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We trust that everyone had a happy and safe Easter break and are all now back into a routine.
This month we talk about personal finances and all things related…please enjoy the read and do not hesitate to call Emma or Adrian Fuller should you wish to discuss any aspect in more detail.
How the budget affects your financial planning

This year’s National Budget was not only about increased personal income tax and higher fuel levies; there were also announcements that will impact your financial plan.

Here are some of the changes you need to speak to your financial adviser about:

Taxation on disability income insurance policies

As from 1 March 2015 your disability income insurance policy will no longer be tax deductible. If you have an income protection policy either through your employer or as an individual it will affect the amount of tax you pay.

Any income paid by these policies will be exempt from tax; this means that any income you receive from a claim will be paid to you tax-free. This is with immediate affect so even if you have received the tax deduction in the past on your premiums you will still receive proceeds income tax-free.

Tax-free savings accounts (TFSA)

TFSA will be effective from 1 March 2015. Any amounts invested in these accounts will not attract any form of tax including interest income tax, capital gains tax and dividend tax, making them a compelling part of your savings plan.c

The tax free contributions are limited to R30 000 per annum and a lifetime benefit of R500 000 although over time the balances in these accounts may exceed the R500 000 limit due to accumulated earnings and capital gains.

Closure of estate duty loophole on retirement funds

Changes will be made around estate duty and retirement funds to stop a popular scheme to avoid estate duty. This scheme made use of an opportunity created inadvertently in the Estate Duty Act in 2008 which meant that lump sums from retirement funds were not subject to estate duty.

In terms of this loophole, clients could invest large amounts into retirement annuity funds as part of their estate planning. The proceeds of the retirement annuity after the death of the member would pass to the dependants without incurring estate duty.

In the Budget Review the Minister announced that any such contributions that were not tax deductible in the year it was made, and therefore available as part of the tax-free lump sum upon the death of the member, could in future be included in the estate of the deceased member for estate duty purposes and could attract estate duty of 20%.

Deferment of retirement age

As from 1 March 2015 a retirement fund member may defer the drawing of their retirement income until after their retirement date, although this will be subject to a maximum age which is still to be announced.

Retirement funds held by foreigners

Any foreigner who invested in a retirement annuity during a work contract in South Africa, and subsequently returned home, cannot currently access these funds.
This is not in line with legislation that allows South Africans, who have left the country, to access their retirement funds as a lump sum prior to retirement. This mismatch in treatment will be reviewed to allow foreigners to access their retirement funds.

Review of taxation of deceased estates

The way that deceased estates are taxed in a deceased estate will be reviewed in order to prevent an anomaly in taxation. Deceased estates are subject to income tax on income earned by the deceased estate or heir and capital gains tax on death. These will be aligned.

Retirement reform

The date for the implementation of the proposed retirement reforms has been set for 1 March 2016. This will bring an alignment between pension and provident funds as well as change the tax deductible amount one can in total contribute to retirement funds to 27.5% of the greater of remuneration or taxable income.
The Increasing Need For Disability Cover
 
“An interesting statistic reveals that Life Cover is bought by the South African public at twice the rate of Disability Cover.
 
Income Protection cover which ensures the ability to provide for a family’s needs should the unforeseen happen is becoming increasingly important and now ranks alongside the need to have motor and household contents insurance.
 
Most Disability Insurance is purchased on a “lump sum” basis whilst a small amount, (18%) is purchased on a replacement of Income basis.
 
Whilst it may be necessary to favour a “lump sum” payment in order to fund “lifestyle” changes, there needs to be more focus on cover structured to replace Income lost following Disability.
 
Cooke Fuller Garrun are aware of this need and are proud to offer Clients the opportunity to become Members of the Complete Health and Medical Plan.
 
Various Benefits are offered from which you may select those required to suit your individual circumstances.
 
Life Cover
Income Protection
Lump Sum Disability
Dread Disease
Accidental Death
GAP Cover
Dental Risk Cover
Funeral benefits
 
Probably the greatest attraction is that membership and benefits are offered at group rates not normally available to the general public and in many cases, no medical examination is required.
 
Please contact Kerry Hatfield or Chantal Hickman for further details.