Cape Town - Tax payers will 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 March 1 2016, however, this month presents one last opportunity to reap even greater rewards, according to Steven Nathan, CEO of 10X Investments.
He explains that presently, different contribution caps and deduction bases apply to pension, provident and retirement annuity funds respectively.
“Under the current regime 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,” said Nathan.
“From March 1 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 R350 000 per annum tax free.”
For those who earn substantial amounts of non-pensionable income this is, therefore, the last chance to claim contributions in excess of R350 000.
Nathan explained 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,” said Nathan.
Whether under the new or the old retirement regime, retirement annuities remain excellent investment vehicles.
He said that retirement annuities will be positively impacted by retirement reforms. From March 1 2016, retirement annuity investors will receive the same tax deductions as provident and pension fund members.”
Nathan added 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 explained 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,” said Nathan.
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