Real Estate Investor Magazine South Africa Real Estate Investor Magazine - April 2017 | Page 61

Reasons aside, South Africans need to save. For one,
we need to prepare for those inevitable rainy days, as
well as for our retirement. The Older Pensions Grant
for 2016/2017 stands at a mere R1 510.00 per month
‒ barely enough to keep body and soul together. Add
to this the ongoing payment debacle with SASSA and
their outsourced grants payment company, Net1, and
it’s quite evident that South Africans need to avoid
being overly dependent on government for their long-
term financial security.
Tax-Free Investments
To incentivise better saving habits among South
Africans, SARS has introduced a savings vehicle that
allows individuals to invest and save on a tax-free
basis. A Tax-Free Investment (TFI) of up to R33 000
can now be made into a Tax-Free Saving Account
(TFSA) each year; all savings are then exempt from
income, capital gains and dividend withholding tax.
TFSAs currently have a lifetime limit of R500 000
and are effective vehicles for saving towards a deposit
on a big investment purchase ‒ like your first property.
According to Investec, if you take out a TFSA for
your new born child today, you would have met the
current lifetime contribution of R500 000 by the time
they are 17 years old. By 18, this investment could have
grown to over R1,04m ‒ a healthy lump sum that you
can then put towards towards their tertiary education.
If this TFSA remains untouched until your adult child
is 35 years old, they will have R3.3m to put towards a
new property investment of their own.
How TFSAs work
You can either make a once-off payment of R33 000
into a TFSA each year, or you can make monthly
deposits ‒ as long as the total amount in a one year
period does not exceed the R33 000 limit or push your
overall savings beyond its lifetime limit of R500 000.
According to Alexander Forbes, ongoing investments
into a TFSA can grow significantly over time. They
key word here being ‘time’. The longer you can keep
your savings invested, the more time your investment
will have to grow and benefit from the relevant tax
exemptions.
• If you exceed the R33 000 annual investment
amount you will be required to pay a penalty of
40% of the excess. i.e. If you invest R36 000 in a
year, you will be taxed 40% of the extra R3000
deposited ‒ you must then pay a total of R1 200
back to SARS.
• Returns on your investment may push your balance
to over R33 000 in a year. This will not affect the
amount you can invest in your TFSA the following
year.
• You can have more than one tax free investment
spread across a few financial service providers, (i.e.
Absa, Sygnia Asset Management, Investec) but you
are still only allowed to save R33 000 per annum
across all investments.
• Withdrawals from a TFSA cannot be replaced:
if you withdraw the returns on your investment
and then want to reinvest the same amount within
the same year that amount is regarded as a new
contribution and impacts on both the annual and
lifetime limits.
Limits to TFSAs
Tax free investment accounts cannot be used as
transactional accounts, nor can an existing account be
converted to a TFSA. In addition, debit or stop orders
and ATM transactions from these accounts are not
possible.
WHERE TO OPEN UP A TFSA:
There are a number of financial service providers that offer
TFSAs. These include
• Absa
• Allan Gray
• Coronation
• Investec
• First National Bank
• Nedbank
• Old Mutual
• Sanlam
• Standard Bank
• Sygnia Asset Management Company
Other pointers to consider:
• You cannot carry forward your annual tax savings
limit to the following year. If you don’t invest the
full R33 000 in year 1, you may not roll-over the
outstanding amount to year 2 and invest more than
the annual limit of R33 000.
www.reimag.co.za
RESOURCES
SARS, Trading Economics, South African Savings
Institute, Fin24, Personal Finance, BiZNews, Times
Live, Sygnia Asset Management, SASSA, Money Web
APRIL 2017 SA Real Estate Investor
57