How can you make your provisional tax work harder for you?
With the deadline for the second payment of provisional tax looming at the end of February, you may be starting to sweat. Did the festive season or school fees eat up the cash you should have been saving? Or, perhaps it’s just been sitting in your bank account waiting for SARS’ payday.
Provisional taxpayers, those who don’t earn a regular salary, pay two instalments of tax a year – in August and February of each tax year. If you earn non-salary income, rental income from a property, interest income from investments or income from a side business, you may also qualify as a provisional taxpayer, even if you work full time and earn a regular salary. Your rate of tax varies based on your taxable income, your age and other factors. Now that 28 February is looming, you find yourself dipping into your access bond or credit card to settle your SARS account. But is there a more disciplined way to do this, and one that can make your cash earn you interest while it’s waiting for the handover to SARS?
Unit trust funds are a practical and user-friendly way to hold your “tax” cash. Both money market funds and income funds offer a practical “parking bay” in which to invest savings for the shorter-term. Money market funds, the lowest-risk unit trusts, are recommended for very risk-adverse investors wanting a short-term investment with protection from equity and bond market-type volatility, who need an inexpensive safehaven to house funds while earning returns that are typically higher than bank deposits. The recommended investment horizon is one to 12 months.
Income funds, like the recently launched Prudential Income Fund, meanwhile, are designed to offer returns higher than those of money market funds and bank deposits, but come with slightly higher risk and a longer recommended investment horizon at 12 months or longer. The good news for both these funds -- and all unit trusts -- is that there are no lock-in periods. Unit trust providers must allow investors to access their investments within seven business days after they request it. Prudential withdrawals usually occur within 24 to 48 hours.
Of course the ideal time to plan for paying your provisional tax is well before it’s due, and not a few weeks, but any time is a good time to chat to your financial adviser about your options. After all, their role is not just about helping you plan for your retirement -- they are an integral player in helping ensure your incoming (and outgoing) cash works harder for you.
To find out more about the Prudential Income Fund and Money Market Fund or invest with Prudential, contact your financial adviser or our Client Services Team on 0860 105 775 or at email@example.com