Could The Tax Penalty For Exceeding Your TFSA Limits Be Worth It?

Is it possible to score from a TFSA
penalty? 

Those of you with TFSA accounts should be familiar with the annual and lifetime limits which apply. As it stands, there are severe penalties for contributing more than R36,000 to your TFSA in a single tax year, and more than R500,000 over your lifetime.

In other words, you are allowed to exceed the limits, but SARS will bring out their big, 40% stick.

I Love Capital Gains Tax

Said no one...ever!

If all goes according to plan, I will be financially free in around 12 years from now.

The idea is that, at this point, I will be able to cover my living expenses by drawing an income from my investments.

This income could come from a number of sources including (but possibly not limited to):

Reducing Your Tax By Investing Offshore

By the time high tide arrives, your
money is gone. 

Like most people, I am all for reducing my Tax bill (legally of course – apparently prison isn’t fun!) So whenever I see a tip or a trick to go one up on the Tax man, of course I get curious. One such Tax hack, which I have seen mentioned a few times, is minimising Capital Gains Tax by investing directly offshore in a foreign currency, such as Dollars (instead of buying locally based offshore products Rands).

So I had a look to see if it was something worth pursuing.

Tax Calculator - Interest vs Dividends

This calculator allows you to input
letters using a numerical keypad. 

If all goes according to plan, my retirement is roughly 13 years, 7 Months and 28 days away (but whose counting?) There is still a fair amount of time to go, and a lot can change - so although not top of my mind, I have recently been giving some thought on how to minimise my Tax burden in retirement.

Naturally you want to pay as little Tax as possible (if there is anyone out there wanting to maximise their Tax in retirement, get in touch!). The first thing I thought I would check out is the Tax efficiency of Interest Income versus Dividend Income.

How We Cheated On Our TFSA's

Why you should never play poker on
safari. Doh! 

Ok it's confession time - we cheated...

Next week (February 28th) is the end of the 2016/2017 Tax year. That is the last date people can make deposits into their TFSA accounts for the year, and then hopefully hit their annual R30k limit.

My wife and I have a TFSA each, which means we can contribute a combined total of R60k for the year. We came close-ish this year, but we didn't quite make it.

So we had to cheat.

Section 12J Investing

Stamp of approval. 

Section 12J - Sounds like a province in an ultra futuristic society:

Residential address?
Unit 0x15
Section 12J
South Africa

I hate to disappoint, but Section 12J refers to a section in the Income Tax Act. *Yawn* what could be more boring than that? However it does allow for tax free investing and is another way you can go one up on the Tax man. Ok so maybe it is not so boring after all and in fact it makes this post way more interesting than any futuristic society could ever hope to be :)