If you’re looking for tax-free investment options, look no further than our Standard Bank Tax-Free Investment Account (TFIA). A TFIA was first introduced in 2015, as part of one’s non-retirement savings, as a way to promote household savings whilst also maximizing tax relief. TFIA’s are most effective when started early in life, as the benefits accrue over time, rather than upfront. In other words, contributions are not tax deductible, but rather future profits are tax exempt. So, the earlier one starts contributing, the more tax-free compounding takes place.
What are the primary features of a TFIA?
- No tax on interest or other income
- No dividend taxes
- No capital gains tax
- The annual contribution limit is R36 000 per investor, and the lifetime contribution limit is capped at R500 000.
What underlying investments can be held inside the TFIA?
- Fixed deposits
- Unit trusts
- Linked investment products
- Exchange Traded Funds (ETF’s)
Can I contribute more than R36 000 per annum to my TFIA?
The answer is yes, but not recommended. Any excess amount contributed to the TFIA during any given tax year, is penalized at 40% of the excess amount contributed. In other words, if one invested a total of R50 000 during the year, then they would be taxed R5 600 (40% x R14 000) on the over-contribution. It is also possible for an investor to have more than one TFIA, but the total amount contributed (across accounts) each calendar year is taken into account when monitoring the annual limits. In other words, if you invest R30 000 into your first TFIA and R12 000 into your second TFIA, then you are R6 000 over your annual contribution level and hence subject to 40% tax on the excess R6 000.
Are there any lockup periods like a Retirement Annuity?
Unlike a retirement annuity where your funds are locked up until you reach the age of 55, investors have access to their TFIA funds whenever they need. When making a withdrawal out of your TFIA, investors should be cautious that your annual contribution level does not change. In other words, if you have contributed R36 000 already this tax year, and then take out R6 000, you cannot now add back that R6 000 until next year, and even then, that R6 000 will then take up part of that year R36 000 limit.
Who can apply for a TFIA?
Anybody with a South African ID number from birth is eligible to have a TFIA. This makes the TFIA a great option for just about anyone who wants to invest, especially if you’re investing for the long term. Parents can invest on behalf of their minor/child. The minor/child will use his/her own annual or lifetime limits. This is a great opportunity for families to use this benefit and allow them to donate up to R36 000 per year per child. A factor to consider is that once the child turns 18 years old, the investment will vest in their name and the child will be allowed to withdraw the funds
If you are an existing client at VEGA and have a Standard Bank equities account, then you automatically have a TFIA. If you did not know about this please reach out to Abrie Smit (amit@vegacapital.co.za) for your account number. At VEGA, you will also not pay any initial fees or annual administration fees. The only fees payable are the annual management fees applicable to the underlying signed mandate. If you are interested in opening up a TFIA before the end of February 2023, then please feel free to contact either Abrie Smit or Louis Storm at asmit@vegacapital.co.za and lstorm@vegacapital.co.za.