By Geshy Singh

I think due to ‘tax’ being the buzz word of recent, especially in these unpredictable market conditions added to the current political sagas, it’s become more and more apparent that more saving and less spending will serve as a buffer to cushion difficult times.

Warren Buffet’s wise and eminent quote particularly comes to mind: “Don’t save what is left after spending; spend what is left after saving.”

But fees and taxes also need to be taken into consideration at the planning phase and is often over looked.

I have received many enquiries regarding the tax-free investment that legislation has made possible to encourage saving as a result of all the ‘tax talk’ I suppose. As per the South African Revenue Services exemptions: “Interest from a South African source earned by any natural person less than 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from taxation.”

So naturally the offer is more attractive to those individuals who are on a higher income tax bracket and/or to those individuals that have investments that earn interest that exceeds the above mentioned tax exemption. There are certain conditions however, namely this is available only to natural South African citizens, an individual is allowed a maximum contribution of R500 000 in a lifetime and a maximum contribution of R30 000 per year.

So if you have a lump sum, you may phase in annual premiums of up to R30 000 per annum. Monthly, the maximum contribution works out to R2 500pm. A contribution of R30 000pa should take 16 years and six months in a lifetime, to take advantage of the tax free investments made possible by legislation.

The great thing is that all interest earned for the duration of the investment; regardless how much is earned, how aggressive the investment is or how long its invested for, will not be taxed.