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Tax Free Investment
What are tax free investments:
Section 12T of the Income Tax Act exempts the income of a tax free investment from tax.
Definition of tax free investment according to section 12T(1):
Any financial instrument or policy as defined in section 29A
that is administered by any person or entity designed by the Minister of Finance
by notice in the Government Gazette.
Who owns tax free investments:
The MoF shall make regulations prescribing the requirements relating to tax free investments as per section 12T(8).
Tax free investments must be owned by:
a natural person
the deceased or insolvent estate of a natural person (deemed to be the same as the natural person in respect of contributions made by the natural person)
Exceptions in tax free investment:
Section 12T(2)
Exempt from normal tax
any amounts received or acrrued
to a natural person, or to the deceased or insovent estate of a natural person,
in respect of a tax free investment
Including:
income on the investment
profit arising on the disposal of the investment
Exclusions of tax free investment:
Section 12T(3)
Excludes from the capital gains tax provisions in the Act :
any capital gain or capital loss
in respect of the disposal of a tax free investment
Limitations of tax free investments:
Section 12T(4)
Contributions must be in cash
Max R36 000 contributions in aggregate during any period of assessment
Max R500 000 contributions in aggregate during a lifetime
-
Section 12T(5): Income or proceeds
Exempt from tax
Does not affect contribution limits
Penalties for tax free investment:
Section 12T(7)(a) and 12T(7)(b)
Normal tax at a rate of 40% is payable to SARS on any excess contributions:
The limit for contributions during a period is of R36 000
The limit for contribution during a life time is R50 000
