Impact of tax on investment returns

Cape Town - Saving more and investing through a tax-free savings account is a very tax efficient way of ensuring maximum after-tax returns for your hard earned money, according to Francis Marais, research and investment analyst at Glacier by Sanlam.
 
"Fortunately, in South Africa, we have a few tools to help with achieving maximum tax efficiency. Some are explicit tax savings vehicles, while some are less explicit, but worth keeping in mind," said Marais.

Regarding the effect of tax on your investment returns, Marais explained that tax can either be deducted periodically (yearly) or at the end of an investment term (once-off). If it is deducted annually, you have a compounding effect, so the value of your investment will be less, versus a once-off tax deduction at the end of your investment term.

Annual deductions from an investment would include tax on interest, dividends and also capital gains tax - should you have sold any investments during the year and realised a capital gain.  A once-off tax at the end of an investment period would include capital gains tax on a buy and hold strategy, but also other types of tax such as estate duty.