to tax-free investment products, one may be forgiven for wondering what the point really is, according to David Warneke, national head of corporate tax at BDO South Africa. 

Tax-free investment options were introduced in SA with effect from March 1 this year. The aim of the government with these products has been to create a way of encouraging South Africans to save.

Warneke, however, pointed to the low annual limit of R30 000 and lifetime limit of R500 000.

“The potential savers for whom these thresholds would make a real difference are unlikely to be paying much tax,” he said.

“On the other hand, an interesting perspective is that there does not appear to be anything preventing a parent from donating R30 000 per annum per minor child for purposes of investment by the child.”

If a minor child receives an amount of income or a capital gain that resulted from a donation by a parent, the Income Tax Act generally taxes the income or capital gain in the hands of the parent.
“However, the wording of the ‘tax free investment’ provision appears to indicate that such income or capital gain will not be subject to tax in these circumstances,” said Warneke.

Another perspective

Another interesting perspective for Warneke is that if one’s alternatives are a tax-free investment product or an offshore collective investment scheme in securities (unit trusts), in terms of other provisions of the Income Tax Act, an individual is not subject to tax on devaluation of the rand in relation to the currency of investment in an offshore unit trust in relation to the capital gain realised.

“Assuming the investment is capital in nature, one determines the overall capital gain in the foreign currency before translating the foreign currency capital gain amount into rand,” he pointed out.
Therefore, one is taxed on “real” gains only. This is on the assumption that the offshore unit trust was acquired and disposed of in the same foreign currency.

“Therefore, in deciding between the two types of products, amongst other considerations, a view will have to be taken as to whether the tax shelter provided in relation to the overall return on a tax free investment product is likely to exceed the tax shelter in relation to the rand to foreign currency devaluation on an offshore unit trust over the holding period,” said Warneke.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.From 2015 Copyright, BusinessTech. All right reserved. 

Read more about: tax | south africa | invesment tax | bdo

Related News

Consider the tax implications when taking your money offshore
27/08/2019 - 10:52
South Africans are overburdened with taxes, and it’s only set to get worse. If you are considering investing internationally, you should be aware of the tax requirements when deciding on the best investment approach.

SA's VAT hike under scrutiny
30/07/2019 - 08:55
New research suggests SA should scrap the zero-rating of VAT items and introduce a new social grant which would benefit those who fall outside the welfare net.

SA taxpayers to pay more for greener economy
04/06/2019 - 09:16
Climate change and global warming have long been debated, but what is certain is that consumers are going to pay a great deal more in taxes dedicated to creating a friendlier environment.

Is it time to introduce a minimum unit price on alcohol?
25/04/2019 - 11:10
In May 2018, Scotland introduced a minimum unit price of 50p per unit (8g) of alcohol, with the aim of reducing abusive drinking. Research had shown that a large proportion of very cheap alcohol consumed in Scotland took the form of heavy drinking, resulting in drunkenness and other socially unacceptable behaviour.

The signs are here that South Africa has reached its economic crossroad
03/12/2018 - 11:37
While South Africa attempts to shore up its own economy amid high inflation rates and a stuttering inherited financial system, the continent as a whole continues to grow. The big question, though, is whether South Africa will get left behind in terms of international investment if it doesn’t improve its financial situation, and how to avoid this.