Finance – Taxation – Tax deferral

Peter Kralj LL.B LL.M

Many investment opportunities and financing arrangements are sold on the basis that they provide tax reliefs. Whereas this may be true in certain cases in most cases the tax relief is only temporary and the investor or borrower is merely getting some form of tax deferral. What does this mean? Put simply it means that the taxpayer does not pay tax currently but does so later. Is this not a benefit? It depends. In an earlier paper I explained how pension funds work. If I pay tax at 20% and contribute 10,000 to a pension fund I get a reduction in my tax bill of 2,000. If I invest that 2,000 at 3% per annum after 20 years my 2,000 investment will grow, again assuming I pay tax at 20% to 3,213. Assuming that my 10,000 contribution has also

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