Summary of tax changes impacting investors - February 2019

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While South African taxpayers have been presented with their fifth consecutive austerity budget, the Minister of Finance did not this year announce any material changes to the key taxes impacting investors. The rates for marginal income tax, dividend tax, capital gains tax and VAT all remained unchanged. This follows the material tax hikes on investment activity announced two years ago, and the increase in the VAT rate that was announced last year.

The sting in the tail is that virtually no inflation relief was granted. Effective tax rates across the income spectrum have increased by 2 to 3 percentage points over the past five years due to bracket-creep (see the table below). In addition, none of the investment-related tax breaks summarised below have been adjusted for inflation.


As a reminder, investors qualify for the following investment-related tax breaks:

  • Marginal tax
    Individuals pay a lower marginal tax rate on capital gains (18%) and dividend income (20%) compared to interest, rental and salary income (45%). This means that investors not using tax-advantaged vehicles are, all other things being equal, better off holding equities in their portfolios than other assets.
  • Tax-free investments
    Tax-advantaged contributions to a tax-free investment accounts remain at R33 000 per year. This arguably remains the best tax break available to individual investors with long time horizons at the moment. While you use after-tax money to invest in a tax-free investment, all income and growth earned from the underlying funds are tax free, and all proceeds at the time of withdrawal will also be untaxed. There are also no investment restrictions for tax-free investments. Just do not over-contribute – contributions in excess of the annual R33 000 limit are taxed very punitively.
  • Retirement funds
    Tax-deductible contribution to retirement funds remains at the lower of 27.5% of taxable income (excluding retirement benefits and capital gains) or R350 000 annually. Your capital and reinvested income will grow tax free while it remains in the retirement fund, and you will only pay tax on the way out when you start to withdraw from your retirement fund (at the then-prevailing tax rate). Your underlying investments must comply with Regulation 28 of the Pension Funds Act, which sets a limit on the level of exposure you can have to equity, property and offshore assets. 
  • Interest exemption
    The general interest exemption remains R23 800 for investors under 65, and R34 500 for investors over 65. At the current yield of around 8% on managed income funds such as Coronation Strategic Income and Coronation Money Market, this means that you can invest approximately R300 000 if you are under 65 or R430 000 if you are over 65 before starting to pay tax on interest earned.
  • Capital gains
    The annual capital gains exclusion of the first R40 000 of gain is unchanged. This exclusion makes it more efficient to stagger the realisation of capital gains over different tax years.
  • Endowments
    Endowment policies also remain attractive for certain long-term investors. Individual investors in these investment policies currently pay effective tax rates of 30% on rental income, 20% on dividend income and 12% on capital gains.