Tax-free sav­ings ac­counts a must for in­vestors

Finweek English Edition - - INVEST DIY - BY SIMON BROWN

In his 2015 Bud­get Speech fi­nance mi n i s t e r Nh l a n h l a Ne n e a nnounced t he new t a x- f r ee sav­ings ac­counts (TFSAs), one of the best things to come along for longterm in­vestors since the ad­vent of DIY in­vest­ing. Sure, th­ese ac­counts have some lim­i­ta­tions and are not per­fect, but they are a gi­ant leap and the pros eas­ily off­set the cons. They are a must for any in­vestor as the sav­ings on tax will be sig­nif­i­cant over the long term.

The key fea­ture of th­ese TFSAs is ex­actly as the name sug­gests, you pay zero ta x − no cap­i­tal gains ta x (CGT) and no div­i­dend with­hold­ing tax (DWT) for as long as you live and keep in­vested in the TFSA. The only tax will be on your death and that’ll be old-fash­ioned es­tate du­ties.

One of the is­sues is per­haps the amount one can in­vest. The limit is R30 000 a year (equates to R2 500 a month) with a life­time con­tri­bu­tion of R500 000. To be hon­est for the ma­jor­ity of peo­ple that limit is not an is­sue and it will likely be in­creased over time to at least ac­com­mo­date inf la­tion.

You will have to open a new TFSA f rom an ap­proved provider − t hey i nc l ude s t ock­bro­kers, l ong- t er m in­sur­ers and the like. Not all are ready to of­fer t hese ac­counts, so i f your provider is not yet of­fer­ing them ask them when they will be in­tro­duc­ing th­ese TFSAs, at worst they may be a cou­ple of months late.

An­other im­por­tant point is what one can i nvest i n. You can­not buy in­di­vid­ual shares, but you can buy ex­change-traded funds (ETFs) as well as other long-term prod­ucts. For me per­son­ally I will be us­ing it for buy­ing my monthly debit of ETFs. So the debit that goes off ev­ery month will now

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