Save, pay your taxes and do not extend your home with a retirement fund pay-out -warns WSU Tax lecturer Rholihlahla Vuzane, CA (SA).

According to Rholihlahla, instant gratification and limited legal knowledge on tax avoidance may prove to be the brunt of many people’s stunted wealth and retirement funds.

In addition, he said that on the day of employment one will need to remember that one needs to sustain themselves now and in the future; and this has a corresponding responsibility to ensure that you uncover wealth from your salary by-

• Creating wealth from your salary
• Protecting your wealth
• Managing your wealth

“There are two things at a wealth creation stage, this involves deciding about growth and deciding about incomes. For growth, your age and the amount of contributions you make will definite tell how much wealth you would have created at your retirement age. Also, you will need to decide if you really want to be employed until the age of 65,” said Rolihlahla.

There’s a yawning difference between tax evasion and tax avoidance and one could land you in jail or with a hefty fine from the South African Revenue Services, but fortunately for you, tax avoidance is legal.

According to Rolihlahla, one can avoid or reduce high taxes by making small decisions that may also benefit your retirement fund in future.

“When determining an employee’s tax, the employer will have to reduce taxes by deducting employer contributions made by an employee in creating their wealth. Moreover, in determining your taxable income, the South African Revenue Service will have to take into account all your contributions in creating your wealth,” he said.

Rolihlahla said creating your wealth involves you investing for a definite period of time in the future. On a salary basis this can happen by you-

• Understanding the fund you belong to; this could either be a pension fund or a provident fund.
• Understanding the effects of these when you retire at the age of 65.
• How much do you need at that age when you retire? That will have to take into account tax effects of your capital needs.

“I have seen instances where people start building houses at that point and by luck some complete these and some die without money and without completing their homes,” added Rholihlahla.

He maintains that there is absolutely nothing wrong in buying or building at retirement age but what is important is for you defining your capital needs today and the investment required for all of these today. It all involves planning.

By: Sinawo Hermans