How to maximise your tax benefits

As an investor, you are granted a R40 000 capital gains tax (CGT) exemption per year in respect of events that trigger a disposal of assets, which includes the sale of unit trusts.

Although it is never ideal to be disinvested if your intention is to invest for the long term, investors may find merit in switching from an invested fund to cash and then back into an invested fund without attracting CGT, provided that the gain is no greater than R40 000.

In doing so, you will be able to rebase your investment at a higher base cost, effectively enabling you to earn this tax-free.

Keep in mind, if you have a poor-performing investment that has experienced a capital loss and you wish to take it in another direction, this capital loss is added to the R40 000 annual exemption.

This raises the amount of tax-exempt gain you can yield and rebase for strong-performing investments while changing strategy on the poor performers.

Use your tax-free savings account allowance

Although your contributions to a tax-free savings account (TFSA) are not tax deductible, all interest income, capital gains and dividends earned are exempt.

Not being taxed on the growth in your TFSA is still a benefit not to be ignored and now is the perfect time to determine whether a TFSA is appropriate for your personal circumstances.

As a TFSA investor you are currently permitted to contribute up to R33 000 per year towards this investment, with a maximum lifetime contribution of R500 000.

Get certification of your donations

Tax legislation allows you to donate up to 10% of your taxable income to charity on a tax-deductible basis, although it is important to know that this tax deduction is not automatic.

In order to claim a tax deduction, the South African Revenue Service (Sars) requires that a number of strict requirements are met – including that the taxpayer be in possession of a Section 18A certificate.

Only organisations that have been approved by Sars as a public benefit organisation (PBO) are able to issue Section 18A certificates to donors in respect of bona fide donations.

When doing your eFiling you will need to upload your Section 18A certificate, which needs to include the PBO’s reference number, date of receipt of the donation, the name and address of the donor and the amount or nature of the donation.

Claim for your Section 12J investments

Sars provides a tax incentive for individuals to invest in approved venture capital companies (VCC) under section 12J of the Income Tax Act.

Current legislation permits you to invest up to R2.5 million towards a Section 12J investment scheme and receive a 100% tax deduction on the contribution.

However, you must bear in mind that the investment must be held for a minimum period of five years in order to retain the tax deduction.

Disinvestments or withdrawals are, however, subject to capital gains tax from the first rand.

While Section 12J is a great way to reduce your tax liability, it is advisable to do your research before investing in a venture capital company.

Collier is a director at Crue Invest

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