optimising interest gains

[djiceman]

Has anyone have a conceptual approach on using a vehicle (eg small business corporation, company, trust, etc) to optimise tax rates for interest gains? This is outside of using tax free accounts.

Example as a natural person(under 65), your interest up to R23800 is tax free, then the balance of interest earned is taxed at your prevailing tax bracket.

Though if the owner of the savings account is a company, the company would be taxed differently, eg 27% flat (makes sense if this is lower than the personal income tax bracket)? The idea is that the company is an investment/savings management business, though how the funds exit the company is another stumbling block without hitting further tax triggers such as individual CGT.

Any conceptual approaches on legally optimising obligations on interest gains?

 

[Snyper564]

Has anyone have a conceptual approach on using a vehicle (eg small business corporation, company, trust, etc) to optimise tax rates for interest gains? This is outside of using tax free accounts.

Example as a natural person(under 65), your interest up to R23800 is tax free, then the balance of interest earned is taxed at your prevailing tax bracket.

Though if the owner of the savings account is a company, the company would be taxed differently, eg 27% flat (makes sense if this is lower than the personal income tax bracket)? The idea is that the company is an investment/savings management business, though how the funds exit the company is another stumbling block without hitting further tax triggers such as individual CGT.

Any conceptual approaches on legally optimising obligations on interest gains?

Not worth the time nor effort. TBH.

Also I wouldnt even bother with something like this unless you had a substantial amount of cash to play with and ZERO debt.

You may end up paying the same amount of tax anyway if you pay yourself for example a salary and then just end up with loads of admin costs. Also dont forget about getting said cash into the company in the first place.

as an individual you only incur tax if you manage to invest about 280k around 8.5% for the year. X2 if you married so 560k between a married couple

 

[EnT@nGleD]

The costs of compliance and headache would likely outweigh the benefits e.g. submissions to CIPC, SARS, preparation of Annual Financial Statements etc. Remember on top of the 27% tax rate you have a dividends tax of 20%. So for every Rand you want to take out 20 cents goes to SARS.

The effective rate of a company is thus 41.6%
Trusts pay the maximum marginal rate 45% on every Rand of profit made unless vested in the beneficiaries. Again, there are lots of rules with regards to loans to trusts for tax purposes and compliance headaches etc.

 

[JayM]

Has anyone have a conceptual approach on using a vehicle (eg small business corporation, company, trust, etc) to optimise tax rates for interest gains? This is outside of using tax free accounts.

Example as a natural person(under 65), your interest up to R23800 is tax free, then the balance of interest earned is taxed at your prevailing tax bracket.

Though if the owner of the savings account is a company, the company would be taxed differently, eg 27% flat (makes sense if this is lower than the personal income tax bracket)? The idea is that the company is an investment/savings management business, though how the funds exit the company is another stumbling block without hitting further tax triggers such as individual CGT.

Any conceptual approaches on legally optimising obligations on interest gains?

One neat trick if you're a high earner - pay as much as you can into you company provident fund if you have one. When you change jobs, withdraw the lot - max tax rate is 36% (vs max 45% marginal rate).

 

[JayM]

Oh, and another one: if you're sending money offshore and choose to keep a portion in cash due to the current environment, dump it into this ETF:



The ticker is LON:IB01.

Since it's accumulating, when you sell, you may be able to pay CGT instead of income tax. Much lower tax to pay and it has a low expense ratio (0.07%). With current interest rates, growth is about 5% P/A.

 

[EnT@nGleD]

One neat trick if you're a high earner - pay as much as you can into you company provident fund if you have one. When you change jobs, withdraw the lot - max tax rate is 36% (vs max 45% marginal rate).

Remember any retirement fund lump sum withdrawals are cumulative for your lifetime. Cashing out early you start paying tax on any amount over R27 500 vs only on amounts above R550 000 after turning 55.

 

[JayM]

Remember any retirement fund lump sum withdrawals are cumulative for your lifetime. Cashing out early you start paying tax on any amount over R27 500 vs only on amounts above R550 000 after turning 55.

Yes, but still worth it in my opinion, especially if you want to hedge your bets and get as much forex as possible before the inevitable default and currency crisis.

 

[EnT@nGleD]

Yes, but still worth it in my opinion, especially if you want to hedge your bets and get as much forex as possible before the inevitable default and currency crisis.

Each individual would need to assess if it is worth it or not based on their circumstances and tax rates.