TAX IMPLICATIONS ON TAX FREE TRANSFERS

by | Oct 1, 2023

Tax-free savings accounts (TFSAs) were introduced in 2015 to encourage individual’s resident in SA to save more. The growth and income received on a TFSA investment are tax free. This means you are not liable for any capital gains tax or tax on the dividends and interest received on your investment. The maximum investment amounts are R3 000 per month, R36 000 per tax year and a R500 000 lifetime limit per person.

Legislation allows for these investments to be transferred from one Tax Free Account to another. Transferring your account could be beneficial in terms of reduced administrative fees, nomination of beneficiaries (some institutions don’t have the option to nominate beneficiaries) and better fund selection for growth.

A transfer should be considered if you are wanting to move funds from a tax-free savings account into a tax-free unit trust, or from one investment company to another. Unlike any other investment, you shouldn’t simply withdraw the funds and deposit them into another tax-free investment, as this is seen as a new contribution that further reduces your annual and lifetime limits and may result in a 40% penalty tax.

SARS is informed of any movement, inflows, and outflows, applicable to your tax-free investment(s) for the respective tax year. The transferor institution is required to submit a certificate to SARS, confirming the transferred-out amount. In return, the transferee institution will submit a certificate confirming transferred in amount. If submitted accurately, there won’t be any tax implication.

The onus is on the taxpayer to ensure these amounts are reflected and disclosed as part of their annual submission to SARS. Unfortunately, errors do tend to happen in this regard. Often, the transferor institution may experience technical difficulties in submitting the certificate to SARS, or they omit to disclose the transferred-out amount. When this happens, the transferred in portion is seen as an over-contribution, penalising the taxpayer with tax at 40% of the “over contributed” amount.

This can result in very high, and very unnecessary tax bills. Fortunately, this can be corrected when submitting your annual return to SARS. Please contact your registered tax practitioner for assistance in this regard.

Should you require any further information or assistance, contact Kirsten Mitchell on kirsten@resolutewealth.co.za or +27 11 514 0840

Reminder regarding the submission deadlines for 2023 year of assessment:

23 October 2023:             Non provisional taxpayers

24 January 2024:             Provisional taxpayers