The long-run after-tax difference between a TFSA and an equivalent taxable investment.
TFSA advantage
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TFSA net value
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Taxable net value
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The quiet drag of tax
Put the same money into a tax-free savings account and an ordinary taxable investment, give them the same return, and they will not end up in the same place. The difference is tax, and it works quietly. The taxable account loses a little each year to dividends tax and pays capital gains tax when you eventually sell, while the TFSA loses nothing at any stage. This calculator holds everything else equal, contributing identical amounts to both and applying the same growth, so the gap you see at the end is purely the cost of tax over time.
Over a year or two the drag is barely noticeable. Over two decades it compounds into a sum worth caring about, because every rand lost to tax is a rand that stops earning returns for the rest of the period. That compounding of a small annual leak is why the TFSA pulls ahead the longer you hold.
Three taxes the open account pays
The taxable side of this calculator carries three tax drags that the TFSA avoids entirely. Dividends are taxed at 20 percent each year, the dividends-tax rate this tool applies, deducted as they are paid. When you sell, 40 percent of the gain above the R40,000 annual exclusion is included in income and taxed at your marginal rate, reflecting the individual CGT inclusion rate used here. And interest above the annual exemption, set in this calculator at R23,800 for the under-65s, is taxable too, though the tool does not add interest to this particular model. Treat each rate, inclusion percentage, and exemption as the calculator's assumption and confirm the current figures with SARS.
Two decades at R36,000 a year
Run R36,000 a year for 20 years at an 11 percent total return, a 3 percent dividend yield, and a 36 percent marginal rate. Across those years you contribute R500,000 in total, hitting the lifetime cap. The TFSA grows untaxed to about R2.24 million. The taxable account suffers dividends tax every year and then capital gains tax on the roughly R1.56 million gain at sale, an extra R219,544, leaving about R1.85 million. The TFSA ends ahead by close to R396,000.
| Step | TFSA | Taxable |
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The contribution caps you cannot ignore
The TFSA is not a free pass to shelter unlimited money. You may contribute R36,000 a year and R500,000 over your lifetime, and this calculator enforces both. Exceed them and SARS levies a 40 percent penalty on the excess contribution, which is punishing enough to wipe out the entire tax advantage and then some. So a TFSA is the first R36,000 of annual investing, not the place for a windfall. A frequent and expensive mistake is moving a TFSA between providers by withdrawing and redepositing, which counts as a fresh contribution against your limits; the correct route is a provider-to-provider transfer that does not touch your room.
This is why most people use both vehicles in sequence. Fill the TFSA first to capture the tax-free growth, then route anything beyond R36,000 a year into a taxable account, accepting the dividends tax and CGT as the price of investing larger sums. The calculator helps you see exactly what that price is over your horizon, so you can decide whether tax-efficient fund choices on the taxable side are worth the effort.
Does the TFSA advantage hold if I might need the money soon?
The tax saving grows with time, so over one or two years the gap shown here is small and the flexibility of either account matters more. Both a TFSA and an ordinary investment let you withdraw, but with a TFSA you do not recover the contribution room you used, and you only get R36,000 of fresh room next year. For genuinely short horizons the tax difference is minor; the TFSA shines over a decade or more.
Why does the taxable account still pay tax if I never sell?
Because dividends are taxed in the year they are paid, regardless of whether you sell the underlying investment. Capital gains tax only triggers on disposal, but the 20 percent dividends tax modelled here is an annual leak that happens whether or not you ever sell. That is the drag the TFSA removes from year one.