Tax-free savings: the fine print

All across South Africa, investors are cheering the arrival of tax-free saving. But before you jump in and start investing your cash in a tax-free savings account (TFSA), there are some very important things to consider:

  • Only individuals can open Tax Free Savings Accounts. Companies, trusts, close corporations, etc. may not participate.
  • Contributions are limited to R30 000 per individual per year. You’re allowed to open as many TFSAs as you like, but the combined investment across all of them may not exceed R30 000.
  • Over and above the annual limit, there is a lifetime contribution limit of R500 000 per individual.
  • If you invest more than R30 000 in a year, or more than R500 000 across your lifetime, you will have to pay a tax penalty of 40% on the excess. It’s up to you to keep tabs on your total TFSA investments.
  • Profits, dividends and interest income do not contribute to the annual or lifetime contribution limits.
  • You can withdraw any amount of money at any time, but withdrawals do not affect your contribution limits. So if you deposit R30 000 (your annual limit), then withdraw R20 000, you can’t make another deposit because you’ve hit your limit.
  • An existing investment (e.g unit trust) cannot be converted or transferred into a TFSA or be re-classified. If you want to transfer an existing investment you have to cash it in first, then re-invest in a tax-free account. You will be liable for taxation on your initial investment pay-out in the usual way.
  • Providers of tax-free savings accounts are not allowed to charge performance fees.
  • At the moment you aren’t able to transfer your tax-free savings account from one financial service provider to another. Regulations for transfers are a work in progress.
  • You can open an account in the name of a minor. 

Now that you know the rules, what are you waiting for? You can start your tax-free portfolio right now! It’s easy on EasyEquities.

If you already have an account, simply log in and select the TFSA option from the dropdown on the top left of the screen.

Click here to find out more about EasyEquities tax free savings account. 

If you don’t have an EasyEquities account, register today at www.easyequities.co.za.

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