Resist the urge to go on a splurge this festive season
Building an asset base is not the most exciting thing you could do with your bonus, but it will help secure your future, writes LEIGH ROBERTS
IT'S the season to be jolly and have fun - but it pays to be more serious when deciding what to do with this year's Christmas bonus.
Many employees will joyfully receive their 13th cheques in the next few days - and be suitably shocked at what's left after tax has been deducted.
The taxman swipes up to 45% of your Christmas box. Your bonus is added on to your December salary which, unless you're already in the top tax bracket, may push you into a higher bracket and cause you to pay more tax than you do on your normal salary.
If your annual taxable income is above R100 000 you'll be giving 45% of your bonus to the taxman for Christmas. And if you go shopping with the rest, in effect you'll be handing over a further 7,7% as a result of VAT paid on your purchases.
But blowing your bonus on Christmas presents and holiday fare is not what you should be doing. In our harsh economic climate and with the sky-high interest rates, using your bonus to lower your debt is probably the best gift you can give yourself and your family.
Reduce your most expensive debt first: usually this is the accumulated amount on your credit card, followed by car finance contracts, bank overdraft and revolving credit facility, and home loan.
The next consideration is investing your bonus money to build a stronger financial base for your family (this is surely the path the Three Wise Men would follow).
Paying more into your home loan can also be considered a sound investment as it will give you a high investment return of 19,25% (the interest rate on your bond).
Money asked three financial advisers for some tax-effective ways to make the most of the annual bonus.
If you receive a travel allowance, calculate your travel claim to date and, if it falls below the maximum allowed tax deduction, take part of your bonus as travel allowance. The same applies to a subsistence allowance (the taxman grants employees a tax-free amount based on the number of business nights spent away from home). Finally, consider a long-service award - after 10 years you can get a tax-free gift of R2 000. The same tax rule applies to an award from your employer for bravery. Note, your bonus has to be tax structured before you actually receive these amounts.
You can also invest up to R1 800 as arrear contributions.
If you belong to a non-contributory provident fund, your employer could make the extra payment (provided it falls within the overall 20% limit) on a salary sacrifice basis.
Most of the major life assurers (and Standard Bank) offer such products.
Pilkington says other innovative insurance products are on the market which allow investors to invest in the offshore portfolios and to receive the tax-free growth benefits of matured endowment policies.