Publication Date: 03/08/2015

On the 1st march 2015, South Africa’s National Treasury launched the first tax free savings accounts (TFSAs). These non-retirement, TFSAs will allow you to invest a maximum of R30,000 per year. In total, you can invest R500k tax free over your lifetime.

In the 2014 Budget Speech, South Africa’s National Treasury, announced legislation to allow for tax exempt savings accounts to improve savings amongst South Africans and reduce household indebtedness.

The launch of tax free savings accounts has been much anticipated and, since approximately 35% of every Rand you earn is taxed, gives you as an investor or saver a welcome relief.

What Are the Benefits of Tax Free Savings Accounts

Tax Free Savings Accounts have 3 tax exemptions that include:

  1. No Capital Gains Tax
  2. No Dividends Tax
  3. No Income Tax

Previously the benefits of zero tax on interest, dividends and realised capital gains were only available through retirement funds. Anyone can invest in TFSAs, and parents can open TFSAs for their children. A family of four can save up to R120,000 a year in tax free savings. This makes TFSAs an ideal savings vehicle for education.

Service providers that are eligible for tax free savings accounts include banks, asset managers, life insurers and brokerages. The accounts will allow you to invest in bank deposits, collective investment schemes, exchange-traded funds and retail savings bonds.

What Are the Requirements for Tax Free Savings Accounts

As required by the National Treasury and the Code of Banking Practice, tax free banking products must comply with 3 key principles:

  1. Simplicity – Saving / investment products should be simple to understand
  2. Transparency – No hidden costs, everything is clearly disclosed from the beginning and on a continual basis
  3. Suitability – Ideally each investor should have a customised financial plan that includes investment products that are suited to the individual’s circumstances

You can hold a combination of products from different providers as long as the total does not exceed the maximum yearly limit. SARS monitors investment information and investments that exceed the annual R30,000 limit will be subject to a tax penalty.

You can withdraw funds but withdrawn amounts cannot be replaced because the normal annual contribution limit will still apply. If for example you invest R30000 and you withdraw R10000, you will not be able to invest more without being subject to tax penalties.

Contact your bank to find out what tax free savings accounts are available to you.