Publications
Partners
MARTIN WRITES:
My contract balance is R152 500 and my settlement amount is R123 900. I want to pay R70 000 towards the outstanding amount so that I only have R53 900 outstanding. Will this help me pay less interest? In six months’ time, would the outstanding balance be lower than the remaining balance of R53 900?
CITY PRESS WRITES:
The contract balance is the amount owing if you held the loan to the end of the period. The settlement amount is the outstanding balance and how much you would pay if you settled today.
If you make a lump sum payment, that immediately reduces your outstanding balance and therefore the settlement amount.
READ: Personal Finance | Knowing the debt and credit landscape is important
However, finance houses do show this differently. Some banks may reflect a lower settlement amount, while others may show the same settlement amount but that you have a pre-payment balance of R70 000.
Technically, what happens is that you earn the same rate of interest on the R70 000 as you would pay on the outstanding balance, so it does reduce the amount of interest you are paying as it is a direct offset. You can request the bank to move the R70 000 from the pre-payment to reducing the principal debt.
Therefore, in six months’ time the outstanding balance will be less than the R53 900.
It is best to speak to your bank so that you understand how they illustrate these values.
RIVADIA WRITES:
I am currently separated from my spouse, pending a divorce. We are married in community of property. My tax bracket is far higher than my spouse and I pay more tax.
We do have a joint bond which I am paying for 100%. Do I need to notify the SA Revenue Service (Sars) about our current situation and what effect will the separation have on our taxes?
CITY PRESS REPLIES:
The tax paid on your salary is separate from your spouse. Any earnings derived from engaging in a trade – such as receiving a salary – will not be divided between spouses and each spouse is responsible for the tax in their individual capacity.
As you and your spouse are married in community of property, the tax implication is that you are taxed on 50% of each other’s earnings from assets (not salary).
READ: Personal Finance | The fiscal drag: Taxing workers through inflation
If the property is your primary home, you would only attract capital gains tax if you sold the property for more than R2 million above the base cost price – in other words, if you had a R2 million capital gain.
Both spouses would be required to declare their portion of the capital gains tax on their income tax return. It is advisable to inform Sars once you are divorced as it could affect future savings and investments.
MOSES WRITES:
I have R500 000 that I want to put into a fixed deposit to earn a monthly income.
How much tax will I pay?
CITY PRESS REPLIES:
Interest income is added to your taxable income and therefore it depends on how much income you are earning from other sources.
The good news is that, depending on your age, there is an amount of interest you can earn tax-free.
. If you are under 65 then the first R23 800 of annual income (R1 983 per month) is tax free.
. If you are over 65, the first R34 500 of interest per annum (R2 875 per month) is tax free.
Any interest earned above that is added to your taxable income.
For example, if you invest R500 000 and earn 7% interest you would earn around R35 000 a year or R2 900 a month in interest.
If you are under the age of 65, then the first R23 800 would be tax free and the remaining R11 200 would be added to your taxable income.
If you are less than 65 years old, you only start to pay income tax if all your income added together (salary and interest income) is more than R95 750 a year.
If you are 65 to 75 years old, then you only start to pay income tax if your annual income is above R148 217; and if you are over 75 years old, then you can earn a total annual income of R165 689 before you start to pay income tax.
