The Tax Risk Of Fixed Deposit Investments

Let’s say you got lucky enough to have a lump-sum R1m....

You decide to dump it into Retail Government Bonds for 5 years @ 8.5% Fixed Investment. By reinvesting the earned interest, you will score a total of R517k in interest at the end of the term, paid out with your R1m capital.

Sounds excellent!!! Right?

Hold on a sec.

Enter SARS….

You need to pay any tax that arises from the interest generated yearly, not at the end of the investment term

Interest Income per year compounded semi-annually: 

Year 1: R86 806

Year 2: R 94 342

Year 3: R 102 531

Year 4: R111 431

Year 5: R 121 104

These are the amounts that will be taken into account for your tax calculations every year. Will you be able to come up with the tax due while the investment is not paying you anything??

Many people get caught out by the fact that tax on generated interest is due every year, not just at the end of the investment term.

Throughout the investment period, you may need to pay as much as R232 296 in taxes(ignoring exemptions and maturity dates for simplicity) before the payout hits your bank account.

Can you afford that?