The final notice and regulations that allow for the introduction of Tax Free Savings and Investment Accounts (TFSAs) have been approved by Finance Minister Nhlanhla Nene.
This will come into effect from 1 March 2015, the start of the new tax year.
The incentive, said National Treasury in a statement on 20 February, is an important tool to encourage South Africans to save more and to reduce household indebtedness and vulnerability.
It complements initiatives and incentives to promote retirement savings and will also support long-term economic growth.
This tax incentive is enabled through section 12T of the Income Tax Act and this notice and regulations. The earnings (interests and dividends) and growth (capital gains) on these products will not attract income, dividends or capital gains tax.
Contributions to all tax free savings accounts will be limited to R30 000 during any year and R500 000 over the life of an individual.
However, over time, the balance in these accounts may exceed the R500 000 limit due to accumulated earnings and capital gains.
FNB has been quick of fthe mark and announced that they are making it possible for South Africans to benefit from the new Tax Free Savings incentive, launched by the South African National Treasury. In addition to a regular cash savings option that is tax free, FNB enables clients to also tap into the growth potential of the stock market. Both FNB Tax Free Savings Accounts make it quick and easy for new and existing customers to benefit from the tax break and to build a nest egg for emergencies.
“FNB supports this initiative by the government to give South Africans this tax break on savings, and applauds its intention to make South Africans more financially secure,” said Lezanne Human, CEO of FNB Savings, Investments & Fiduciary. “With almost three out of ten of the banked population not saving at all, it is important to encourage and incentivise South Africans to get into the habit of savings, to avoid the need to tap into their retirement fund or get into expensive debt should they need access to money in an emergency”.
“In addition, everyone can benefit from the new tax incentive, including those customers who have maximised their current tax exemptions.”
From 1 March 2015, South Africans can save R30 000 a year, and R500 000 over their lifetime in the new Tax Free Savings Account. No tax is paid on interest earned, dividends received or capital gains. With household debt making up 78,3% of disposable income, South Africans are financially vulnerable and dependent on expensive debt. The intention is to reduce South Africans’ reliance on expensive, short-term debt if they need money in an emergency.
The new FNB Tax-Free Savings Accounts caters for customer needs across the income spectrum. “FNB research has shown that there is more of a savings need in the lower end of the market and a need to create tax efficiencies in the upper end”, continues Human.
Customers will therefore have a choice between two options based on the term they are saving for as well as the risk they are willing to take:
The Tax Free Cash Deposit Account guarantees capital, has no fees and offers great interest rates. The minimum investment is R1 000 and customers have access to their cash in an emergency, making this a good choice for short or medium term investments.
The Tax Free Shares Account is a longer-term exchange trade fund (ETF) investment that offers growth potential and allows customers to invest in the top 100 companies on the JSE. Fees are based on the customer’s portfolio size.
“We hope South Africans take advantage of this offering and take control of their financial destiny to reduce their reliance on expensive debt in case of an emergency. There is no excuse to delay saving, especially since these accounts can be opened online from the convenience of your home” said Human.
“Our top tip for saving is to pay yourself first, before life gets in the way of your good savings intentions.”
Alan Straton
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