Tax Benefits through Retirement Funds Savings

Thoughts Contributions Interest Dividends CGT Estate Duty Lump Sums Summary AGENDA

THOUGHTS The multiple layers of protection retirement funds have such as Regulation 28, PF 130, Section 37 c and d etc. The extremely rigorous and compliant filters that a fund is exposed to. The various entities that are part of improving the retirement industry : - I R F, C R I S A, F P I, T C F, KING CODE 3 The reform in retirement fund structures to benefit members, is speeding up. The intellectual capital that is involved in some way or form, is gargantuan - just look at the standard we are experiencing at this event. An environment of “trust” that is more evident in recent years that in previous decades, is evolving. A reward for this trust that is been earned is the advantageous tax treatment of our retirement savings.

CONTRIBUTIONS Contributions to Retirement Funds are allowed as a tax deduction – so up to 40% of what you actually pay comes back as a refund. 40%

INTEREST Interest received in the fund is free from tax, whereas interest received in Non-Retirement Investments pay tax on interest received. This is a potential saving of up to 40% on interest earned. 40%

DIVIDENDS Dividends received in the fund are free of any tax. Dividends received by Non-Retirement Funds are subject to Dividend Withholding Tax. This is a saving of 15%. 15%

CAPITAL GAINS TAX CGT Capital Gains made in the fund are free of any Capital Gains Tax. Non retirement funds are subject to CGT. This is a saving of up to 13.3% (40% of 33.3%). No CGT on death. 13.3%

ESTATE DUTY Retirement Funds are excluded from the Estate Duty Calculation. All other Investment Products are included. This is a saving of 20% (applied above the abatement limit). 20%

The proof of the pudding…

RAUT Contributions2,207,135 Reinvested882,8540 Equity Growth3,528,5442,356,109 Interest (Net)784,121314,148 Dividends (Net)1,176,181667,564 Total8,578,8365,544,956 …is in the numbers!! R5,000pm for 20 years, inflating at 6% per year (CPI) 75% Equities;25% Bonds/Cash 9% Equity Growth;3% Dividend Yield;6% Interest Tax at 40% workings

Retirement Annuity8,578,836 Unit Trust5,544,956 Difference is 54.72% before CGT!!

withdraw The following tax is paid when you withdraw from the fund and take the cash out: AMOUNT TAX RATE R0 – R % R – R % of the amount above R R – R R plus 27% of the amount above R R upwards - R plus 36% of the amount above R retire The following tax is paid when you retire from the fund and take the cash out: AMOUNT TAX RATE R0 – R % R – R % of the amount above R R – R R plus 27% of the amount above R R upwards - R plus 36% of the amount above R Please note: All tax concessions are allowed only once. However, any amount transferred into any form of retirement vehicle, will not be taxed.

LUMP SUMS A first time lump sum (one third) of R1,000,000 will be taxed as follows: R141,750 + (R55,000 x 36%) = R161,550 This is an effective tax rate of only 16.16% (this increases as the amount increases). In a low growth environment it may take a year and a half to recoup that loss in a moderate profiled portfolio.

Employer contributions will be regarded as a taxable fringe benefit Employees will be allowed to include employer contributions in Retirement Funding Income (including amounts paid for Risk Cover) Employees under 45 can deduct 22.5% of taxable income (up to an amount of R250,000 per year) Employees over 45 can deduct 27.5% of taxable income (up to an amount of R300,000 per year) Unused deductions can be carried forward to the next year Deductions which exceed the limit will be carried forward to the lump sum at retirement age PROPOSED TAX CHANGES

IRRESPECTIVE Take full advantage of what is available now. Either within your current retirement fund contribution boundaries or by means of an additional voluntary contribution. These funds will enjoy the tax free growth and accrue towards the day that … YOU CAN WORK BECAUSE YOU WANT TO AND NOT BECAUSE YOU HAVE TO !

THANK YOU

Acknowledgements Professor Matthew Lester for the concept Personal Finance for the image on Slide 13 To the originators of the images sourced from the Internet Disclaimer The information contained in this presentation is provided for general information purposes only and does not constitute financial or any other professional advice. Redwood Unlimited accordingly accepts no responsibility for any loss or damage whatsoever which may arise from the use of and or reliance on any information contained in this presentation.