This is an investment product set up to enable you to invest while also potentially saving tax. Many financial institutions (banks and asset management companies) now offer this option. The amounts that can be invested are limited but will hopefully increase over time. The objectives of the product include promoting savings, containing fees and providing tax benefits. By investing in a TFSA you are likely to save tax.

Always take advice from a qualified professional before making an investment decision.

There are various regulations, including income tax regulations, in place regarding the creation and management of TFSA products. There are also regulations applicable to the underlying investments.

Only natural persons can apply for a TFSA. Companies for example cannot apply. Children may also apply for TFSA accounts. Refer to the articles regarding children investments for more information regarding this.

There are a wide range of underlying investment options available which include various savings account options, exchange traded fund (ETF's), unit trusts, and certain retail saving bonds. So, you can choose which product suits you. You could for example choose a unit trust that has exposure to shares, bonds and cash investments. You will however not be able to create a private share portfolio within the TFSA.
Understanding the underlying investments is important and this decision will be impacted by various factors including:
• How long you wish to invest for
• The risks you are prepared to take

Do it yourself
You could approach a bank or asset manager directly and invest in one of their products.There are many online platforms that enable you to set up TFSA’s. You can then select from their investment offering which underlying investments to make. For example you may choose an exchange traded fund (ETF). 

Independent financial advisor
You could approach an independent financial advisor who will arrange the investment on your behalf.

This depends on the type of investments you choose. Many of the online platforms (if available), will provide you with information regarding the performance of your investment. If you are using an independent financial advisor, then they will be able to assist you.

If you wish to invest in a unit trust, it would be useful to read the article on unit trusts to better understand how to review the performance a unit trust.

Generally, yes, if you choose an underlying investment that has almost no risk such as a savings type investment account.

You can invest up to certain limit per tax year. The tax year starts 1 March each year and ends at the end of February in the following year. In the 2016 and 2017 years the annual limit was R30 000. In the 2018, 2019 and 2020 tax years the limit was R33 000 per annum. In the 2021 tax year (ends Feb 2021) the annual limit increased to R36 000.  As you can see, from time to time the annual investment levels may be increased by SARS.

If you invest more than the annual limit you will be liable for a penalty of 40% on the excess invested above the limit. For example, if you invested R50 000 in the 2020 tax year then the “penalty” tax will be R6 800 (being (R50 000-R33 000) X 40%). The income earned on the excess invested will however still be tax free.

If you have made contributions to the fund which equal your annual limit during the year, and you then during the same year, withdraw the full or some of the amount contributed, you should not make further any further contributions to the fund during that year, as you will then exceed the annual limit and be liable for a penalty.  

The maximum contribution/investment you can make during your lifetime is R500 000. SARS may also increase this level in the future.  In other words when you add up all your annual contributions to the fund from 2016 onwards it should not exceed R500 000.

When deciding how often to invest during the year, you may consider lumpsum(s) contributions or monthly contributions to the TFSA. Should you wish to make equal monthly contributions then your maximum monthly payment would be equal to the annual limit divided by 12. For example, in the 2020 tax year your monthly contribution should be limited to R2 750 (R33 000/12).   

You can invest in more than one TFSA account however your total annual contribution limit should not be exceeded. In other words, all your contribution to the various funds when added together should not exceed the annual limit. You can therefore have two or more TFSA accounts and contribute to them all, however this will probably be more costly, and not a good idea.  

If you have not invested in a TFSA for the last few years, you cannot simply “catch up” in one year. For example, if you made no investment in a TFSA in the 2019 tax year and wanted to invest R50 000 in the 2020 tax year, you would not be able to without incurring the penalty as you would still be limited to the annual limit of R33 000.

It all depends on the underlying investments. There are mainly three types of income, namely dividends, interest and “distributions” by REITs. The type of income received is dependent on the nature of the investment. For example, normal shares will provide a dividend, bonds will provide interest.

You may choose not to physically receive the income from the TFSA, but rather leave the income in the portfolio to be used to purchase additional investments. This allows the portfolio value to grow much quicker. The income received in the TFSA will be reinvested and you will receive income on the previous income received. The concept of compound growth applies.

This is the good part, your total earnings in the TFSA are tax free which means that you are not taxed on any interest, dividends or capital gains.

You will be issued with documentation from the bank/asset manager regarding the income you received and the annual amount you contributed to the TFSA. A copy of this documentation will also be sent by the bank/asset manager to SARS. Even though you will pay no tax on the income this information is still to be entered on your annual tax return. SARS will also keep record of your annual contributions to the TFSA, which is reflected on your SARS ITA 34 (assessment).

The charges will depend on the provider and may also depend on the underlying investments. Fees are mostly regulated, and one would expect them to be reasonable. Ensure you fully understand the fee structure which is set out in the terms and conditions, before investing.
If you are investing small amounts monthly, payable by debit order, for example R200 per month, please be extra careful as the costs associated to the monthly payments can be “high” in relation to the amount being invested.

Initial once -off cost
There may be an initial once-off cost for the TFSA, and this will depend on the provider. By paying the initial fee, the amount you actually invest will be reduced by the fee.

Ongoing costs
Admin/Service fee
• There will likely be an ongoing monthly service/admin fee applicable.
• Fees could vary for example, one could charge 0.75% whereas another could charge 0.20%. This fee may be impacted by the type of underlying investment.

Cost of debit orders
• If you are paying by debit order there could be additional admin fees, for example a fee of 5% of the debit order value may apply if the debit value is below a certain amount.
• If the debit order is stopped or there is not enough money in your bank account to fund the debit order then there may be an additional small fee for each month that it occurs.

Other costs
• Should there be a financial advisor guiding you, you may also be charged a fee for advisory services. This may be a good option considering all the information needed to make the right decision.
• If the underlying investment includes the buying and selling of shares on the JSE, other brokerage and regulatory fees will apply.
• You cannot however be charged a performance fee, so should the underlying investments provide a return in excess of the benchmark, then you should not be charged an additional fee.

The request to withdraw funds can be made at any time (working hours), however the payout period may differ depending on the investment product and investment company . Most withdrawals would likely be paid out within 7 workings days. Always confirm this before investing. 

Remember that one of the objectives of using the TFSA is to invest for the medium to long term. By having money invested in the TFSA you are potentially saving on tax. Savings on tax means you effectively have more money to invest each year, and the compounding impact of this will make you even better off.

Providers are guided by regulations when charging withdrawal fees: certain providers may charge a fee and others not.
Always review the terms and conditions to understand if there are any withdrawal fees.

No, you will not pay any tax when you withdraw all, or part of the money.
Normally when selling an investment, you may pay capital gains tax, however there is no capital gains tax payable on TFSAs.