The preamble of the regulations, which should be read in conjunction with s12T of the Income Tax Act, No. 58 of 1962, provides some insight into the government's objectives in introducing tax-free investments, namely to enable providers of of financial products that:
In support of the government's objectives, there are certain compliance requirements that financial product providers will have to adhere to. A financial product provider will have to advertise a tax-free investment as being just that: tax free. The designation of the tax-free investment must contain the words 'tax free'. A financial product provider may not accept an amount in respect of tax-free investments in excess of the annual contribution limit (R30,000), or in excess of the lifetime contribution limit (R500,000) and has a duty to inform an investor of these limits and the consequences of exceeding these limits.
Where a tax-free investment is subject to a fixed term but no guaranteed return, the financial product provider must disclose to an investor, in a manner that is readily understandable, all charges, fees or similar costs payable:
Any fees charged in respect of tax free investments must be reasonable. If an investor makes repetitive payments of amounts at regular intervals, an issuer may not charge a fee and therefore be penalised if the investor:
The regulations further provide that fees may only be expressed as a percentage of the value of the tax-free investment in certain circumstances, and limits any fees relating to the withdrawal of an amount from a tax-free investment.
The regulations also prescribes the requirements relating to the composition of tax-free investments; for example, where the tax-free investment has exposure to a share, no more than 10% of the value of that investment may be derived from shares in a single company and no less than 80% of any shares must be listed on a recognised exchange as defined in the Act.
Tax-free investments may not be utilised for certain transactions, such as accounts:
In addition, an amount in respect of a tax free investment that has a maturity date must be payable to an investor by any product provider within 32 business days or, other than a tax free investment with a maturity date, must be payable to an investor by a product provider within seven business days after the investor has requested the payment.
At this stage, pre-existing financial instruments or policies owned by investors may not be reclassified or converted into tax-free investments. An investor may further not transfer any amount in respect of a tax-free investment prior to 1 March 2016.
However, it appears to be the National Treasury's intention to expand the regulations next year to allow individuals to transfer any amount in a tax-free investment from one institution or financial product provider to another.