Tax
deductions have become a talking point ever since Trevor Manual's 13-year term
as Finance Minister. He introduced Capital Gains Tax and Residence Based Tax in
an attempt to 'spread it around.' Retirement investments have not been left
untouched either, and while it's still true that RAs offer the best bang for
your buck long term, there are some that are speculating that the downside to
investing in retirement funds is the taxable income created on withdrawal of
the benefits. They say 'you just pay the whole lot back.' But is that really
true? Take a look at our figures and observations and decide for yourself.
If the taxpayer's intention is to stay invested until retirement there can be little case to invest through any other medium than a retirement fund (pension, provident or retirement annuity find). The combination of a tax deduction on the investment coupled with tax-free growth and partial taxation on withdrawal is hard to beat.
The downside to investment in retirement funds is the taxable income created on withdrawal of benefits. Some say that 'you just pay the whole lot back.' So the purpose of this article is to analyse the taxes on withdrawal and ask the question 'at what point does a retirement fund become tax inefficient?'
If the taxpayer's intention is to stay invested until retirement there can be little case to invest through any other medium than a retirement fund (pension, provident or retirement annuity find). The combination of a tax deduction on the investment coupled with tax-free growth and partial taxation on withdrawal is hard to beat.
The downside to investment in retirement funds is the taxable income created on withdrawal of benefits. Some say that 'you just pay the whole lot back.' So the purpose of this article is to analyse the taxes on withdrawal and ask the question 'at what point does a retirement fund become tax inefficient?'
The effect of change
over the past 10 years on tax thresholds
The National Budget Speeches from 1994 to 2000 were pretty pedestrian affairs and little changed in the RSA tax system. Tax reform in the new RSA only really got going from the 2000 national budget speech going forward.
The emphasis of Trevor Manuel's 13-year term as Minister of Finance was to 'spread it around' and to try and reduce the tax burden on the individual taxpayer, particularly the lower income earner. This was achieved by implementing other forms of tax such as Capital Gains Tax ('CGT') and Residence Based Tax ('RBT').
From 2000 onwards the bulk of the monetary value of the annual adjustment to the individuals' tax tables has been concentrated on the lower income earner. And every attempt has been made to cut a fairer deal for those earning below R20 000 a month in 2012 money terms.
New Tax Tables -
| Annual Income Bracket | Basic | Marginal | |
| 0 to R160,000 | 18% | ||
| R160,001 to R250,000 | R28,800 | 25% | |
| R250,001 to R346,000 | R51,300 | 30% | |
| R346,001 to R484,000 | R80,100 | 35% | |
| R484,001 to R617,000 | R128,400 | 38% | |
| R617,001 and over | R178,940 | 40% | |
| Rebates | |||
| Primary | R11,440 | ||
| 65 and older | R6,390 | ||
| 75 and older | R2,130 |
- Every taxpayer has a tax threshold of R63 556
- Taxpayers over 65 attain tax threshold at R99 056 and
- Taxpayers over 75 attain tax threshold at R110 889
And the net result is
that taxpayers earning less than R120 000 per annum only pay 4% of the
individuals' tax burden today.
To be continued...
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