“We owe a lot of people a lot of money.”<\/p>\n
That blunt, ominous statement by finance minister Tito Mboweni in his 2021 budget speech shows the deep financial hole the South African economy is really in \u2013 and warning lights are starting to flicker for South Africa\u2019s wealthy taxpayers.<\/p>\n
This is according to Tim Mertens, chairman of Sovereign Trust SA, who said that a key takeaway from the budget was the staggering R213 billion under-collection of tax in 2021 compared to 2020.<\/p>\n
This is the largest collection shortfall on record, and comes against a backdrop of a debt burden of R5.2 trillion by 2023\/2024.<\/p>\n
As a result, there is a renewed focus on the wealthier taxpayer base, who are being singled out for scrutiny amidst calls for a \u2018wealth tax\u2019 on high net-worth and ultra-high net-worth individuals, said Mertens.<\/p>\n
\u201cTax compliance, proper professional planning and the appropriate use of annual allowances are key to navigate any aggressive changes in tax legislation that may be necessary sooner rather than later,\u201d he said.<\/p>\n
Going forward, this could lead to a greater number of taxpayers looking beyond South Africa\u2019s borders for retirement and tax planning purposes.<\/p>\n
SA-based retirement annuities (RAs) are limited in many respects, with the biggest disadvantage being the prescribed investment limitations contained in regulation 28 under the\u00a0Pension\u00a0Funds Act.<\/p>\n
\u201cOur message to people looking at RAs is that there are potentially better offshore options out there, such as using their annual discretionary allowance to set up an international retirement plan (IRP).<\/p>\n
“IRPs are excellent alternatives for those wanting to invest beyond traditional onshore retirement plans, and have some key benefits that simply cannot be ignored,\u201d said Mertens.<\/p>\n
The SA Revenue Service and the Reserve Bank allow South African investors\u00a0to invest up to R11 million per taxpayer per year, as a combination of their annual Foreign Investment Allowance (FIA) and annual Discretionary Allowance. This far exceeds the tax-free\u00a0investment\u00a0limits contained in an RA and tax-free savings account.<\/p>\n
These allowances have already been taxed, there is no further tax deduction allowed when investing into an IRP – but the ongoing advantages of the IRP far outweigh onshore retirement products, said Sovereign Trust consultant Leah Mannie.<\/p>\n