Tax free savings

2016-03-10 06:00

The maximum investment amount

You can invest only R30 000 a year in a tax-free savings account, and once the amounts you have invested (without taking growth into account) add up to R500 000, you cannot contribute any more.

It does not matter how much growth you earn on your annual contributions, as long as the amounts you put in do not add up to more than the annual or the lifetime limit.

The benefits of a Tax Free Savings

All the proceeds – dividends, interest and capital gains – are tax-free.

After several years of investing in a balanced or equity portfolio, the capital gain payable when ultimately withdrawing the money could be substantial. This tax benefit makes the Tax Free Savings very attractive relative to discretionary, taxable products.

This investment product was introduced in March 2015.

Are the tax benefits really that significant compared to a taxable product?

The benefit may be small during the first few years, but as the value of the investment grows, it becomes significant. The example below shows how big the difference between investing R2 500 per month in a TFSA and investing the same amount in a ‘normal’ taxable product becomes over a period of 25 years.

(Contributions cease after 16 years and eight months as the lifetime limit is reached, but the money remains invested for the remainder of the 25-year investment period).

The tax benefit of the TFSA is therefore significant for long-term investments that are not invested mainly in cash, but applied to a diversified portfolio.

An account in your minor child’s name

You can open a tax-free account in the name of a minor child, but withdrawals must be paid to that child or to the child’s deceased estate.

There are tax law provisions in terms of which SARS can view an investment on behalf of a minor child as a form of tax avoidance.

You can donate up to R100 000 a year to a natural person free of donations tax, so this would cover a R30 000 contribution to a child’s account.

Saving for a child could help instil a savings culture from a young age, which would be an invaluable lesson later in life.

A tax-free savings account for a child could be used for a child’s education, however you cannot add a waiver of premium or any life cover to this plan.

Products that you can invest in

You can invest in a special bank account, an endowment plan with an insurance company, in unit trusts, in exchange traded products, RSA Retail Bonds. Most TFSA products allow for beneficiary nominations which save estate fees such as executor’s fees.

Please contact your financial adviser/ broker for further information.


The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licenced financial service provider.

Contact Juggie Govender on 083 399 3905, office on 032-944 3051 or e-mail for an appointment

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