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Benefits of a tax-free

Tax-free savings accounts (TFSAs) were introduced in 2015 as an incentive to encourage household savings.

They provide ordinary South Africans with a wonderful opportunity to save towards a specifi c goal or to supplement their retirement savings.

 As TFSAs are not subject to tax, they provide a convenient and fl exible way to accumulate savings over time.

 A TFSA is a savings account for which investors do not pay tax, such as income tax, dividends tax or capital gains tax, on their returns.

Such a savings account can take the form of a money market account, a fi xed-term bank account, a unit trust investment, a JSE-listed exchange traded fund (ETF) and more.

 It guarantees capital investment and is an effective way to save for goals, because any interest, dividends or capital gains are free of tax.

 Financial institutions such as banks, investment companies, insurance companies and cooperative fi nancial institutions can offer

TFSAs in the form of fi xed deposits, unit trusts (collective investment schemes), retail savings bonds, endowment policies and ETFs.

How does it work? The investment and accrued interest earned during a fi nancial year are tax-free:

• Individuals have an annual limit of R33 000 per tax year and any portion of the unused annual limit is forfeited, i.e. it is not carried forward to the new tax year.

 For example: if a taxpayer invested R20 000 in 2019, their unused portion of R13 000 will not roll over to 2020.

 The taxpayer can therefore only invest R33 000 in 2020 as per the annual limit. < There is a lifetime limit of R500 000 per person (for both adults and minors).

 < If a person exceeds the limits, either annual (R33 000) and/ or lifetime (R500 000),

the excess contributions incur penalties and are taxed at 40 percent by the South African Revenue Service (SARS).

< A person can have more than one tax-free investment; however, the maximum combined total will still be the annual limit (R33 000) per tax year.

For more information: ฮานอยสามัคคี

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