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New tax-free savings account a real winner

Friday, 23 January 2015   (0 Comments)
Posted by: Author: Warren Ingram
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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 funds.

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, 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



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