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Different types of investments incur different rates of tax.

The main types of taxes that apply to investments are:

  • Taxes on income earned from interest. The first R23 800 in income earned from interest is tax-free if you’re younger than 65. For investors older than that, the tax-free portion rises to R34 500

  • Withholding tax on share dividends – taxed at 20%

  • Capital gains tax when you trigger a capital gain event – taxed at up to 18% for individuals, up to 27% for businesses, and up to 36% for trusts

These taxes are all lower than your marginal income tax rate, which is the highest bracket rate for your annual earnings level.

Africa Melane asked Certified Financial Planner Kobus Kleyn (Financial Planning Institute of South Africa) to explain in more detail (scroll up to listen).

Normally, if you keep things for longer than three years, you will pay capital gains tax. If you sell it before three years, you pay income tax. You get a R40 000 exemption… If you have a primary residence, your first R2 million profit is capital gains tax free.

Kobus Kleyn, Certified Financial Planner - Financial Planning Institute of South Africa

If you earn R1.5 million per annum, your marginal tax rate is 45%. If you’re earning interest… you pay a tax of up to 45%...

Kobus Kleyn, Certified Financial Planner - Financial Planning Institute of South Africa

The only product you don’t pay tax on is a Tax Free Savings Account…

Kobus Kleyn, Certified Financial Planner - Financial Planning Institute of South Africa

We want to make sure we pay the least amount of taxes to Sars, legally…

Kobus Kleyn, Certified Financial Planner - Financial Planning Institute of South Africa

This article first appeared on CapeTalk : Tax on investments 101: 'Legally pay as little as possible to Sars'

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