Easy guide to tax free savings accounts “TFSA”.

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TFSA’s were brought into law from 1st March 2015 to encourage individuals to save more. Because these specific accounts are not subject to any form of income tax or capital gains tax this is an attractive and convenient way to accumulate savings for the long term. We believe every taxpayer and the entire family should take advantage of these concessions as the limits will be increased periodically and it is an ideal vehicle for long-term savings.

Frequently asked questions

  1. Who is eligible to invest in TFSA?

Only individuals, resident tax-payers in South Africa, are eligible to invest in this savings account.

  1. Can investments be made on behalf of minors?

Yes. Parents may make contributions to a TFSA on behalf of a minor. If withdrawals are made the proceeds from these withdrawals must be paid into a bank account in the minor’s name.

  1. What is the maximum investment amount?

Investors can currently contribute a maximum of R33 000 per tax year to a TFSA investment. This equates to a debit order of R2750 per month. The lifetime contribution limit on a TFSA is currently R500 000. These limits were confirmed in the 2018 Budget speech recently.

  1. What happens if the investor contributes more than the annual or lifetime limits?

Any amount contributed in excess of the annual limits as stipulated by law will be subject to 45% tax payable by the investor. The provider of the TFSA account, e.g. a bank, is obliged to inform SARS of all contributions received by individuals and SARS will monitor the investor’s annual and lifetime limits to determine if any penalties should apply. It remains the responsibility of the investor to ensure he does not breach the annual or lifetime limits.

  1. If the investor has not contributed the maximum annual limit in a given year can they carry-over the under-contribution to the following tax year?

The maximum contribution in any given tax year is limited to R33 000 regardless of whether the investor has utilised their past allowances. It is therefore not possible to carry over any under-contribution in any tax year.

  1. Are transfers between TFSA providers allowed?

Currently legislation doesn’t allow transfers between product providers but it is expected that such legislation will be introduced in the next year or two.

  1. Are there limits to the amounts that can be withdrawn and will these be subject to any taxes?

There is no limit to the amount an investor can withdraw from their TFSA and all withdrawals are tax- free. However, if an investor invests R33 000 at the start of the tax year and subsequently withdraws R10 000 in the same tax year, he will not be allowed to re-contribute the amount of R10 000 in that tax year as he has already contributed the full amount at the beginning of the tax year. He will have to wait for the new tax year to make the full contribution again.

  1. Can a TSFA be ceded?

Legislation at this stage does not permit TFSA accounts to be used as security.

Greg Visser
Senior Investment Advisor
FPM Risk and Wealth Management
greg@fpm.co.za
011 778 9300

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)