A road trip to financial freedom

Tax and how to avoid it as an investor

By Lizelle Steyn

9 March 2022

tax saved in equity TFSA

Tax is a pain, but the good news is that by being organised and investing in the right products you can remove most of the sting. E-filing opens in July every year but the tax year runs from 1 March to 28 February, important dates if you don't want to miss the cut-offs for each year's allowable contributions to your tax-free savings account and RA.

What are all the taxes an investor pays?

The list below includes most of the taxes an investor could potentially end up paying:

Some of those taxes, like the withholding tax on local dividends, as well as securities transfer tax and VAT, are deducted from the portfolio or investment account and there's no need to 'pay in' these taxes when e-filing. Listen to the interview with DJ@Large below to hear more about how much tax investors are paying when they're not using a tax-free savings acccount or retirement annuity.

In the podcast I mentioned how much tax a tax-free savings account (TFSA) can save you, assuming:

After 20 years, an equity investor using a TFSA could save more than R300 000 in tax

In the example used, after 20 years you’ll have R1 954 757 compared to R1 752 256 if dividends tax was payable. On cashing it in, you would save as much as another +/- R140 000 on capital gains tax if you're in the 45% tax bracket. If you're in the 26% tax bracket, for example, then the capital gains tax you save will be closer to R80 000.

tax saved in equity TFSA

Assumptions: Investor is in the 45% tax bracket when cashing in the investment | equity fund grows by 10% per year (4% dividends; 6% capital growth)

A retirement annuity is another great product to save tax

Once you're able to invest R36 000 into a TFSA every year, your next tax hero product to start contributing to is a retirement annuity (RA). They have so many tax benefits at different stages of the investment. Just bear in mind that one day you will be paying normal income tax on the annuity income from all your retirement products. Thank you to Easy Equities, for the opportunity to speak at their 'Investing for your Future' webinar - more details about how the tax on an RA works in the video clip below:

Tax can get complicated, especially when you invest in foreign companies and ETFs. But if you largely steer clear of standard taxable investment accounts, you only need to remember the following to navigate your path through the tax landscape:

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