Tax-free savings accounts (TFSAs) were introduced in March 2015 as an incentive for South Africans to save. Given the country’s persistently low savings rate, they represent one of the most valuable tax incentives available to individual investors.
A TFSA is an account that invests your money in various financial products — bonds, unit trusts, bank deposits, and exchange-traded funds. The key benefit: no tax applies to the growth of your investment or to withdrawals. No income tax, no dividends tax, no capital gains tax.
There is an annual contribution limit of R36,000 per tax year and a lifetime limit of R500,000. Once you reach your lifetime limit, no further contributions are allowed. These limits apply per person, not per account — you can hold multiple TFSAs but the combined contributions across all accounts cannot exceed these limits.
If you don’t use your full R36,000 allowance in a given tax year, it’s lost — unused allowance cannot be carried forward to the next year.
Growth on your investment — interest, dividends, or capital growth — is not counted against your annual or lifetime contribution limits when reinvested. If you invest R36,000 and earn R5,000 in returns that you reinvest, you still have a full R36,000 annual limit available in the next tax year, and your lifetime balance has only increased by your actual contributions.
You can withdraw at any time, but be aware: any amount you withdraw and subsequently re-deposit counts as a new contribution against your annual and lifetime limits. If you withdraw R36,000 and redeposit it in the same year, the redeposit is a new contribution — it will push you over your annual limit if you’ve already made other contributions that year.
SARS charges a 40% penalty tax on any amount contributed in excess of the annual or lifetime limits. For example, if you accidentally exceed the annual limit by R10,000, the penalty is R4,000 — payable at your next assessment.
Parents can open a TFSA for their children, but contributions count against the child’s annual and lifetime limits — not the parent’s. If a child’s lifetime limit is reached in childhood, they cannot contribute further as an adult.
Your financial institution issues an IT3(s) certificate for your TFSA. This information must be captured in the Tax-Free Investments section of your ITR12. Our tax compliance service handles this as part of your annual return. Get in touch to ensure your TFSA is correctly reported.