During his Budget speech Finance Minister Pravin Gordhan announced a 5% increase in dividends tax from 15% to 20%; this may be disappointing for people looking to dividends for some earnings.
Pieter du Toit, CEO of FNB Investments, says, "There was also good news in that the annual limit on Tax Free Savings Account (TFSA) was increased from R30 000 to R33 000. Tax free savings accounts are tax efficient savings vehicles that are exempt from taxes including dividends tax, tax on interest and capital gains tax. The move by Minister Gordhan shows that government continues to encourage long term investing. If one were to invest R30 000 now before 1 March and then top that up with R33 000 later in the week (in the new financial year) you could save yourself quite a lot of tax."
"Tax Free Savings accounts are the first savings option that people should consider for some tax relief and FNB has a full range of TFSA products ranging from cash to unit trusts and shares."
It's not easy to predict whether Tax Free Saving limits will increase year on year, therefore it's better to take advantage of the tax savings opportunities while they are available. The tax savings, encompassed in the benefit of exemption from taxes like dividends tax, capital gains tax etc. give a huge boost to an investment over time.
The take up of TFSA accounts is still lower than anticipated, with some people saying that the limits are not big enough, while others feel that they can't afford to invest.
"The key to investing is to invest early, stay invested and in time you will reap the rewards, regardless of how much you invest per month. You can start with a small debit order and work to building it up to the current R2 750 maximum per month over time or if you have the funds available do an annual lump sum investment," adds du Toit.
