What is a TFSA?

A tax free investment is possibly the best investment product for your portfolio.

What is a Tax Free Savings Account?

These investment products could quite possibly be the best investment product to come out in recent years.  Launched on 1 March 2015, they all South African investors to benefit from tax free returns.  This means interest, dividends and capital gains are tax free within the TFSA structure.  There are some limits and some important considerations to remember.

1. How much can you contribute?

You can invest up to R3 000 per month or R36 000 per year (as at 2020/21 tax year).  This is not an obligation, but rather a limit on the amount of money you may invest.  Meaning, if your budget allows for R300, R500 or even R1000 per month.  That is perfectly fine. One more important important fact, you can only contribute R500 000 in your lifetime.

Growth, from interest, dividends and capital gains are unlimited without any restrictions.

2. Where can I get a TFSA?

They are available from your bank, stock brokers, investment companies, unit trust providers, exchange traded fund providers and insurance companies.  As you can see, the options are many, so please consider all and seek advice and guidance on which is best for you.  Selecting the right TFSA for you, must factor in your risk appetite, investment goal, fees and the investment journey want to partake in.

3. Things to be careful of.

Over Contributions!  Please do not exceed the annual limits as set down by National Treasury, currently R36000 per annum.  Why you ask?  Well if you go over the R36000 per annum limit, all over contributions will be taxed at FORTY PERCENT (40%).  So if you make an extra contribution of R1000, you will owe SARS a massive R400 in penatly taxes. 

Also, any withdrawals (meaning the money leaves your TFSA and lands in your bank account) reduce your lifetime limit and you can never replenish it.  Here is an example. You withdraw, R10 000 from your TFSA, your lifetime limit is reduced by R10 000 (down to R490 000) and if you invest over R490 000 you will be taxed at 40%.

Remember all growth, is tax free.  So over time, if invested wisely, you exceed the R500 000 limit, that is perfectly fine and you will not be taxed on it, as it will come from interest, dividends and capital growth.

Want to know more?

Listen to my podcast, https://iono.fm/e/858036 and feel free to book a complimentary chat with me.  I am here to help.


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