What is a Tax Free Savings and Investment Account?
This is an Account in which you can contribute an amount of money (adding up to a maximum of R 33 000 per annum) of which your investment will be exempted from capital gains tax, dividend withholding tax, interest income tax.
What is an ETF?
An Exchange Traded Fund (ETF) is a JSE-listed investment product that tracks the performance of a particular index (e.g. FTSE/JSE Top 40 Index) or a ‘basket’ of shares, bonds, money market instruments or a single commodity – these are known as underlying securities or assets.
What are the benefits of ETF's ?
ETFs offer investors exposure to a wide variety of securities or assets, so you don’t put all your eggs in one basket.
ETFs are well-regulated by the JSE and Financial Services Board (FSB). Investors therefore have added protection against unjust treatment.
Cash-flow distributions (dividends)
Even though owning an ETF doesn’t give you direct ownership of the underlying securities of the index being tracked, ETF owners are still eligible to receive dividends should the securities in the tracking index pay dividends.
Buying or selling an ETF can be done quickly and at a low cost on the JSE.
Investors can gain exposure to a wide variety of securities or assets without having to do extensive research or actively manage the underlying securities.
What is the benefit of a Tax Free Savings Account ?
A tax-free savings account is an effective way to save for your goals. Any interest, dividends or capital gains from your tax-free savings account will be tax free. This means you don't pay tax on the growth on your investment as well as when the proceeds are paid out to you.
Your money can grow faster in a tax-free savings account compared to a regular savings account, because you don't pay tax on the investment return.
Saving in a tax-free savings account gives you flexibility as you don't have to commit to any future contributions. You can withdraw from your investment at any time. Withdrawing funds, however, may prevent you from reaching your savings goals, and will use up part of your lifetime limit for tax-free savings.
Who is eligible for a Tax Free account ?
Only South African taxpayers, who are natural persons, can invest in a Tax free savings account
What is the Minimum Contribution I can invest in the account ?
The minimum contribution will depend on your JSE broker, each broker has an offering for you to choose from e.g. monthly or lump sum contribution plans.
What is the Maximum Contribution I can invest in the account?
The maximum contribution per year is R 33 000 and R 500 000 in your lifetime.
If I do not contribute R 33 000 in one year, can I contribute more than R 33 000 in the next year?
No, the maximum allowance cannot be rolled over into another year.
What happens if I contribute over R 33 000 a year?
Once you have contributed the maximum contribution for a year , all contributions exceeding that amount will be taxed
Do I need to provide R 33 000 up front?
No, an individual can pay lump sums throughout the year or regular monthly payments can be made up to the value of R 33 000.
Does my portfolio need to be R 33 000 before I benefit from these tax savings?
No, the tax savings are applied on any TFSA account regardless of the amount within the account – again provided the annual contribution limit of R 33 000 is not exceeded.
Which brokers offer this account?
A full list of all the brokers who offer the JSE tax free investing account can be located on the below link : www.jse.co.za/findastockbroker
Do I have to keep my money invested for a specific amount of time?
you can decide how long you hold your shares, when to purchase or sell, and how long you keep your account open.
Is there a penalty for investing over the R33 000 p.a. threshold?
Yes there is a penalty. Any amount that exceeds the stipulated R33 000 / p.a. will be levied a 40% tax.
Can I convert an existing investment with a broker to a tax free savings account?
The notion behind the TFSA is that all money contributed to the account should be previously unvested money. Therefore, investors could sell off their current investments and then use this money to open a TFSA, should they decide to do so. Investors should however beware of the cost and tax implications of doing so. No existing investments can be transferred to a TFSA. Alternatively, the investor may choose to invest “new” money that has not yet been invested.
Exactly which taxes am I exempted from?
Tax on Interest Income, Dividends and Capital Gains (Investment Returns).
Can I withdraw my money from a brokerage account at any time free of penalties?
Can I open a Tax free Savings Account for my child or a minor ?
Yes, you can apply for a tax free account on behalf of your child. this account will will be using part of their tax-free allowance, which may limit their ability to save for themselves using this type of product later
Can I open a Tax Savings Account for a family member?
Yes you may open this investment account for the minor child.
How do I FICA my child
Your child will not need to be FICAed only the guardian opening the account will need to be FICAed. You will however need an abridged birth certificate of the child.
If I reinvest any returns made from my investments in this account will I be taxed on these?
The returns that are reinvested in the account will not be taxed. However, where a person withdraws the returns and reinvests the same amount, that amount is regarded as a new contribution and impacts on both the annual and lifetime limits.
Can I invest in individual companies in this account?
No, investments are only allowed to be made in diversified, simple and suitable products that qualify for TFSAs e.g. Collective Investment Scheme (CIS) ETF’s.
When does the year in which I can contribute my R 33 000 start / end?
1 March 2015 to 28 February 2016, and following the South African tax period for all following years
What costs are involved?
Fees that are generally associated with any brokerage account. These include;
- Brokerage commission fees, which vary from one stock broker to the other
- Strate ad valorem fee
- Investor protection levy (IPL) and
- VAT Normally Securities Transfer Tax (STT) is applied on the purchase of stocks, however ETFs are exempt of this tax.
Which securities / ETF’s are available to purchase in these accounts?
These will depend on which products are on offer from your JSE broker, for a full list of qualifying TFSA products please ask your JSE broker. Individuals stocks may however not be invested in using the TFSA.
Can I open more than one Tax Free Savings Account?
Yes, there is currently no limit to the number of tax-free savings accounts an individual can have. AN important point to note is that the combined contribution of all the accounts in the same name will still be limited to R 33 000 per year and R 500 000 in a lifetime.
Can the value of my account exceed R500 000?
Yes, the limits only apply to your contributions. The value of your account (after growth/earnings) may exceed R500 000.
What happens at death?
On death, the investment will form part of the estate and estate duty may be payable. While the investment is held within the estate, the returns on it will remain exempt from TFSA taxes( income tax, dividends tax and capital gains tax)
What is the fixed return on the TFSA account ?
There is no fixed return on a TFSA account. Capital is not guaranteed and it is possible to lose money in a tax-free savings account, but it will depend on the underlying assets.
How does the TFSA account differ form a Retirement Annuity ?
RA' s have a tax deduction on the contribution whereas TFSA accounts do not.
Withdrawals from a TFSA are not taxed whereas with a RA all withdrawals and incomes are taxable.
Money in a TFSA account is accessible at any time whereas a RA can only be accessed after the age of 55.
At death, a RA does not form part of the deceased estate and in a Tax free account will form part of the deceased's estate