Tax free savings accounts

TFSA – JSE tax free savings account. Below are notes from a JSE power hour presentation about this new product and how you can benefit from it. If you need more information, please don’t hesitate to speak to your portfolio manager.

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Summary

  1. R30k/yr and R500k/lifetime limits
  2. Don’t exceed limits
  3. Only individuals
  4. No shares (because you could have bought ABL iso CPI)
  5. Focus on ETF’s – exchange traded funds
  6. No tax – other than estate duty
  7. Open one today

Introduction

  1. Since 1st March 2015
  2. Individuals only, minors included
  3. Companies and trusts exluded

Why?

  1. Encourage people to save
  2. To started on the stock market
  3. Open an account
  4. Speak to a broker

No tax, no catch – while you are alive

  1. No dividend witholdings tax 15%
  2. No capital gains tax – held for 3yrs or longer
  3. No income tax – about 3x more than CGT
  4. No tax on interest – cash in the account
  5. No STT – 0.25% on buy side, securities transfer tax
  6. Just estate duty to be paid – I’m dead, I’ve got bigger problems

But

  1. Must open TFSA account upfront, not trsfr existing
  2. Specified products – no koenigsegg or wine collection or holiday home

Limits

  1. R30k per individual per tax year (max R500k over lifetime) so 16.8yrs at 30k
  2. Cannot roll over
  3. Don’t exceed the limit – penalties, taxed on excess at marginal rate so max 41%
  4. Onus on individual not to exceed
  5. Exceed excludes capital gains, just what you put in
  6. Cash only – cannot trsfr existing satrix ETF etc – onus on you, not platform

Ps. 30k/yr = 2500pm

Impact

  1. Huge
  2. Compounded
  3. Full dividend iso 85% thereof, over time…
  4. Insert a chart

They used for example chart

  1. Inflation+4%
  2. No fees
  3. Marginal tax rate 40%

Allowed

  1. CIS, including ETF and Unit trusts
  2. Structured products
  3. Cash – boring, 5%, you’re going nowhere
  4. Retail savings bonds – post office sell GOVI bonds, like 1/3/5 yrs lock-in, no fees, ‘risk-free’

Not allowed

  1. No Shares – but the ETF’s are made up of shares
  2. No ETN’s
  3. No REIT’s – but they are in the property ETF’s
  4. No ETF’s on commodities – like GLD
  5. No Policies
  6. No Derivatives – unless in structure products (like put options, protect downside but doesn’t enhance upside)

Ps –

  1. Buy the market
  2. It’s the best asset class for any 20yr period since the 60’s
  3. RAFI = Research affiliated fundamental index
  4. ETF Internal fees – TER, running the fund 0.2% to 0.84% for DBX

Reduce your risk, trade ETF’s –

  1. Product diverse
  2. Industry diverse
  3. Currency diverse
  4. Country diverse

Withdrawals

  1. Money can be withdrawn – when life throws you a curveball
  2. No limits on withdrawals
  3. But Money that is withdrawn cannot go back in –
  4. It is deducted from your annual 30k and lifetime 500k limit
  5. So put money into this product that you won’t need for a long period
  6. You can transact within the accounts – say sell STXRESI and buy STXFINI

Providers

  1. Banks
  2. Government
  3. Stockbrokers – go to your broker and buy the ETF you want
  4. LT insurers
  5. Investment platforms
  6. CIS managers

Fees

  1. Brokerage – usually discounted, lower fee in TFSA
  2. Compulsory – no STT, reduced STRATE (70% discount), still VAT on brokes
  3. Admin fees – platform can charge fees, so speak to your broker
  4. Advisor fees – don’t think you’ll see to many IFS’s selling these because very little brokes on 30k/yr

Onus

  1. Not up to broker
  2. Not up to provider
  3. Not up to platform
  4. But up to the individual taxpayer not to exceed

Simon bought

  1. 15k each into local and overseas
  2. BBET40 – equally wheighted top 40, 2.5% each
  3. DBXWD – MCSI worldwide index, >50% US and 11% each in JPY EU UK
  4. PTXTEN – can also add this if you want to do 1/3rd each
  5. World index is currency hedge and gives worldwide exposure
  6. But world index will be tax in say US first

Check

  1. Category 2 license holders – portfolio manager
  2. Does this count as allowed product? Equities, no derivatives etc

Children

  1. Under 7 = infant, nothing you can do
  2. From 7 onwards = minor, can open accounts for them
  3. Money can only be paid out into a bank account in that minors name (not parents)

Questions

How many accounts can you have? As many as you like, as longs as you stick to the max 30/500k limits

How will SARS know? IT3B & IT3C (for PnL and interest certificates) will be show whether it is a TFSA account or not. Just a tick box.

Note – in the first year you cannot switch providers – so cannot move your TFSA from Broker A to Broker B.

Open yours today.

If you don’t – you’re losing out. It’s ‘free’ money. And it adds up.

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