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.
Summary
- R30k/yr and R500k/lifetime limits
- Don’t exceed limits
- Only individuals
- No shares (because you could have bought ABL iso CPI)
- Focus on ETF’s – exchange traded funds
- No tax – other than estate duty
- Open one today
Introduction
- Since 1st March 2015
- Individuals only, minors included
- Companies and trusts exluded
Why?
- Encourage people to save
- To started on the stock market
- Open an account
- Speak to a broker
No tax, no catch – while you are alive
- No dividend witholdings tax 15%
- No capital gains tax – held for 3yrs or longer
- No income tax – about 3x more than CGT
- No tax on interest – cash in the account
- No STT – 0.25% on buy side, securities transfer tax
- Just estate duty to be paid – I’m dead, I’ve got bigger problems
But
- Must open TFSA account upfront, not trsfr existing
- Specified products – no koenigsegg or wine collection or holiday home
Limits
- R30k per individual per tax year (max R500k over lifetime) so 16.8yrs at 30k
- Cannot roll over
- Don’t exceed the limit – penalties, taxed on excess at marginal rate so max 41%
- Onus on individual not to exceed
- Exceed excludes capital gains, just what you put in
- Cash only – cannot trsfr existing satrix ETF etc – onus on you, not platform
Ps. 30k/yr = 2500pm
Impact
- Huge
- Compounded
- Full dividend iso 85% thereof, over time…
- Insert a chart
They used for example chart
- Inflation+4%
- No fees
- Marginal tax rate 40%
Allowed
- CIS, including ETF and Unit trusts
- Structured products
- Cash – boring, 5%, you’re going nowhere
- Retail savings bonds – post office sell GOVI bonds, like 1/3/5 yrs lock-in, no fees, ‘risk-free’
Not allowed
- No Shares – but the ETF’s are made up of shares
- No ETN’s
- No REIT’s – but they are in the property ETF’s
- No ETF’s on commodities – like GLD
- No Policies
- No Derivatives – unless in structure products (like put options, protect downside but doesn’t enhance upside)
Ps –
- Buy the market
- It’s the best asset class for any 20yr period since the 60’s
- RAFI = Research affiliated fundamental index
- ETF Internal fees – TER, running the fund 0.2% to 0.84% for DBX
Reduce your risk, trade ETF’s –
- Product diverse
- Industry diverse
- Currency diverse
- Country diverse
Withdrawals
- Money can be withdrawn – when life throws you a curveball
- No limits on withdrawals
- But Money that is withdrawn cannot go back in –
- It is deducted from your annual 30k and lifetime 500k limit
- So put money into this product that you won’t need for a long period
- You can transact within the accounts – say sell STXRESI and buy STXFINI
Providers
- Banks
- Government
- Stockbrokers – go to your broker and buy the ETF you want
- LT insurers
- Investment platforms
- CIS managers
Fees
- Brokerage – usually discounted, lower fee in TFSA
- Compulsory – no STT, reduced STRATE (70% discount), still VAT on brokes
- Admin fees – platform can charge fees, so speak to your broker
- Advisor fees – don’t think you’ll see to many IFS’s selling these because very little brokes on 30k/yr
Onus
- Not up to broker
- Not up to provider
- Not up to platform
- But up to the individual taxpayer not to exceed
Simon bought
- 15k each into local and overseas
- BBET40 – equally wheighted top 40, 2.5% each
- DBXWD – MCSI worldwide index, >50% US and 11% each in JPY EU UK
- PTXTEN – can also add this if you want to do 1/3rd each
- World index is currency hedge and gives worldwide exposure
- But world index will be tax in say US first
Check
- Category 2 license holders – portfolio manager
- Does this count as allowed product? Equities, no derivatives etc
Children
- Under 7 = infant, nothing you can do
- From 7 onwards = minor, can open accounts for them
- 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.