Last day of the year to accept the ‘investment gift from government’

Today is the last day for investors to contribute to their tax-free savings account (TFSA) for the tax year.

The TFSA was introduced to South Africa in 2015 to encourage South Africans to contribute more money to savings.

“It’s not often you get a gift from the government, especially in the form of a tax-saving, so it is best to make the most of it,” said Roné Swanepoel, business development manager at Morningstar Investment Management South Africa.

Different categories of tax apply to standard investments. Tax is levied on interest above a certain threshold, on dividends, capital gains, and income from real estate.

“A TFSA allows an individual to invest in various asset classes without having to pay income tax, dividends tax or capital gains tax on the returns from these investments,” said Swanepoel.

However, there is an annual limit on contributions to the TFSA of R36,000 and a lifetime contribution limit of R500,000.

The deadline for contributions to the TFSA for the year is technically midnight of 28 February, but each platform, broker, or bank will handle this differently to ensure that funds clear by the deadline, said Carel Nolte, chief marketing officer at Easy Equities. 

Annual contribution limits for the TFSA will be reset on 1 March.

884,000 total trades were recorded in the TFSA on the Easy Equities platform in the last financial year, according to Lesedi Mfolo, head of marketing operations at Easy Equities.

He told Daily Investor that 60% of investors in the TFSA on Easy Equities were men and 40% were women.

The average age of TFSA investors was 32.5 for the last financial year.

There are 84 exchange-traded funds to pick from for investors in the TFSA on the Easy Equities platform and 60 unit trust options.

Investors can open TFSA accounts on multiple platforms and invest in different asset classes. However, total tax-free contributions may not exceed R36,000. Any contributions in a tax year above this threshold are taxed at 40% by SARS.

Investors can remove funds from the TFSA at any time, but Morningstar views investments in the TFSA as long-term savings vehicles, as this allows enough time for growth to compound.

“There are clear benefits of using a TFSA within your retirement and savings planning to eliminate the taxes that you would have been subject to using other investment vehicles,” said Swanepoel.