There has been much talk about these accounts since SARS mentioned them as a means of encouraging savings. There is however very little information available in the market in terms of options available to taxpayers.
These accounts were introduced as of 1 March 2015. Only regulated institutions such as licensed banks, long-term insurers, and managers of registered collective investment schemes, the National Government (retail savings bonds), authorised stockbrokers and linked investment service providers may issue and administer these accounts.
This is how it is envisaged that this process will work:
- No income tax, dividends tax or Capital Gains Tax will be payable on the returns from these investments.
- A maximum of R 30 000 per annum may be contributed to the investment. Any unused portion of the R 30 000 may not be carried over to the next year.
- There is a lifetime limit of R 500 000 per portion.
- If a taxpayer exceeds the limits there is a 40% penalty of the excess amount (e.g. the taxpayer pays R 35 000 into the investment thereby exceeding the annual limit by R 5 000. The penalty determined will be R 5 000 x 40% = R 2 000.
- It is important to note that when returns on investment are added to the capital contribution, the balance may exceed both the annual and/or lifetime limit. However, where a taxpayer withdraws the returns and reinvests the same amount, that amount is regarded as a new contribution and this impacts both the annual and lifetime limits.
- No transfers are allowed in the first year of investing (1 March 2015 to 29 February 2016). This includes both transfers within a service provider or to another service provider.
- Parents can invest on behalf of their minor child. This minor child will use his / her own annual or lifetime limits.
- Tax-free investment accounts cannot be used as transaction accounts.
- Debit or stop orders and ATM transactions will not be possible from these accounts.
- Only new accounts will qualify as the idea is to encourage new savings (in other words existing accounts may not be converted).
Which accounts will qualify?
- Fixed deposits
- Unit trusts (collective investment schemes)
- Retail savings bonds
- Certain endowment policies issued by long-term insurers
- Linked investment products
- Exchange traded funds (ETFs) that are classified as collective investment schemes
Reporting requirements
The service providers will provide SARS twice a year, with the following information:
- Total contributions per year
- Return on investment: interest, dividends, capital losses and capital gains
The service providers will provide the taxpayer with this information by issuing an IT 3(s) – Tax Free Investment Certificate.