Tax Benefits through Retirement Funds Savings

ThoughtsContributionsInterestDividendsCGTEstate DutyLump SumsSummary

AGENDA

THOUGHTSThe multiple layers of protection retirement funds have such as •Regulation 28, •PF 130, •Section 37 c and d etc.

The extremely rigorous and compliant filters that a fund is exposed to.

The various entities that are part of improving the retirement industry : - I R F, C R I S A , F P I, T C F, KING CODE 3

The reform in retirement fund structures to benefit members, is speeding up.

The intellectual capital that is involved in some way or form, is gargantuan - just lookat the standard we are experiencing at this event.

An environment of “trust” that is more evident in recent years that in previous decades,is evolving.

A reward for this trust that is been earned is the advantageous tax treatment of our retirement savings.

CONTRIBUTIONS

Contributions to Retirement Funds are allowed as a tax deduction – so up to 40% of what you actually pay comes

back as a refund.

40%

INTEREST

Interest received in the fund is free from tax, whereas interest received in Non-Retirement Investments pay tax on interest received.

This is a potential saving of up to 40% on interest earned.

40%

DIVIDENDS

Dividends received in the fund are free of any tax. Dividends receivedby Non-Retirement Funds are subject to Dividend Withholding Tax.

This is a saving of 15%.

15%

CAPITAL GAINS TAX

CGTCapital Gains made in the fund are free of any Capital Gains Tax.

Non retirement funds are subject to CGT.

This is a saving of up to 13.3% (40% of 33.3%).

No CGT on death.

13.3%

ESTATE DUTY

Retirement Funds are excluded from the Estate Duty Calculation.

All other Investment Products are included.

This is a saving of 20% (applied above the abatement limit).

20%

The proof of the pudding…

RA UT

Contributions 2,207,135 2,207,135

Reinvested 882,854 0

Equity Growth 3,528,544 2,356,109

Interest (Net) 784,121 314,148

Dividends (Net) 1,176,181 667,564

Total 8,578,836 5,544,956

…is in the numbers!!

R5,000pm for 20 years, inflating at 6% per year (CPI)75% Equities;25% Bonds/Cash9% Equity Growth;3% Dividend Yield;6% InterestTax at 40%workings

Retirement Annuity 8,578,836

Unit Trust 5,544,956

Difference is

54.72% before CGT!!

The following tax is paid when you withdrawwithdraw from the fund and take the cash out:

AMOUNT TAX RATER0 – R22 500 - 0%R22 501 – R600 000 - 18% of the amount above R22 500R600 001 – R900 000 - R103 950 plus 27% of the amount above R600 000R900 001 upwards - R184 950 plus 36% of the amount above R900 000

The following tax is paid when you retireretire from the fund and take the cash out:

AMOUNT TAX RATER0 – R315 000 - 0% R315 001 – R630 000 - 18% of the amount above R315 000 R630 001 – R945 000 - R56 700 plus 27% of the amount above R630 000 R945 001 upwards - R141 750 plus 36% of the amount above R945 000 Please note: All tax concessions are allowed only once.

However, any amount transferred into any form of retirement vehicle, will not be taxed.

LUMP SUMS

A first time lump sum (one third) of R1,000,000 will be taxed as follows:

R141,750 + (R55,000 x 36%) = R161,550

This is an effective tax rate of only 16.16% (this increases as theamount increases).

In a low growth environment it may take a year and a half to recoup that loss in a moderate profiled portfolio.

Employer contributions will be regarded as a taxable fringe benefit

Employees will be allowed to include employer contributions in Retirement Funding Income (including amounts paid for Risk Cover)

Employees under 45 can deduct 22.5% of taxable income (up toan amount of R250,000 per year)

Employees over 45 can deduct 27.5% of taxable income (up to an amount of R300,000 per year)

Unused deductions can be carried forward to the next year

Deductions which exceed the limit will be carried forward to thelump sum at retirement age

PROPOSED TAX CHANGES

IRRESPECTIVETake full advantage of what is available now.

Either within your current retirement fund contribution boundariesorby means of an additional voluntary contribution.

These funds will enjoy the tax free growth and accrue towards the day that …

YOU CAN WORK BECAUSE YOU WANT TO AND NOT BECAUSE YOU HAVE TO !

THANK YOU

Acknowledgements

Professor Matthew Lester for the conceptPersonal Finance for the image on Slide 13To the originators of the images sourced from the Internet

DisclaimerDisclaimer

The information contained in this presentation is provided for general information purposes only and does not constitute financial or any other professional advice. Redwood Unlimited accordingly accepts no responsibility for any loss or damage whatsoever which may arise from the use of and or reliance on any information contained in this presentation.