February is a significant month – it’s the last opportunity you have to take advantage of any top-ups to your retirement fund and the National Budget is announced, which impacts how much tax you pay. There may also be changes announced which affect all areas of your financial plan, including estate planning and investment portfolios.
Here are some questions you should be asking your financial advisor about possible tax changes:
1. What are the changes to the income tax tables?
How will any income tax changes affect your take-home pay?
If there are any changes in dividend tax, interest or company tax, how do they apply to your investments?
2. Are there any changes to the tax credit on medical aid contributions?
Medical expenses are costly for any individual. This plays a vital role, given the financial impact it can have on your overall salary and savings. Does it affect your living expenses or budget? If so, how?
3. How will increases in levies affect your budget?
Each year increases in levies such as electricity and fuel are announced as well as increases in so-called “sin” taxes (tobacco and alcohol). How do these affect your budget?
4. How do the changes to retirement funds affect your financial plan?
The changes to retirement funds come into effect on 1 March 2016. This creates an opportunity to increase your retirement savings and also requires changes to your retirement plan, especially if you belong to a provident fund.
5. Has the budget allowed for any company tax change or any new benefits?
If you’re self-employed or an entrepreneur who runs your business within a company structure, what new incentives – such as social and skill development grants – have been added that could be beneficial to your business?
Your advisor needs to know about changes to your personal circumstances. Discuss the following:
Salary adjustment: This would see a different calculation in your overall tax deduction. It would be income from all sources to determine your overall tax liability, while applying the new tax tables.
Additions or losses to the family or any life-changing events you’ve experienced: These have a significant impact on your day-to-day finances, as well as your longer-term financial plan. You’d need to review your estate planning, insurance, household budget and investments.
Contributions into retirement vehicles: Are you taking advantage of the increase in the tax-free amount you can save for retirement?
Purchase of new assets: It’s important to do an annual update of your assets and liabilities – both current and future. Assets would include your car, house and investments, while your liabilities would be debt or future financial commitments, such as school fees. Ensure your liabilities are sufficiently insured to protect both your family’s and your personal finances.
Savings: Are you on track for a comfortable retirement and what short or medium-term goals do you need to save towards?