Treasury: You could save without being taxed

By Staff Writer

Investors could soon be enjoying the benefits of saving tax-free if the National Treasury gets its way. Last week Treasury issued two consultation papers on promoting household savings.


“National Treasury started on the journey of proposing other tax friendly non-retirement savings vehicles at the February 2012 budget speech, when the interest exemption was not increased as usual,” said Sore Cloete senior legal manager at Old Mutual.


She added: “Currently the only real tax friendly non-retirement savings vehicles are interest bearing investments (of which bank deposits are one example); as the interest in these vehicles are exempt from tax up to certain limits. The interest exemption is currently at R22 800 (for tax payers younger than 65) and R33 000 (for tax payers older than 65).  Unfortunately these vehicles are not usually used to save for retirement as these vehicles do not usually keep up with inflation. It has now been proposed that two types of accounts/savings vehicles will receive tax benefits, being: interest bearing accounts and equity accounts.”



Incentivising non-retirement savings
This paper sets out proposals for non-retirement savings product, which is supported by tax incentives. Treasury said the aim of the product is to support voluntary (discretionary) savings by households and complement retirement savings.


The paper proposes:


•    Tax free returns, growth and withdrawals;


•    Limiting contributions to R30, 000 per year and R500, 000 over the lifetime of an individual.


•    Expanding on the current tax free interest income regime by replacing it with products that will offer more investment options.


Improving tax incentives for retirement savings
Treasury said this paper sets to simplify the current tax regime by harmonising the tax treatment of contributions to retirement funds.


It proposes that:


•    Contributions by employers to retirement funds remain tax deductible for taxable employers;


•    Employer contributions be taxed as a fringe benefit in the hands of the employee;


•    Employee contribution, for tax purposes, be deemed to be made up of both the employee and the employer contributions, and the total contribution be capped at R250 000 or 22.5% of taxable income for taxpayers 44 years and younger. A cap of R300 000 or 27.5% of taxable income will apply to those aged 45 years and above.



Cloete highlighted several benefits of these tax free savings vehicles. “The introduction of more “tax friendly” savings vehicles, up to certain capped amounts, can be welcomed by all investors as the growth in these vehicles, whether interest or capital will not have tax implications.  Investors may thus receive a possible higher payout.
 

"Although aimed at the lower and middle income earners, higher income earners may also be interested in such vehicles as the return on such investments will not have tax implications. Unlike additional retirement savings vehicles (like retirement annuities), investors will not be restricted to access funds in these investments and should an emergency occur these investments could be accessed without any tax implications.  This could also be seen as a benefit to investors,” she said.


According to reports, the new savings accounts could be in place by 2014 after the proposals have been discussed and legislation has been drafted and passed.



The closing date for comments on these two papers is 30 November 2012.

Recent Articles

Featured Debt consolidation – Explained

Dealing with debt can be daunting. If you’re struggling to keep track of which store account to pay next and weighing up which credit card is more important to settle first, you may have considered debt consolation. At Justmoney, we’ve decided to get down to the basics and explain what this entails and what impact you can anticipate on your credit score.  

Read more

3 Vehicle financing options compared – which is cheaper?

Buying a car is a considered a milestone, both in life and financially. Unless you’re able to fork out the cash, many opt for financing. But often the excitement to drive it off the showroom floor overshadows the need to check if you’re choosing the most-suited option. To help you make the best-informed decision we compare available vehicle financing structures in South Africa.

Read more

Splitwise: Split the bill not the friendship

Collecting your friends’ debt to you can be draining. You don’t want to ruin your friendship with them, and it can also be extremely awkward. I don’t know how many times I have written, deleted, and rephrased texts, reminding people to pay what is due to me.

Read more

Stokvel-friendly accounts – which one is fair?

The stokvel economy is approximately worth R49 billion in South Africa. This is according to the National Stokvel Association of South Africa (Nasasa). Altogether 24% of these stokvels are in Gauteng, while only 6% are in the Western Cape.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Save with 10X investments

Price: Free
When: Until 30 June
Where: Online

Sanlam Cumulus Investment Plan Limited Offer

Price: From R2,500
When: Limited Period
Where: Nationwide

Roman's Pizza Special-Single Large Pizza

Price: R69.90
When: Until 31 July
Where: Nationwide