Tax Free(bie) Investing

Back to Money advice
4 June 2019
When considering investment strategies that improve your personal financial position over time, one that tends to be overlooked is maximising all available tax free investing options.

Like me, I am sure most people love receiving gifts and freebies, and freebies giving me maximum investment advantage without having to pay tax are definitely some of my favourite things.

One does not even have to look too hard as tax free investing is generously available to each and every South African citizen.

Here are three of my personal favourite tax “freebies” that I believe should be part of one’s overall financial plan, no matter how young or old and the earlier you start the better: 

1. The Tax Free Savings Account
What is it?

The best thing since bread came sliced in my opinion!

A tax free savings account or TFSA allows you to save a maximum of R 33 000 per annum in a tax year (1 March to 28 February), without ever having to pay tax on any withdrawals or growth made within the TFSA.

In fact there is absolutely no tax payable in a TFSA if you don’t invest more than R 33 000 in a tax year.

If you had R 1000, R 10 000, R 100 000 or even R 1 000 000 (one day) in a tax free account or plan as we like to call it, you could withdraw it all without ever paying a cent to the tax man.

How can it be used?

It is best used over the longer term to build up money that you can access at any time free from tax. You can chose and manage how much you want to withdraw at a time, either the whole amount or small portions, it’s entirely up to you and every cent is yours tax free.

The longer you invest, the greater your potential tax free reward, that is why it is a wonderful investment to help supplement your income in your retirement years. 

2. The Interest Exemption
What is it?

If you are currently under the age of 65, the first R 23 800 in combined interest that you receive from all investments that earn interest (money market funds, savings account, fixed deposits, bank accounts, cash investments etc.) in a tax year, is free from paying tax.

Put differently you could earn R 1 983 pm tax free if you are an individual under the age of 65 maximising this exemption. It’s even better for those older than 65, they earn R 2 875 pm tax free as the interest exemption moves up to R 34 500.

How can I use it?

Making use of this exemption is best for short-term emergency savings and goals. Money is easy to access, its low risk, flexible and tax free up to R 23 800 (R 34 500 for over 65’s) in a tax year when invested in cash type investments.

3. The CGT Exemption
What is it?

The first R 40 000 in capital gains that you withdraw from an investment that attracts capital gains tax (CGT), like certain unit trusts, in a tax year is free from paying tax.

Capital Gains Tax is tax charged on all gains (profit) made on most investments and assets one owns that increase in value over time and payable when you sell these.

For example if you invested R 50 000 in a unit trust (not a money market/cash unit trust) that grew to R 90 000 and cashed it out, you would have made a capital gain of R 40 000. CGT would be calculated on the R 40 000 gain, but the first R 40 000 gain is tax free so you pay no tax. 

How can I use it?

In a tax year you can control the amount of money you withdraw from investments such as unit trusts that attract capital gains tax. Ideally as far as possible try not draw more than R 40 000 in a tax year to enjoy some tax free income.

Maximise tax free investing

Maximising the CGT and Interest exemptions in a tax year if you are under 65 years of age can add R 63 800 per annum or R 5 317 per month tax free income to your pocket.

Over 65’s can earn R 74 500 per annum or R 6 208 per month. Now add withdrawals from your tax free plan (TFSA) and you can earn some pretty good tax free money in a tax year.

Tax free investing is easier than you think. The CGT and interest exemptions are already there for the taking, all that’s needed is a solid tax free plan and you are well on your way to maximising and enjoying tax free investing and income.

Speak to one of our financial advisors and start your investment journey.


Gareth van Deventer CFP®
OUTvest: Head of Advice
This article does not constitute holistic financial advice as it does not take into account one’s personal financial circumstances. Please contact OUTvest before implementing any financial plan or advice to ensure that you make an informed decision. Although we have tried to set out some key information to consider, we are not tax professionals and we suggest you speak to your tax consultant for any advice on your personal tax.
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