Tax-free savings accounts a must for investors
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