Treasury tightens the bolts on TFSA ambiguities
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Nonhlanhla Kunene | 03 October 2016
In a bid to remove “any ambiguity”, National Treasury has published proposed regulation amendments for tax-free savings accounts, strengthening its viewpoint on certain issues, while relaxing its stance on others.
In an updated draft regulation published on 30 September, Treasury reinforced its view that no performance fees are to be charged in TFSAs or in any of the underlying funds held in a TFSA investment by amending some of the wording from the original resolution. “The amended wording is intended to make the regulations clearer by removing any ambiguity in relation to performance fees,” it says.
It has also reviewed the policy on ease of access, conceding that current regulations may be restricting the ability of service providers to offer higher interest rates for fixed-term deposits. Treasury believes current rules offering “access to amounts within 32 days for products with a fixed term and seven days for those without a fixed term” prevent the ability of individuals to purchase fixed term products with higher interest rates as there are few of those products available.
In an effort to strike a balance it has proposed a relaxation of the rules to allow providers freedom to grant investors access to funds only upon the maturity of their products. “Product providers can, however, still allow investors to access these funds before maturity, as is the case with regular fixed term deposits. The current rules that limit the exit penalty on early withdrawals will remain to safeguard investors against excessive penalties when withdrawing or transferring before maturity.”
To address what it’s termed as disclosure and compliance requirements, Treasury has proposed that it become mandatory for providers to give notice to the Financial Services Board (FSB) before launching new products. While the FSB will review the products and try to give feedback within a calendar month, providers will not have to wait for a response once the calendar month expires. The FSB however, will still be able to “make certain queries on the compliance of the products after they have been rolled out.
In addition to the above amendments, the deadline for transfers of a TFSA between service providers has been extended to 1 March 2017. In his budget speech earlier this year, Finance Minister, Pravin Gordhan announced the postponement of transfers from 1 March to November this year, stating it would allow providers more time to adequately prepare.
The reason given for the new extension is that Treasury would like to further engage with service providers and propose additional amendments in order to “address some compliance issues and the administration of fees.” The extension, it says, will also give providers enough time to conform once the final regulations have been issued.
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