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If you're still paying tax on your investments you're losing out big-time!

by , 23 September 2015

Do you own unit trusts, ETFs or shares?

If you do, you're paying 15% tax on all the dividends you receive.

You also pay 13.33% capital gains tax once you sell any of these. In fact, if you held them for less than three years you will end up paying up to 40% in income tax on them…

But you don't have to.

Stop paying tax on your investments today

The National Treasury introduced Tax Free Savings Accounts (TFSA) from March 1 2015.

This allows you to invest up to R30 000 a year tax-free.

Yes, that’s right. On a TFSA you won’t have to pay any taxes:
  • No Securities transfer tax – you will usually pay 0.2% of the value of the shares you buy as STT.
  • No Capital Gains Tax – If you invest for the long run you usually need to pay tax of up to 13.33% on the money you make.
  • No dividend withholding tax – You need to pay government 15% of every dividend you get; now you no longer need to…

In fact, normal brokerage rates on your share trading account are around 0.5% and the costs to invest in a retirement annuity can easily hit 3% a year. But with a TFSA you pay at least 50% less brokerage than on normal share trading accounts. So you get to save even more money.

The only rule is that you can invest no more than R30,000 a year (R2,500 a month). You can invest this money for at least the next 16 years or until it reaches R500,000 (invested, but excluding growth).

Who should consider investing using a TFSA?

So, should you invest in a TFSA right now?

Well, it really depends on a couple of things.

But here’s what I’d suggest you consider:

•          If you’re already investing a monthly amount into ETFs, retail bonds or fixed income products at the bank you should definitely open a TFSA.
•          If you don’t have enough money to invest in the stock market today but you have R500-R2500 a month that you are willing to save.
•          If you don’t have the time to learn about investing in the stock market and you’d like to invest some of your money on ‘auto pilot’ and get tax benefits at the same time, use a TFSA.

At this stage TFSA’s only allow you to invest in ETFs, unit trusts and retail bonds. That means (unfortunately) that you can’t invest in regular shares just yet.

But things can change and in a couple years’ time it could be possible to use your TFSA to invest in ordinary shares as well.

But at this stage you need to stick to ETFs. That’s not an issue though. Many ETFs have outstanding performance. If you invested in the DBX World ETF five years ago your gains would be at 164% right now and the Satrix Rafi would’ve returned 90% on your money in the same time. On average that’s 17.82% growth a year.

So if you’re not investing yet, or just want to take advantage of this tax benefit act now.

Most brokers offer TFSA’s. Phone yours up to open one right now.

Here’s to unleashing real value

Francois Joubert

Editor, Red Hot Penny Shares

If you're still paying tax on your investments you're losing out big-time!
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