Taxing times

Colin Anthony
By Colin Anthony February 13, 2019 07:00

Taxing times

By Mayo Twala | 13 February 2019

Welcome back readers, to the Tax-Saving South African, where I walk with you in your personal journey through a range of financial themes

Two things come to mind when I think of February: Valentine’s Day – and something to do with taxes. Personally, I’ll opt for Valentine’s Day, thanks. Unfortunately, we don’t always get what we want so we’ll have to settle for one of the two certainties of life: taxes – the other being death, of course.

Here’s a fun fact: the tax year runs from 1 March until 28 February of the following year. It’s important to know this so you can top up your tax-free savings stash for this tax year before it ends in just over two weeks’ time.

Let’s recap some of the rules of tax-free savings accounts (TFSAs).

South Africans can save up to R33,000 a year in specially designated tax-free savings accounts, with a lifetime limit of R500,000. As the name implies, all returns are free of tax. Now here’s the important part: unfortunately, you can’t add more the following year if you did not use the full R33,000 in the previous year. So, for example, if you’ve invested R20,000 this year you can’t invest R46,000 next year – you can still only invest R33,000 next year.

So if you haven’t reached your full R33,000 this tax year, now is the time to act and top up – if you’re fortunate enough to be in a position to do so.

There’s another catch though. Once an early withdrawal is made, that amount may not be “replaced”. So, if you’ve invested R33,000 in a year but draw R10,000, you can’t reinvest R10,000 later in the same year for the tax-free benefit.

So TFSAs are best used for long-term savings. Especially for young, cash-strapped workers.

If you haven’t even opened a TFSA yet – shame! Shame! No don’t worry, you can avoid your personal finance walk of shame by getting started on savetaxfree.co.za. Be sure to check out the website’s investment tool  which helps you identify the TFSA that best suits your needs. It’s simple to use: it helps you choose an investment objective, time frame and identifies your risk tolerance and return estimates. It also lists the different types of tax-free savings accounts that are out there.

Taxes can seem so complicated, but they needn’t be more painful than death. In my next column I’ll guide you through another seemingly daunting process: the Dreaded Tax Return.

See why I prefer Valentine’s Day? It requires slightly less commitment from my pocket.

Continue following this series to become a wiser tax-saving South African!

Colin Anthony
By Colin Anthony February 13, 2019 07:00

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