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It's My Money with Arin Ruttenberg · Strictly Business

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You're listening to Strictly Business Podcast with Lindsay Williams.
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This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
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for global wealth creation.
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Welcome to It's My Money.
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It's My Money is brought to you by Brenthurst Wealth, South Africa's
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multi-award winning boutique wealth manager.
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Normally I like to speak to Aaron Ruckenberg because he's a good
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communicator and the subjects he chooses himself are
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really quite interesting.
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but today we're going to He's still going to be interesting.
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He's still going to be good to talk to, but I'm not going to enjoy the subject
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matter because it's tax.
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Is it that time of year again, Aaron?
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Lindsay, exactly.
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It's that time of year.
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Good afternoon or good morning to your listeners.
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It is the time where we are not exactly that thrilled or the subject material we
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are not
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thrilled to discuss, but we all do not want to pay tax, especially to the
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government.
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So we would prefer to use what we can to our advantage to not let the government
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take away our
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taxes to use it for any unplanned trips, should we say.
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That came from somewhere, but we won't go into politics.
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Let's not politicize this chat, but let's have a look at the points that you make.
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I mean, let's get serious about tax now.
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And actually, there was one question I wanted to ask you, Aaron.
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How many of your clients, no matter how wealthy, no matter how successful, no
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matter how clever and worldly they are.
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how many of them freeze when it comes to tax and don't do it properly?
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95%.
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You can't be serious, really.
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95% of clients you wouldn't believe.
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Some of them want to take advantage of tax.
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Some of them don't know how to.
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So they want to learn, but it's about 95%.
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It's quite incredible.
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And I think it's because of the admin process.
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But as soon as I get involved, then we get things done.
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Right.
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Max out your retirement contributions is the first point.
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What does that mean, max out?
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And this is a good point.
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And I want the list that somebody can either use the article to either put on
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their fridge or keep with them,
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but they need to keep this because it just reminds them every year.
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So maxing your retirement contributions is one of the most powerful ways to reduce
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your tax burden while growing your long-term savings.
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You can contribute up to 27.5% of your taxable income to a maximum of...
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350,000 Rand per year to a retirement annuity or a pension fund.
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So you need to ask yourself, have you topped up this year?
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We won't go into the technicalities, but many people leave this for later.
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They miss the window.
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Remember, you can deduct this.
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And when you do,
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you're in a position where you're paying less tax for every amount earned and you
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pay
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less tax today, more retirement income tomorrow.
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You leave this.
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as it's excluded from your estate.
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So that's another massive tax of 20%.
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And it grows tax free within the retirement annuity, free of dividends tax,
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free of capital gains tax, free of interest tax.
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All these compound to your advantage.
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Very good indeed.
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No taxes are involved there.
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So well done on that one.
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And the second one is also very important because it's got a A lot of publicity
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recently, TFSA, tax-free savings accounts.
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And there have been examples in newspapers and online of people who started saving
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with the Tax Free Savings Account,
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which we'll go into in a moment, and how much they've got after so many years of
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doing so.
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But don't neglect it, even if some people might say, oh, it's not a lot of money.
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It is a lot of money.
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It becomes a lot of money.
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Tell us more, please.
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This is another point.
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A lot of clients, especially the more wealthier client, will think that it
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doesn't make a big impact for them.
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But they're forgetting about their grandchildren or...
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their younger children if they have this is what i do for my child because even if
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and without giving the numbers you have to
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contribute and max out your child or grandchild's contribution from the time
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they're born and then stopped as you reach this 500 000 rand limit
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you'll be left with a significant amount of money that's been compounding using
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even a 10 to 12 return on
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investment um where that creates quite a life changer for them i'll put it to that
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way but for another time.
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So for this point Again, you can contribute to yours, your spouse, your
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child, your grandchild,
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36,000 Rand a year, 500,000 Rand for a lifetime.
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I love these products and, you know, thankfully we've jumped on the bandwagon.
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In the UK, they're called Isis and they can invest in slightly you more things
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than we can,
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but we're in the right direction.
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And in the US, they call it Roth IRAs.
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But you're getting tax-free growth.
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So you don't get the deduction like with a retirement annuity.
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You've only got the $36,000 contribution.
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But whatever happens within there is, again, free of capital gains tax, free of
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dividends tax, and free of interest tax, which, by the way,
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when you're doing it for the younger person, should be only in equities,
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shares, types of investments,
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which you can do via unit trusts or exchange-traded funds.
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And when you compound that over time, including the reinvestment of dividends,
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like I've said,
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it's not a small number over a long period of time.
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So do maximize those.
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As you get older, medical expenses become a thing, Aaron.
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You'll find out, don't worry.
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Before you know it, you'll be right.
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You'll be going to the doctor three times more frequently than you normally do,
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being a fit young man that you are.
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The expenses will go up because medical inflation is incredible.
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So why is medical expenses part of your list?
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You know what?
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It's part of my list.
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And please, God, I can also make sure that I maintain my health as well as part of
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this list.
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But if you're on medical aid and you've paid out-of-pocket medical expenses, you
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might qualify for a medical tax credit.
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And I had to learn this the hard way, believe it or not, a while ago.
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So I've never forgotten.
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So always keep your invoices and your proofs of payment.
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Sometimes your medical aid won't pay the entire bill or you run out of medical aid
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savings.
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And it's...
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This is where many people get stuck and they've got to go back in their history or
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their invoices or look
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through their bank statements and they realize too late that they haven't kept
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the right receipts.
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So this can get you taxed back for the out-of-pocket expenses.
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So when you get your receipts for any medical expenses that has not been covered
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by the medical aid, keep them.
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Or has partially not been covered, keep them.
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and speak to your tax practitioner with regards to that.
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Donations, give with intention.
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Now, giving is an interesting thing because some people give because they like
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to give.
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Some people give because they want to be seen to be giving.
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Other people give because it's tax deductible.
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Is it a bit of a minefield, the donation department?
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It's not really.
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All you've got to make sure is when you're donating, you donate to a EBO, public
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benefit organization, which...
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is able to give you what's called a section 18a tax certificate section
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18a of the income tax act essentially when you donate to a credible organization you
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can
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claim a deduction of up to 10 percent of your taxable income so i would rather
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reduce
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tax if i donate
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money to charity or an organization at the same time
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So it's benefiting me and it's also reducing, you know, your tax bill and so
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the government.
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What about gifts?
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This isn't on your list, but it comes in to the sort of the sphere of donations.
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You want to give someone a gift.
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I like you, Aaron.
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You've been nice to me over the years and I've just got a bit of a windfall.
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So I want to give you some money so you can do you can have that sauna that you've
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always wanted in
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your house.
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How's that treated by SARS?
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Very good question and something we discuss with clients,
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especially even though they want to open a trust in the long term for their minor
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children.
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So that's another story which we should go through.
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But you can donate up to 100,000 Rand per year tax-free, right?
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So better still, obviously spouses are the most powerful forces in tax law because
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they can gift
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each other unlimited amounts without triggering donations tax.
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Donations tax is 20%, the donor.
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has to pay.
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So if I give somebody, anybody a million rand,
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I will only get 100,000 rand of that million free of donations tax.
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The 900,000 will be taxed at 20%.
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I have to pay that as the donor.
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So if you're a spouse and your significant other has a lower tax
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rate or is not working for whatever reason, you can actually donate them
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quite...
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a lot of money before their tax bracket increases.
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So depending on what their tax bracket is,
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you can utilize that and leverage off of their lower tax bracket to pay less tax on
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interest, for example,
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if you want to hold some cash.
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Okay, but it's a genuine part of the whole tax umbrella.
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It's under the tax umbrella.
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It's very interesting to know because some people like to give.
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I'm a giver.
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But that's another story.
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Travel and home office claims.
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Because of the working from home thing, I imagine the home office claims is a very,
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very vibrant department at Brenthurst and also travel.
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There must be several politicians in South Africa that are getting lots of travel
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claim slips being put in at the moment.
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Correct.
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Sometimes you're traveling for the business and they need to.
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give you that capital back.
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Sometimes you're a commission earner and if you earn over 50% of your income as
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commissions,
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you can claim for travel expenditure yourself.
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All you need to do, and this is where it mainly comes in, is keep a logbook.
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That's another administrative burden,
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but you can get a type of instrument that you can buy online where it tracks your
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kilometers.
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You just leave it in your car and you plug it in there.
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You've got that as a digital logbook or a manual logbook and you
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then track your total kilometers.
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You've got your business kilometers and your private kilometers there,
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and you can use your business kilometers towards a deduction.
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And the same with your home.
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If you're working from home, you just need to make sure your home office meets SARS
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rules and you keep
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record of rent and utilities.
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Sometimes if you're, or in this case, your home office only is where you work out of,
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and you've got to use the square meterage to work out.
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that portion of that relative to your home as a deduction,
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also relative to the rent you pay or your bond.
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So we can also help you with that, or anybody that's a tax practitioner that
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knows how to use or how to understand that
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would be able to assist.
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So you've been whizzing in between certain cities in South Africa recently, you told
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me off-air.
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Presumably that's the sort of thing we're talking about, or is that covered by your
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employer?
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So for me, that's covered by my employer.
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But for certain industries, it's not.
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And you, as long as I'm looking at it, that you need that capital to be able to
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get around.
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So they're giving it to you as a deduction from tax.
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Because without that, you're paying too much out of pocket and you need that
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capital.
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For me, I'm fortunate that my employer pays for me to go to wherever I need to
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go.
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So it works a bit differently under my situation.
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Okay.
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Now if you've got a job and you earn an income but again another trend like the
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home working thing
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that I just spoke about another trend is getting other sources of income.
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It might be from a cottage you've got on your property whatever or doing some
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freelance work or even interest.
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Now you then have to treat that differently to your normal tax.
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You have to fill in a form and you have to get it in by on a certain date and it's
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got to be it's got to be you
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It's got to be quite niftily filled in.
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You can't make any mistakes with this thing.
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And if you're late, then there's penalties, I imagine.
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Correct.
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There's many penalties, especially if you're a provisional taxpayer.
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And that means you've earned other forms of income that are higher than a specific
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amount, such as interest.
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And you, therefore, become a provisional taxpayer and you've got to pay tax.
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And if you don't pay it at those deadlines, then you will be penalized.
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And also, of course, you know the way that these things work even with a retirement
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annuity
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contribution it takes all of your taxable income into account so you might have a
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salary and
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bonus and a side hustle and interest interest is the or rental income the
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interest in rental income can
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cause you to become a provisional taxpayer so
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that's when admin becomes a double burden other than just a straightforward person
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who's just earning an income
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investing on the side keeping his interest expenses low or or interest.
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income low, should I say, then that's pretty much more straightforward.
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Whereas the person who's a provisional taxpayer has got a few more things up
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their sleeve that they need to do.
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So it's best to have somebody to help you, in my view.
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Otherwise, you sometimes are fine.
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Don't hold yourself accountable enough.
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What about capital gains?
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Capital gains is great.
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You think, okay, well, I'm paying tax on some capital that has gained in value.
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But on the other hand, it can actually take a little bit of a gloss off the gain,
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can't it?
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I mean, let's say, for example, that I said today, you know what,
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I reckon that Capitec's going up today and I'm going to buy it.
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And then three months later, my target was achieved, or I had to get out because I
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needed the money for something else.
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I sell it at a 5% profit.
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That's liable for capital gains tax, right?
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Well, that's not entirely.
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So you've actually asked a very good question.
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And this is why it's good to know the Income Tax Act.
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Because when you, in your example, sell something under a period of three years,
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in your example it was three months,
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that is income.
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That is not capital gain.
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But if you sold Capitec three years later and made quite a profit, then it becomes a
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capital gain.
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Because you can be seen as a trader and trading for income.
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therefore traders are very short term in nature and they might be trading or day
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trading
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And therefore, that institutes income rather than capital gain.
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Which is greater, sorry to interrupt, which is greater, the three-month tax or
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the three-year tax,
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the capital gains tax versus the income tax?
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The income tax is greater.
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Capital gains tax is more of the friendlier tax because at most it can be
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18%.
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You get a 40,000 rand deduction per year.
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Unfortunately, that is not that much for the higher income earner.
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who might have quite a large gain.
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And just FYI, it's not part of this article, but again,
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it's important to know these things is you have a 2 million Rand primary residence
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exclusion.
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So if you sell your house, your first 2 million Rand of profit is capital gains
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tax free.
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So these are the important things to know.
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But capital gains are important because if they are losses, you can actually
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carry forward any capital losses to be offset against any capital gains,
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which I have not included there.
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But it's another important concept that's important for anybody to know so that they
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understand what they're doing.
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So I'd imagine after last year when there were a lot of gains in a lot of different
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asset classes, whether it be property overseas,
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which is obviously different to South Africa.
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Let's say that again, then property gains in South Africa or stock market gains in
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South Africa and
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capital gains has to come into play.
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So it must it'll be a busy year.
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I think you've got a busy tax year coming up.
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Donations we've already done and gifts we've already done.
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So we've got to wrap this up, really.
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I would say that if you don't get your tax sorted out ahead of time, really well
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ahead of time,
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then not having your tax sorted out is a tax on your brain.
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because it can be...
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Quite a burdensome worry, can't it, Aaron?
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Absolutely.
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You need to make sure to start with an item on the list.
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Take all these items off.
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There's about eight of them.
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But some of them, as we've even seen in this discussion, go through into different
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caveats.
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I don't know what a certain person has sold, etc.
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And it's all recorded and it's all good to work with somebody, even if they've got a
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capital loss that's carried forward that they didn't know about.
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I've even talked to a lot of clients, it's not part of the article, but make a note
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on section 10c of the Income Tax Act.
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That's just an important point where you can effectively earn an income or tax-free
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income from one's living annuity during retirement.
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These are all little important loopholes that we can take advantage of also by
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over-contributing.
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So that forms part of the first point, but take these notes.
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Take these steps and just be disciplined to get through it.
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Even if you need to get to somebody that can help you,
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that's fine because you'll still save money more than what you'll pay for the
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service.
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Very good.
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Okay, get your tax affairs sorted out.
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Give us some dates now.
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When do people have to have their provisional tax forms in?
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When does the tax year end and start?
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Please tell us.
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The 28th of February is the deadline.
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So if you're contributing to a retirement annuity, most of these places, even a
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tax-free investment,
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the money needs to be in on the 27th. Never leave it to the last day.
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So 28th is your last day, but try and get it done before the 27th.
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Very good.
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Aaron, you consistently impress me with your knowledge of all things personal
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finance.
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So thank you very much for that.
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It was more enjoyable than I thought it would be.
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Aaron Ruttenberg.
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is from Brentos Wealth, and that was It's My Money.
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It's My Money was brought to you by Brentos Wealth, an award-winning boutique
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wealth management company.