Recording: 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

(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
Salary	Interest Income
Bonuses	Rental Income
Commission	Trust/Company Distributions
Pension / Annuity Income	Capital Gains
Leave Pay	Freelance / Consulting Income
Fringe Benefits	Offshore Income
Local Dividends	Foreign 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 Income	Marginal Tax Rate	Effective Tax Rate
R500,000	31%	20%
R1,000,000	41%	29%
R2,000,000	45%	35%
R5,000,000	45%	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 Type	Inclusion Rate	Max Effective Tax Rate
Individuals & Special Trusts	40%	18%
Companies	80%	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

Item	Amount
Sale Price	R5,000,000
Base Cost	R4,000,000
Capital Gain	R1,000,000
Less Annual Exclusion	R40,000
Net Gain	R960,000
Inclusion (40%)	R384,000
Tax at 41%	R157,440
Effective CGT Rate	15.7%

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.

Scenario	After-Tax Value	Total Tax Paid	Effective Return
Interest Only	R14.0 million	R1.72 million	7.0%
Capital Gains Only	R15.2 million	R901,000	8.8%
Blended Growth	R14.86 million	R1.11 million	8.3%

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)

Feature	Details
Annual Contribution Limit	R36,000 (R3,000/month)
Lifetime Limit	R500,000
Tax on Growth	0%
Tax on Withdrawals	0%

Endowments & Wrappers (Sinking Funds)

Tax Element	Rate
Capital Gains Tax	12%
Interest Income	30%
Dividends	20% (withholding)
Tax Administration & Reporting	Handled by insurer

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

Contribution Deduction	Limit
% of Income	27.5%
Annual Cap	R350,000
Capital Growth	100% 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.

Feature	Indirect (Feeder Fund)	Direct Offshore (Wrapper)
Currency	ZAR	USD/GBP/EUR
Tax on Rand Weakness	Yes	No
CGT Rate	Up to 18%	12%
Withdrawals	SA bank only	Any global account

Case Study: 10-Year Investment

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

Metric	Feeder Fund (ZAR)	Direct Offshore (USD)
Starting Value	R10,000,000	$816,327
Capital Gain	R21,434,000	R17,015,570
CGT Payable	R3,848,557	R2,049,408
Final Value (After Tax)	R27,572,314	R29,714,710
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)

Component	Value	Tax Paid	Outcome
Living Annuity	R10M	R170,798 (PAYE)	R549,202 annuity income
Fixed Deposit	R10M	R369,000	R900,000 interest income
Total Tax		R539,798

Optimised Version: Annuity + Wrapper

Component	Value	Tax Paid	Outcome
Living Annuity	R10M (Income Funds)	R170,798	R549,202 income
SA Wrapper	R10M (Balanced Funds)	R145,800	No personal tax due
Total Tax		R316,598

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.