Your GUIDE TO TFSAS

Your guide to TAX-FREE savings accounts

Tax-free savings accounts (or TFSAs) were introduced by National Treasury in 2015. Are you making the most of their benefits? By DOMINIQUE BOWEN

SAVINGS WITH UNIQUE TAX BENEFITS

TFSAs are ideal for saving on tax while growing your wealth for long-term goals. “They were designed to incentivise South Africans to increase their non-retirement savings, and to ensure that they have savings that will protect them in tough economic conditions,” says Abigail Kitshoff, business development manager at Glacier by Sanlam. While the same product rules apply across all TFSAs, there are differences in the underlying provider costs and underlying investment options.

MAKE THE MOST OF TFSAS

Speak to a Sanlam financial planner to ensure you’re harnessing the power of TFSAs, today. Make an appointment by visiting sanlamreality.co.za/contact-an-adviser.

T&Cs apply.

RULES OF PLAY

Contribution limits Withdrawal limit

R36 000

“If you’d like to make a withdrawal, this is regarded as a future contribution,” says Kitshoff. “So, if /year you withdraw a set amount, you won’t be able to add it back again in the future.” For example: Contribute R300 000

R500 000 /lifetime Withdraw R250 000 R50 000 balance Because you already contributed R300 000 of your lifetime limit, you would only be able to top up a maximum of R200 000 (R500 000-R300 000) during the rest of your lifetime.

DRAWCARDS

You don’t pay tax

You don’t pay tax on interest or dividends, plus you are exempt from capital gains tax (CGT) on any funds that you withdraw.

Liquid funds

You can withdraw funds whenever you like, and it only takes up to five working days for them to reflect in your account. However, note that it’s not ideal to withdraw from your TFSA, as you will miss out on tax-free growth over the long term.

Flexible contributions

You don’t need to commit to regular monthly contributions. You can stop and start your contributions without being penalised.

More freedom with assets and funds

“You can invest in growth assets such as equity, offshore equity and even property, with no limitations,” says Kitshoff. “This allows you to maximise your growth.”

It’s transferable

You’re not locked in to one provider when you start a TFSA. If you are unhappy with your provider, you can move at no cost, and without impacting the product benefits, says Kitshoff.

Penalties for overcontribution

You can be heavily penalised for overcontributing to your TFSA – up to 40% of contributions. “Most [account] providers won’t let you over-contribute, but they won’t know, for example, if you have more than one TFSA,” says Kitshoff. However, SARS can pick this up and penalise you on your tax return.

Not ideal for short-term goals

Yes, your funds are liquid and your contributions flexible, but investing in a TFSA is a long game. “If you are using a TFSA as anything other than a long-term investment vehicle, for example an emergency fund, it can impact your benefit in the future,” says Kitshoff. Treating it as a short-term savings vehicle is not recommended.

3 Ways to take advantage of TFSAs

TO SUPPLEMENT YOUR RETIREMENT SAVINGS Like a retirement annuity (RA), there are no tax implications for contributions to a TFSA, or the interest it earns. However, a TFSA will form part of your estate for estate duty purposes, and will attract executor fees.

TO GROW YOUR KIDS’ SAVINGS

If your child is still a minor, you can open a TFSA so they can start benefitting from the growth and tax savings on it from a young age. “However, it is important to keep in mind that if the funds are withdrawn earlier, you will have used your child’s lifetime allowance,” notes Kitshoff.

TO HAVE A GREAT TAX YEAR

If you want to invest a lump sum, start closer to the start of the tax year (1 March). “This will give your investment an extra 12 months of tax-free growth,” says Kitshoff.

DOWNSIDES

Richard Mudariki, The Model, 2015, oil on canvas, Sanlam Art Collection

Is BUYING

ART a viable investment strategy? Art can be displayed on a wall and admired, but if you invest in the right piece, it could become a lucrative treasure that you could use for a home deposit or to fund your retirement, once sold. By ANGELIQUE RUZICKA

William Kentridge, Stadium, 1987, charcoal and pastel on paper, Sanlam Art Collection

Blessing Ngobeni, Figures and Fish, 2015, acrylic and collage on canvas, Sanlam Art Collection

Pauline Gutter, Their Last Supper – Unfinished, 2007, oil on canvas, Sanlam Art Collection

Ndikhumbule Ngqinambi, Walk of Numbers, 2010, oil on canvas, Sanlam Art Collection

Apreviously unseen JH Pierneef entitled Farm Jonkershoek with Twin Peaks Beyond, Stellenbosch, fetched a mammoth R20 462 400 at an auction held by Strauss & Co just four years ago.

It’s possible to make money from investing in art, but as with all types of investments, there are pros and cons to consider.

Surprising other investment options

CRYPTO ART It’s not only art that hangs on our wall that could offer investment potential. Rare digital artworks or digital trading cards that are ‘nonfungible’ i.e. NFTs (unique and can’t be replaced with something else) are now quite sought after.

CROWD FARMING You could also earn an income from a cow. Platforms like Livestock Wealth connect investors looking for something different with farmers that need funds to expand their farms.

THE DOWNSIDES

1It’s unregulated It’s important to do your research because the art world is complex. “Getting to know it well may require a long apprenticeship if you’re doing it on your own. Alternatively, you can obtain expert independent advice – this may come at a price, but the reward can be considerable,” says Stefan Hundt, curator of the Sanlam Art Collection.

Investing in art is a risky thing to do because, unlike investments in an asset management company, it’s unregulated. “You have sharks in every industry; the art industry is just the same,” says Hundt.

2Physical assets need proper care Art must be stored properly, otherwise it could lose its value. “There are a number of environmental hazards to consider wherever you may install or keep your artwork. Bad handling or exposure to too much ultraviolet light can damage your artwork so badly that its value could easily halve,” warns Hundt.

WINE You can drink it, but you can invest in it, too. Wine Cellar has been trading fine wine for two decades and allows you to invest in local wines.

THE BENEFITS

1Rewards can be high Investing in art can be rewarding, but patience is key. Hundt says: “A portrait by Irma Stern purchased in 1968 for R1 260 could easily fetch R15 million on auction today. It took 48 years to get there though, and one must take into account that probably 98% of the increase in value occurred over the past 10 years.” Even with such an increase, one has to consider the depreciation of the rand against the dollar and euro to be able to assess the gain appropriately, he adds.

3Prepare for admin fees While equity dealing fees can range from 0.45-1%, depending on what you’re selling, art transaction costs can be much higher. “Auction houses in South Africa charge a premium ranging from 12-15% excluding VAT, while European auction houses charge as much as 28% in premiums and commissions. However, the market for art is significantly different, and if you have knowledge of it, you can make a very profitable gain,” says Hundt.

4Beware: fakes and fraud There’s always the chance of theft and fraud too. “Fakes are a growing problem in South Africa. The law in South Africa is not clear as to what should happen to fakes. In France such works are destroyed, whereas in South Africa because either the dealer or unsuspecting buyer wants to save face, these fakes remain in the art market system,” says Hundt. 2 There’s lots of choice The South African art market offers plenty of choice. While there are veteran artists that one could invest in, like William Kentridge and Penny Siopis, you could gain by investing in an up-andcoming artist – particularly if you’re on a budget. Some to consider include Blessing Ngobeni, Teresa Firmino, Richard Mudariki, Wim Botha, Jacques Fuller and Pauline Gutter. But Hundt warns that some

GET EXPERT ADVICE emerging artists aren’t always a good bet. He explains: “Rarely is the new kid a good investment. Look for artists who have had a

Any investment reasonable history of success and are beginning decision should be to mature. Their prices may seem high but the based on sound risk of making a bad choice is significantly less.” advice – speak to

a financial planner 3 Like any investment strategy, to understand what’s diversity is key best for you. Call Careful consideration should be made before 0860 732 548/9 or you invest in art. Unless you’re a professional, visit sanlamreality. art is a long-term investment and a risk, which co.za/contact-an- is why it shouldn’t be the only investment adviser to make choice. A diversified portfolio of cash, stocks, an appointment. shares and property would always be key, as T&Cs apply. these could be the ones that pay out while you wait for your art to appreciate.