Can l offset interest from investments as income to keep me under the tax threshold?

Dear reader,

I am assuming you are invested in a discretionary/voluntary vehicle, as the asset allocation can become quite important when it comes to managing taxation, depending on the fund value.

There are definitely ways to optimise your annual tax benefits and tax exclusions as an individual and plan your portfolios holistically in that way.

Interest earned on any interest-bearing asset class will have an annual exclusion of R34 500 over the age of 65 (R23 800 below 65). Anything earned over and above this exemption will be taxed.

If you can follow a more diversified approach within the portfolio by including growth assets (equity exposure as well), the tax implication will be different on this component of the portfolio. A dividend-withholding tax of 20% applies to local dividends – and there is a capital gains tax (CGT) implication on the sale of an asset, which is essentially triggered on a withdrawal or a switch.

You also qualify for an annual exclusion in the case of CGT.

An individual is entitled to an annual exclusion of R40 000 in determining the capital gain for the year, and R300 000 in the year the taxpayer passes away. All foreign gains realised by a South African resident are also included in the SA calculation.

Therefore depending on the fund value of the investment, it is possible to manage your annual taxation either within your exemptions or close to it. This can be calculated on a regular basis to ensure you are optimising your exemptions within the return of the portfolio at that point in time.

There are also other ways that can be explored to increase the amount of annual exemptions you have to utilise.

This can be achieved in a trust where multiple beneficiaries can form part of one investment, and essentially each individual involved has an exemption that can be utilised. This can be a great continuity plan for discretionary funds as well.

The use of a trust is, however, a more costly route to opt for and should be done in the best interests of the beneficiaries – a proper analysis and recommendation should be done by a fiduciary specialist/tax specialist, navigating the investment strategy together with your wealth advisor. This way the asset allocation strategy and ultimately the investments goals can be optimised with your taxation as well.