A Summary of Tax-Free Savings Accounts in South Africa

JSE tax free savings accounts, also known as a TFSA. The summary below was taken from a conference call on inception and was accurate at the time, The same principles remain today, but the annual limits may have increased by now, meaning you can contribute even more. Speak to a broker.

Summary

  1. Limits R500k/liftime, R30k/yr (so R2.5k/pm)
  2. Don’t exceed limits
  3. Only for individuals
  4. No shares (because you could have bought ABL iso CPI)
  5. Focus on exchange traded funds
  6. Zero tax other than estate duty
  7. Open one today

Introduction

  1. Since 1 March 2015
  2. Why? Encourage people to save
  3. Individuals only, minors included
  4. Companies and trusts exluded

No tax, no catch (while you are alive)

  1. No dividend witholdings tax 15%
  2. No capital gains tax (if held for >3yrs)
  3. No income tax (about 3x more than CGT)
  4. No tax on interest (cash in the account)
  5. No STT (0.25% on buy side, securities transfer tax)
  6. Just estate duty to be paid

Limits

  1. R500k lifetime is 16.8 yrs at R30k/yr
  2. Cannot roll over
  3. Don’t exceed the limit
  4. Penalties taxed on excess at marginal rate (max 41%)
  5. Onus on individual not to exceed
  6. ‘Exceed’ is just on your contributions (excl.CG)
  7. Cannot trsfr existing ETF into TFSA
  8. Onus on buyer, not platform

Impact

  1. Huge
  2. Compounded
  3. Full dividend iso 85% thereof, over time…
  4. Insert example chart (inflation+4%, no fees, tax rate 40%)

Allowed

  CIS, including ETF and Unit trusts
  Structured products
  Cash (but at 5% you’re going nowhere)
  Retail savings bonds, ie Post Office sells ‘risk-free’ 1/3/5 yr GOVI bonds

Not allowed

  No Shares (but found in ETF’s)
  No ETN’s
  No REIT’s (but found in property ETF’s)
  No ETF’s on commodities, like GLD
  No Policies
  No Derivatives unless in structured products (like put options to protect downside but doesn’t enhance upside)

Reduce your risk and trade ETF’s

  Product diverse
  Industry diverse
  Currency diverse
  Country diverse

PS,

  1. Buy the market
  2. It’s the best asset class for any 20yr period since the 60’s
  3. RAFI = Research affiliated fundamental index
  4. ETF has internal fees for running the fund, called TER, from 0.2% to 0.84% for DBX

 

Withdrawals

  1. Money can be withdrawn (when life throws you a curveball)
  2. No limits on withdrawals
  3. But Money that is withdrawn cannot go back in –
  4. It is deducted from your annual 30k and lifetime 500k limit
  5. So put money into this product that you won’t need for a long period
  6. You can transact within the accounts – say sell STXRESI and buy STXFINI

Providers

  1. Banks
  2. Government
  3. LT insurers
  4. Inv platforms
  5. CIS managers
  6. Stockbrokers
  7. Just go to your broker and buy the TFSA ETF you want

Reduced fees

  1. Brokerage is usually discounted in TFSA
  2. No STT, reduced (by 70%) STRATE, still VAT on brokes
  3. Platform can still charge admin fee, ask broker
  4. Advisor fees are tiny on R30k annual amount so probably won’t see many IFS selling it

Onus

  1. Not up to broker
  2. Not up to provider
  3. Not up to platform
  4. But up to the individual taxpayer not to exceed

Simon bought

  1. 15k each into local and overseas
  2. BBET40 – equally wheighted top 40, 2.5% each
  3. DBXWD – MCSI worldwide index, >50% US and 11% each in JPY EU UK
  4. PTXTEN – can also add this if you want to do 1/3 each
  5. World index is currency hedge and gives worldwide exposure
  6. But world index will be tax in say US first

Questions

How many accounts can you have? As many as you like, as longs as you stick to the max 30/500k limits. How will SARS know? IT3B & IT3C (for PnL and interest certificates) will be show whether it is a TFSA account or not. Just a tick box.

I don’t want to sound like an infomercial, but don’t delay. Open yours today.

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