Issue: March 2013 / May 2013
Welcome to Isas
Tax-incentivised individual savings accounts will be introduced. Details to follow.
Virtually under the radar – so little attention did it receive in immediate analysis of the 2012-13 Budget – was a single sentence that deserves closer scrutiny. “Tax-preferred savings and investment accounts will be introduced in 2015,” Finance Minister Pravin Gordhan announced.
Thus comes the addition of a vehicle to encourage household savings. It is amongst the proposals for consultation, Gordhan said, “before we introduce the necessary legislation later this year”.
Envisaged is a savings and investment product, to function as a wrapper, where all investment returns from income, dividend and capital gains will be exempt from tax. Contribution limits will be R30 000 a year to a lifetime ceiling of R500 000, regularly adjusted for inflation.
In other words, it would seem, a minimum of R30 000 must always remain in the account. This would also be the maximum that can be invested annually, until a R500 000 maximum is accumulated.
It could also be that there are no restrictions on tax-free withdrawals from the account, or for investment by spouses into the same account. For example, by working members of a family each to contribute portions of their annual salaries to cumulatively reach R30 000, the household would enjoy optimal advantage.
At this stage, a paper released with the Budget elaborates, the two broad categories proposed for inclusion are interest and non-interest bearing products. Possibilities are:
Following public comment on the series of discussion papers on retirement-fund reform released last year by National Treasury (TT Dec ’12-Feb ’13), Gordhan is moving to implement key proposals.
Specific to trustees on fund governance, the Financial Services Board circular PF 130 will be revised and elevated to a directive. A draft will be published for comment later this year. In addition:
Attention is also drawn to the Financial Services General Laws Amendment Bill currently in Parliament:
This sort of account has proved popular in the UK where it’s commonly described as an Isa (individual savings account). Not only was it recently extended to cover shares listed on London’s Alternative Investment Market (similar to the JSE’s Alt-X), and so intended to stimulate smaller enterprises, but it has provided a better inflation hedge for cash that earns no interest when left on call and is taxed on the minimal interest in money-market instruments.
Gordhan . . . serious about savings
In the current tax year, the annual Isa allowance has risen to £11 280 of which £5 640 can be held in cash. Parents and guardians may also contribute up to £3 600 a year into a “junior Isa” for children under the age of eighteen. It’s estimated that a married couple fully using the Isa allowance from 1999 would have sheltered £225 000 from tax.Quite probably, Gordhan’s proposal derives from the UK model. In the consultation process, Isas are likely to be further studied for SA adaptation. If the new product can provide a fillip to both household savings and enterprise development, so much the better.