View more in Webinars

Tax Optimisation for Investors

We are pleased to share the video recording, presentation slides and executive summary from our recent Tax Optimisation webinar.

The following topics were discussed in detail:

  • Investment taxation: How growth, interest and dividends are taxed
  • Offshore investing: Understand the tax implications of direct offshore exposure
  • Tax-saving strategies: Tools and structures to improve tax efficiency
  • Retirement income planning: Balancing tax efficiency with liquidity needs
  • Emigration and Tax Effects: Understanding the implications of changing your tax-residency.

Please see the recording of the webinar and presentation slides below.

Recording

Slide Presentation

PDF Thumbnail

(Apologies for Stuart’s poor audio in the beginning of the webinar presentation.)

We provide information from the webinar below:

Investment Taxation Overview

Understanding South Africa’s Tax System

In South Africa, the income you receive is either taxed automatically through a platform or payroll (Pay-as-you-earn), or requires to be declared and paid manually. When calculating your tax, it is important to take both into consideration.

We provide examples below:

PAYE (Automatically Taxed)Self-Declared Income
SalaryInterest Income
BonusesRental Income
CommissionTrust/Company Distributions
Pension / Annuity IncomeCapital Gains
Leave PayFreelance / Consulting Income
Fringe BenefitsOffshore Income
Local DividendsForeign Dividends

Marginal vs Effective Tax Rates

Your marginal tax rate is the rate applied to your last rand of income, while your effective tax rate is the average rate you pay across all income.

This distinction is crucial when planning for investment income, which is typically taxed at your marginal rate.

Annual Taxable IncomeMarginal Tax RateEffective Tax Rate
R500,00031%20%
R1,000,00041%29%
R2,000,00045%35%
R5,000,00045%41%

Capital Gains Tax (CGT)

Capital Gains Tax is triggered when you sell an asset for more than its base cost. The tax is not applied to the full gain but to a portion of it, depending on your taxpayer category. Knowing how CGT is calculated can help you plan asset disposals more effectively.

Taxpayer TypeInclusion RateMax Effective Tax Rate
Individuals & Special Trusts40%18%
Companies80%21.6%
Trusts (Excl. Special Trusts)80%36%

CGT Exemptions

  • R40,000 annual exclusion
  • R2 million exclusion on primary residence
  • R300,000 in year of death
  • Personal use assets (e.g. cars, furniture)

Example: CGT Calculation

ItemAmount
Sale PriceR5,000,000
Base CostR4,000,000
Capital GainR1,000,000
Less Annual ExclusionR40,000
Net GainR960,000
Inclusion (40%)R384,000
Tax at 41%R157,440
Effective CGT Rate15.7%

Investment Scenarios: Tax Impact

Different types of investment income are taxed differently. This section compares the after-tax outcomes of three investment strategies over five years, each starting with R10 million and earning 10% annually.

ScenarioAfter-Tax ValueTotal Tax PaidEffective Return
Interest OnlyR14.0 millionR1.72 million7.0%
Capital Gains OnlyR15.2 millionR901,0008.8%
Blended GrowthR14.86 millionR1.11 million8.3%

Tax-Efficient Investment Vehicles

Choosing the right investment vehicle can significantly reduce your tax liability. Here’s a breakdown of the most tax-efficient options available to South African investors, and their key taxation characteristics.

Tax-Free Investment Accounts (TFIs)

FeatureDetails
Annual Contribution LimitR36,000 (R3,000/month)
Lifetime LimitR500,000
Tax on Growth0%
Tax on Withdrawals0%

Endowments & Wrappers (Sinking Funds)

Tax ElementRate
Capital Gains Tax12%
Interest Income30%
Dividends20% (withholding)
Tax Administration & ReportingHandled by insurer

Retirement Funds: Retirement Annuity, Pension Fund, Provident Fund, Preservation Fund

Contribution DeductionLimit
% of Income27.5%
Annual CapR350,000
Capital Growth100% Tax-Free

Offshore Investing: Direct vs Indirect

Investing offshore can be done directly or indirectly. The tax implications differ significantly between the two approaches, especially when it comes to capital gains and currency depreciation.

FeatureIndirect (Feeder Fund)Direct Offshore (Wrapper)
CurrencyZARUSD/GBP/EUR
Tax on Rand WeaknessYesNo
CGT RateUp to 18%12%
WithdrawalsSA bank onlyAny global account

Case Study: 10-Year Investment

We provide an example comparing a feeder fund and direct offshore fund’s tax implications.

MetricFeeder Fund (ZAR)Direct Offshore (USD)
Starting ValueR10,000,000$816,327
Capital GainR21,434,000R17,015,570
CGT PayableR3,848,557R2,049,408
Final Value (After Tax)R27,572,314R29,714,710
Difference+R2,142,395

Real-World Scenarios

These practical examples show how small changes in investment structure can lead to significant tax savings.

Scenario: R20M Portfolio (Annuity + Savings)

ComponentValueTax PaidOutcome
Living AnnuityR10MR170,798 (PAYE)R549,202 annuity income
Fixed DepositR10MR369,000R900,000 interest income
Total TaxR539,798

Optimised Version: Annuity + Wrapper

ComponentValueTax PaidOutcome
Living AnnuityR10M (Income Funds)R170,798R549,202 income
SA WrapperR10M (Balanced Funds)R145,800No personal tax due
Total TaxR316,598

Section 10C of the Income Tax Act on Excess Contributions

When contributions to retirement funds exceed the annual deduction limit (27.5% of taxable income or R350,000), these excess amounts are recorded for future tax benefits. Although they don’t receive immediate tax relief, they are tracked and can be paid out tax-free when the individual starts drawing an income from an annuity. This provision helps optimise tax benefits for retirement savings over time.

Example:
▪ A businesswoman sells her company at age 58 and receives an after-tax
capital payment of R20 million.
▪ She contributes R10 million of the lump sum to her Retirement Annuity.
▪ In the year of contribution: R350,000 is claimed as a tax deduction.
▪ The remaining R9,650,000 is recorded on her tax return as “excess
contributions”.
▪ In the following year: She retires from the RA and transfers the funds to a
Living Annuity.
▪ As she begins to draw an income from the annuity, the amounts previously
captured as excess contributions will be tax-free when paid out as annuity
income

Emigration & Exit Tax

When you cease to be a South African tax resident, SARS imposes an “exit tax” on your worldwide assets. Planning ahead can help you avoid liquidity issues and unnecessary tax burdens.

TriggerEffect
Ceasing SA Tax ResidencyCGT on worldwide assets (deemed disposal)
Excluded AssetsSA property, retirement funds, wrappers

Ready to begin? Investonline is here to help you improve on your tax planning. Let one of our Financial Planners help you strategise.

Expert Support & Tailored Advice

Personalised Expert Support

  • No automated systems or endless waits.
  • Our is available by phone or email, ready to assist.

Effortless Transitions

  • We handle the entire process of moving your investments.
  • We make switching with providers simple and stress-free.

Clear, Tailored Advice

  • We ensure you fully understand which products
  • We help align the best funds with your unique needs.

Our Financial Planners

NickStuartGeranJannieDirkPenelopeEwanJoshuaDylan

Request a 15-min introductory meeting

Expert Guidance

Clarity starts here. Let us guide you.

Equites
Next Webinar

Navigating Retirement

Speakers → Stuart Dyer & Sharon Moller

9 Jul 25 11:00
Your info is secure. Read our POPIA Notice.
By submitting, you agree to communication.

Thanks for getting in touch

We aim to respond as soon as possible.

Free Comparison

Your info is secure. Read our POPIA Notice.
By submitting, you agree to communication.

Thanks for getting in touch

We aim to respond as soon as possible.

Free Consultation

Your info is secure. Read our POPIA Notice.
By submitting, you agree to communication.

Thanks for getting in touch

We aim to respond as soon as possible.

Free Consultation

Your info is secure. Read our POPIA Notice.
By submitting, you agree to communication.

Thanks for getting in touch

We aim to respond as soon as possible.