5 simple tips to be tax-smart

Being aware of and utilising the tax exemptions that government makes available to South Africans is an extremely valuable tool to achieve good financial outcomes.

This was the topic explored at the first event in the ‘Take 5’ series for investors hosted by Nedgroup Investments in partnership with Maya Fisher-French.

The ‘Take 5’ events are a series of informal investor education meet-ups to help investors plan their finances better. Donna Barnes, Head of the Retail Direct Channel at Nedgroup Investments says: “Creating platforms like this where investors can engage with us in a way that is useful, and empowering is very close to our purpose of enabling investors to achieve their investment goals by being their trusted partner.”

Well-known financial commentator, Maya Fisher-French highlighted the following 5 tips for tax efficiency:
1. Plan ahead: Think about how you can ensure all of the tax efficiencies available to you well before you retire. Find a good financial planner who can guide you through this and design a good financial plan for you.

2. Information is king: Take the time to understand the basics. Learn what terms such as Capital Gains Tax, Retirement Annuities, and tax-free investments mean, how you can use them and what the tax applications are. Don’t be afraid to ask – have regular meetings with your financial planner if you have one and insist on discussing these terms. If you don’t have a planner, there are also excellent online platforms such as Extraordinary Life that can guide you through designing the most efficient investment plan for your needs.

3. Use tax-free investments: Tax-free investments are government supported investment products where you pay no tax on capital growth, interest or dividends – and there are no penalties for withdrawal (although restrictions do apply). These investments are one of the most powerful tax-saving tools available to savers – especially when one stays invested in them for the long-term. Don’t dismiss these investments because you think the limits are too low (you can invest up to R2750 per month and R33 000 per year up to a lifetime limit of R500 000). How to use a TFI most effectively:
• Start early. Start a TFI for your children.
• Save for the long term and try not to withdraw
• Invest in Tax-free unit trust so that you don’t use up your interest exemption in a savings account or bank deposit product
• Maximise your allocation to your TFI every year (up to the limit)
• Don’t exceed the investment limits – but be sure to increase your contributions should the limits ever increase

4. Don’t underestimate the power of the debit order: It’s easier to commit your future self than it is to commit now. Set up a monthly debit order for your investments so that each month, a set amount of money will be allocated to your investments without you needing to think about it. You also benefit from the consistency of investments regardless of the market – when markets are up you maintain your investment, when markets are down you are purchasing a larger portion of shares at a lower price which you could benefit from in the future when markets turn – and all this without having to consciously think about it.

5. Focus on fees: We can get so focussed on tax that sometimes we forget to consider the fees of an investment. Remember that your investment is only working for you if the fees are not eroding all the tax-efficiencies you gain. Make sure you know what fees you are paying and that all the fees are disclosed before you invest in anything.

The next ‘Take 5 event will be held in October and November – stay tuned for more useful investment tips.