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Brief explanation of the new tax-free savings account regime

Friday, 21 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: It is not clear to me how the proposed Tax-Free savings account will work. Every article that I read, refer to the amount of R30 000 per year that a person will be allowed to invest in a tax-free savings account. All proceeds on these amounts invested will be tax-free.

Does it mean that a tax payer will be allowed to deduct the R30 000 per year from his/her income before tax, similar to an RA or Pension fund contribution?

A: Section 12T, which will take effect on 1 March 2015, does not provide for a deduction – it provides for an exemption of the interest earned on the ‘tax free investment’ (as defined in section 12T(1)).   The purpose of the R30 000 is a transitional one.  It allows for taxpayers to enter into these investments by contributing R30 000 per year to these new ‘tax free investment’.  Section 12T(4)(a) provides as follows:

"Contributions in respect of tax free investments shall be limited to an amount of R30 000 in aggregate during any year of assessment…”  

Section 12T(4)(c) then places an overall limit of an amount of R500 000 in aggregate.  

Effectively it therefore means that in the first year a taxpayer will only enjoy an exemption in terms of section 12T on the R30 000 investments.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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