New tax-free savings account a real winner
23 January 2015
Posted by: Author: Warren Ingram
Author: Warren Ingram (BDlive)
I don't like giving
investment tips or predicting what is going to be the best performer in the
year ahead because predictions are easy to make, but it is impossible to be confident
about anyone's predictions.
So this is a rather
unusual step for me — I am going to give you the best investment tip you are
likely to get this year.
The government is likely
to raise taxes this year, so investors need to take full advantage of any
tax-free savings benefits on offer. Those earning taxable incomes should make
full use of tax deductions allowed for contributions to retirement funds.
People who earn very
large taxable incomes should assume that this is the last year in which they
will be able to make large tax-deductible contributions to their retirement
When the Treasury
eventually proceeds with its retirement reforms it is going to limit the
maximum amount that can be used for tax deductions. This is not my investment
tip, but it is good advice for those who can benefit from the tax deductions.
My big investment tip
for 2015 is that you should start using the tax-free savings account (TSA)
launched by the Treasury last year. This is a brilliant initiative that offers
savers some real benefits. You will be allowed to invest a maximum of R30 000 a
year to a limit of R500 000 over your lifetime into an investment that will be
completely free of tax.
This is a new
initiative, and not all the details have been finalised, but we do know that
you can use certain types of unit trusts, bank deposits, exchange-traded funds
and RSA Retail Bonds as vehicles.
The Treasury has
designed this to be a long-term investment vehicle so if you make any
withdrawals from it you will not be able to redeposit your money as part of
your lifetime limit of R500 000.
According to research by
Daniel Wessels of www.indexinvestor.co.za, if you make full use of the TSA
over your lifetime, you should gain 12 per cent more capital than from a
comparable normal investment, such as a unit trust or share portfolio. This
might not seem like a lot of money, but it amounts to R175 344 more capital on
your R500 000 lifetime contribution.
As you are limited to an
annual contribution of R30 000, it makes sense to put your money in investments
that are likely to grow most over time. With shares, you will pay a 15 per cent
dividends tax, but you are not allowed to buy individual shares in a TSA. This
means you would need to invest in a unit trust or an exchange-traded fund that
owns shares or even a property unit trust.
It will take 16 years
and eight months to hit R500 000. So it is long term, but it is worth it. For more information on the TSA,
please contact your SAIT tax professional.
This article first
appeared on bdlive.co.za.